Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Wednesday, April 19, 2006

Business is Tough

"Bay Area home prices rose by less than 10 percent in March, the first time in more than two years that appreciation rates dipped into the single digits and further evidence of a gradual slowdown in the region's once-blistering housing market."

"The number of houses and condos sold, meanwhile, declined for the 12th consecutive month, as recent interest rate increases put a damper on buyers' spending power. A total of 9,745 homes changed hands last month, nearly 14 percent below March 2005's tally of 11,310."

“Sales were down 22.7 in Napa County, 22.5 percent in Solano County, 18.7 percent in San Mateo County, 17.5 percent in Marin County, 15 percent in San Francisco, 14.9 percent in Alameda, 12.2 percent in Sonoma County, 11.7 percent in Contra Costa County, and 8.9 percent in Santa Clara County.”

“The year-over-year decline was the twelfth in a row.”"The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $2,958 in March. That was up from $2,889 in February, and up from $2,636 for March a year ago. Adjusted for inflation, mortgage payments are 18 percent higher than they were at the peak of the prior cycle sixteen years ago.”

The Foreclosure Report
"California reported 11,073 properties entering some stage of foreclosure in March, the second most of any state, and the state’s foreclosure rate registered slightly above the national average thanks to a 22 percent increase from the previous month."

"In February, there were 3.03 million previously owned homes for sale, a level not seen since 1991, when 1.91 million homes were up for sale, according to the National Association of Realtors."

“Business is tough. The inventory of available properties has increased,” said Martin Bouma, a real estate agent. “You are looking at (the number of) buyers going down, and inventory is going up.”

"Spring is typically the busiest time of the year for home sales. But with mortgage rates rising and sales slowing, sellers find they have to work harder to get a sale."

"The first signs of an ebbing in demand appeared last summer and have continued into this year. Applications for home loans, a gauge of future home sales, are down 20 percent from last year, according to the Mortgage Bankers Association."

"The process of selling a home, meanwhile, is taking longer, a trend reflected in heightened demand for lengthier rate locks, a guarantee offered by lenders to keep the rate on a mortgage at a set level for a certain period. In recent years, rates for mortgages were guaranteed for 30 to 45 days because homes could be sold quickly. Now, borrowers ask for 120-day rate locks."

"While some homes can be taken off the market place by their owners, home builders cannot afford to hold on to empty homes. So, some have offered their own incentives, such as helping to pay mortgage closing costs or upgrading kitchen appliances."

"“You can have the biggest circus on the street, but it comes down to price and having the right price,” said Bouma."

"Maria Janeidas, an information technology consultant based in Manhattan, looked at about 24 homes in six weeks on the north shore of New York’s Long Island, but didn’t find any bargains."

'“There is still a disparity between what a seller believes their home is worth and what buyers are willing to spend,” Janeidas said."

Voice of San Diego
"California's wealthy investors are choosing to invest less and less in real estate, a trend that local experts say should serve as a beacon to all real estate investors."

"In San Diego, financial advisors who work with some of the region's wealthiest people are advising their clients to sell their investment properties. After a monumental run-up in home prices, they say, their clients are weary of holding onto investments too long and repeating the past mistakes of the dot-com bubble."

"Nationwide, only 21 percent of wealthy people who plan on making additions to their investment portfolios intend to invest in real estate, according to data collected by the Phoenix Affluent Marketing Service, a New York-based market research and consulting firm. That figure is a lot lower in California, where only 16 percent of wealthy investors said they would be buying more real estate, down from 21 percent a year ago."

"If wealthy investors are choosing not to rely on real estate for a good return, their decision is probably based on sound economic advice. Most wealthy real estate investors have made a good profit on their properties over the last few years, but as price increases slow, sales drop and inventory spikes, many of those speculators are choosing to invest elsewhere in order to avoid any risk of a downturn in home values."

"The message some financial advisors in San Diego are giving wealthy investors is clear: Those clients who can afford to sell their investment properties should do so."

'"If you have an investment property, this is a wonderful time to get the heck out," said Richard Ashburn, an investment manager and financial columnist in La Jolla."

"Ashburn said that unless a residential property is paying for itself through the rent it is generating, an owner should sell. Any owner paying $1,000 or $2,000 a month to cover the mortgage payments and taxes on their investment property should realize that it's time to get rid of that investment, he said."

'"If you're in a negative cash flow situation, you're nuts to hold onto it," he said."

Yahoo News
"According to the latest Experian-Gallup Personal Credit Index(SM) survey, 71 percent of consumers say it is likely that a housing bubble and collapse of prices could occur in the United States within the next year."

"Twenty-four percent say such a housing bubble is not likely. In contrast, a much smaller number of consumers, 32 percent, expect the collapse of a housing bubble within their own area in the next year, and 65 percent say it is not likely."

"A third of homeowners have a home-equity loan or line of credit. The main reason for taking out an equity loan or line of credit was to finance home improvements, mentioned by 43 percent of borrowers. Another 10 percent cited debt consolidation as the reason for such a loan. Credit card debt, mentioned by 4 percent of borrowers, followed by an emergency (4 percent), education expenses (3 percent) and medical expenses (2 percent), round out the specifically named reasons. Another 30 percent cite some other reason."

'"Increasing home prices and the ability of consumers to cash out their growing home equity has been a key driver of consumer spending over the past several years," said Dennis Jacobe, chief economist for The Gallup Organization. "As the housing market slows and housing prices stabilize, consumers are less likely to draw on their home equity, suggesting consumer spending will also decline."'

"Consumers became more negative about their credit situation this past month, as the Experian-Gallup Personal Credit Index declined by nine points to 84. The decline comes equally from concerns about the present and future. Only 15 percent of consumers say now is a good time to borrow more money, down from 20 percent last month. Future concern about extending debt also contributed to the drop in consumers' feelings about their credit, making the debt extension issue -- now and in the future -- account for more than half (five points) of the overall nine-point decline in the index."


At 4/19/2006 06:41:00 PM , Blogger Bubble-X said...

70% think it's a bubble? Sounds like headline news. Can we hear more about that?

At 4/19/2006 06:47:00 PM , Blogger Athena said...

the best part though... did you see the stat that 32% think a housing collapse could happen in their area? But... 65% don't think it will happen in their area?

How much you wanna bet these questions were asked IN the biggest bubble areas?

Oh- don't forget the 24% that don't believe there is a housing bubble.

I think sonoma county must account for all the people that make up that 24% group. ;-)

You know, it doesn't actually surprise me how unaware people in Sonoma are about the bubble and the current state of the market... I look at the traffic on this blog and hundreds of people show up here all day and even the wee hours of the morning... hundreds... and they are from all over the place. A lot of readers in NYC and Washington D.C. and in the major cities... Chicago, LA etc...

but I get like 6 people from Sonoma county reading here. go figure. But that's why there are still so many espousing that real estate never goes down, and prices won't fall in sonoma county. I guess they just don't read... aren't internet savvy, or just plain not interested in economic fundamentals in general.

At 4/19/2006 07:45:00 PM , Anonymous tom stone said...

it is denial,athena,i saw the bubble 2 weeks after i got my real estate license last year,and haven't bullshitted anyone about it since...i have spoken to cpa's,investors,real estate agents,and loan brokers who deny that there is a bubble,some of these people are smart (most are stupid) but they can no more see the facts than an alcoholic or feels peculiar talking to them at listening to w,almost.

At 4/19/2006 08:52:00 PM , Blogger moonvalley said...

One property that has evidently sold is our old rental at 230 Second Street East. 2 Acres, they were asking 4m. The property is truly special and has a rather Howards' End quality. Our landlord died late last year and his family, (who live out of state) and hate the property ,just want the money.
They held a RE caravan, what we in Hollywood would call a clusterf****The place was wall to wall brookers and lookie lous, as it was generally understood that everyone wanted to get onto that property and see what was actually there.
We heard that it was sold within two days, for 3.7m to a developer, who plans to build 4 luxury houses on the property and sell them for 2.5m apiece. There was a back up offer, from a family from SF, offering the full 4m, who wanted it for a family compound absolutely adored the place, and wanted to keep it as it is. We were rooting for them. We'd thought many times of buying the place ourselves at some time. We thought maybe 1m..or 1.5...not 4!
The family accepted the developers offer, some family memebers who'd rather see the place stay intact thought that the RE agents were looking down the line at being able to collect commissions on 4 more sales rather than just the one and so didn't encourage the second offer for more money.
As it stands now, the developers' offer might be a little rubbery. Part of the property floods every rainy season. Not exactly house building material. The neighbors across the street are saying they want to stop it, the other family still wants to live who knows how it will all shake out.
Meanwhile we're in our new 850k to 900k house, (renting) the furniture from our old 4 bedroom house in Santa Monica has arrived , we're swamped in boxes and figure that sometime after the next 18 months things will be down enough to get into house buying again.

At 4/20/2006 12:02:00 AM , Blogger Athena said...

You may be right Tom... we do get about 6 readers from Sonoma County here besides you, MV and me... and yet, we are the only Sonoma county people I know talking about the reality of the market. Maybe it is denial, maybe it is being uninterested in rolling around with information... maybe it is both... but still... there is no reason for such willful ignorance in the information age.

MV... WOW... well good luck to that developer. I suppose if he is building high end he at least is targeting the purchasing group that isn't buying to be part of a market, but just because they want the property for their use and money is no object... those people will still exist even at the bottom of the market. I hope he has the funds to actually float the development rather than thinking like a speculator.

At 4/20/2006 01:10:00 AM , Blogger marin_explorer said...

32% think a housing collapse could happen in their area? But... 65% don't think it will happen in their area?
How much you wanna bet these questions were asked IN the biggest bubble areas?

Do you suppose everyone thinks their own town is better positioned than elsewhere? Judging from what I hear down in Silicon Valley, people are still buying/selling, supposedly "untouched" by the bubble; the confidence is palpable. Perhaps real estate is inherently stronger in some areas--or perhaps it's simply their perception of SV, Marin, Sonoma--take your pick. If the latter is true, could it be these areas are actually more unstable than towns where the outlook is more negative?

At 4/20/2006 09:09:00 AM , Blogger Athena said...

I would think the pockets of denial would make the area more unstable... because it would cause more frustration for sellers who don't realize the market has changed and make for more panic as it sets in... And it would also lend itself to more buyer's remorse and panic when the property values do fall... and it would make more people putting their house up for sale quickly to avoid losing money if they bought for investment return rather than a place to live... the more unaware of the market they are, the more likely they will act on panic impulse.... so in my opinion... yes, the areas where they feel immune to the bubble would be more unstable.

however, unless they are speaking from a market where there was little to no speculation investment purchasing... if the people in an area bought to have a place to live and could afford their payments- then I think an area like that would be more stable and resistent to the market downturns.

At 4/20/2006 10:02:00 AM , Anonymous tom stone said...

i live west of sebastopol (renting,of course)and a majority of the people i speak to in sebastopol do not believe prices will drop.however there are so many people who have tapped out their equity with refi's and helocs,or who bought with option arms or i/o loans in the last 4 years that it is going to get ugly... too many people on the edge and the first few distress sales and foreclosures are on the way,dropping comps and starting the big squeeze...and panic.right now it's "i'm special,and i live in a very special place" the truth is they need "special" education and are about to get it.

At 4/20/2006 10:33:00 AM , Blogger moonvalley said...

if he is building high end he at least is targeting the purchasing group that isn't buying to be part of a market, but just because they want the property for their use and money is no object.
True, but if I were spending 2m, I wouldn't want it to be for a 1/4 of an acre where I could see my neighbors' house.We lived in the Malibu Colony for a while,I've seen tenements with more privacy. People don't move to Sonoma to look in their neighbors windows.

At 4/20/2006 11:54:00 AM , Blogger Athena said...

That is true MV... people don't move there to be handing their neighbor tp through the window of their 2million dollar mcmansion... so perhaps this developer will be crying in his beer when he realizes there really isn't much of a market for the million dollar tract home.

Tom... that is correct. I think this market correction will be quite an education for folks in our area. Especially the ones who have refied themselves up to their eyeballs... these are the very ones listening to the wrong industry professionals about the future of their property values.

At 4/20/2006 12:28:00 PM , Blogger Athena said...

So I often have conversations with friends in Sonoma about the state of our bubble... and I ask things like: "what makes you believe prices won't go down here? what is it that you think is justifying these ungodly, unsustainable price increases that fly in the face of all of sonoma's economic reality and history?"

I point out the lack of jobs, the service industry, the unbelievably low household income, and how out of whack that is with housing prices... and I get responses like:

We have a lot of rich people here... Oh ya, I say... and why isn't their bankwad reflected in the household income stats. Then they say, we have a lot of telecommuters... again... it can't be too many or their high income salaries would be reflected in the household income stats.

then... we have a lot of rich retired people here, and more are coming all the time... we don't need to have jobs or things like that because everyone wants to live here.

Well... it appears every place really does say the same thing about themselves, and I figured the 6 readers from Sonoma County might want to see what Arizona says for itself.

(comment shamelessly stolen from the

Desert Dweller
2006-04-20 10:29:29
I visited a Richmond American development in AZ a couple weeks ago. Their realtor is showing us a spec home that I told my wife was too expensive. This guy hears me and immediately says “na, just go neg-am, everyone is doing it”. After explaining to him how ridiculous neg-am mortgages are, he goes on to tell me how Arizona property will never go down, that it’s a retirement state, and that we don’t need an economy or jobs to sustain the market. LOL.

Apparenly Arizona thinks IT is the promised land and they are the chosen people too... I hear Marin believes the same thing... and so does the whole of Silicon Valley, and so do all the suburbs of Silicon Valley, and Bakersfield... read that again... Bakersfield thinks IT is the promised land... and also so does all of Southern California, and Boston, and NYC and all of Florida...So what is it Sonoma county? How exactly is it different here?

At 4/20/2006 01:24:00 PM , Blogger marin_explorer said...

Arizona property will never go down

Does this guy have any clue how much excess housing exists in AZ? It's almost too much to accurately count.

At 4/20/2006 02:26:00 PM , Blogger Athena said...

I know... so I guess to bring a little education to folks... perhaps we should just go ahead and print all the quotes of every market that thinks it is different there...

At 4/21/2006 12:44:00 PM , Blogger marin_explorer said...

In response to "Arizona property will never go down", here's some actual figures on Arizona inventory. As an example, let's just look at the greater Phoenix area (Maricopa and Pinal counties).
8/1/05 inventory: 11,920
4/20/06: 43,054
That's a 261% increase.

At 4/23/2006 01:37:00 PM , Blogger Athena said...

Keep those stats coming ReSkeptic. Does it ever make you wonder why the average Joe doesn't ask for these stats when a realtwhore is talking to them? I mean, they KNOW the person is trying to sell them something... so wouldn't anyone with basic critical thinking skills ask for the actual numbers before buying the party line, hook, line and sinker?


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