Step two... Believe in a Big Fat Meltdown
Or... as the very wise Tom Stone says:
"Come to believe in a power greater than yourself that can foreclose on your house!"
"Experts who say the housing market is cooling, but won't implode, argue that solid job growth should be enough to prevent a collapse in home prices. But others who see a housing "bubble" ready to pop say a developing slowdown in home building itself could hurt job growth enough to put a big dent in housing."
"The economy was healthy when the stock market plunged in 2000," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington and an outspoken advocate of the housing bubble theory, but stock prices "had gotten out of line with reality."
"Among those most worried about the real estate market are home builders themselves. The National Association of Home Builders saw its index of builder confidence sink last month to the lowest level since 1995, save for two months right after Sept. 11."
"Nearly three out of four builders reported more homes on the market in their areas and about one in five reported a jump in new home orders being cancelled. About three-quarters also reported a drop in purchases by people buying homes as investments."
"Recent government figures show that about 1.5 million homes were vacant in the first quarter, most of those presumably up for sale, a 17 percent increase from a year earlier. The 2.1 percent vacancy rate was the highest on record since the government began tracking it in 1994. It was also the fourth straight quarterly increase."
'"When you see it increasing quarter after quarter, there seems to be something going on here," Baker said. "We're building more homes than are being filled."'
'"You have to look at how much more inventory has been put on the market and what impact that could have on pricing," said John Tomlinson, analyst with Majestic Research, an independent research firm.
"We've been building too many homes in a market maintained by speculation. And job growth is not going sustain that."
Remember this information from a previous post?...
"Financial activities have helped fuel a fast-growing sector UCLA Anderson calls "informal jobs" -- people who work for themselves, such as real estate agents and mortgage brokers. California now has 1.6 million informal workers, up 500,000 since 2000, the report said."
"As residential building and remodeling slow markedly, about 200,000 construction jobs will disappear, the forecast said. Construction has contributed almost a quarter of all new payroll jobs in California in the past two years."
"Jobs in real estate and mortgage banking also will start to dry up. Like construction, this sector has boomed in sync with the housing market. Financial jobs, particularly those in the mortgage industry, have been a strong source of job growth in recent years."
"Our experience says prices do not go down when there's job creation in the local economy," said Yun.
"What we had in the past couple of years was an unprecedented frenzy of activity," said Lawrence Yun, senior economist for the National Association of Realtors.
"That's what we're seeing: A decline from a frenzied, unsustainable rate."
Well, then there is Sonoma County where the job growth will not sustain the prices in this real estate bubble driven economy.
Remember this?... "Employment peaked in Sonoma County in 2001 at the end of the tech boom when the county had 196,700 payroll jobs. By 2003, the economic downturn had wiped out 7,600 of those jobs, based on average annual employment. Through 2005, only 2,400 had returned."
"Some companies are hiring. Fred Coleman, assistant to the human resources manager at American Home Shield in Santa Rosa is adding up to 16 new customer service representatives a month at its West Coast headquarters in Santa Rosa, with wages starting at $13 an hour, Coleman said."
"Throughout much of 2005, monthly reports suggested Sonoma County added about 1,000 jobs last year over 2004. But economists suspect that may be revised downward ..."
"It's almost like last year was a complete write-off," Robert Eyler, director of the Sonoma State University Center for Regional Economic Analysis said.
"We're right back where we were last January." And economists are mostly forecasting more of the same in 2006.
* It is estimated that 60% of the new jobs added between 2001 and 2003 were lower-paying service jobs that are below the county’s average wage of $40,000 per year.
• Fifty-eight percent of new jobs between 2003 and 2005 paid below the average wage.
• The number of jobs in the county is still 3.3 percent, or 6,500 jobs, below 2001.
Last time I checked, $13 an hour service sector customer service jobs won't pay the mortgage for the speculation priced houses that were bought in the last few years. There will be price declines here.
"Experts who see a possible meltdown say strong employment isn't enough to support an overinflated housing market."
If experts see a meltdown even if there is strong employment- what are those experts seeing when they look at the Sonoma County employment outlook?
Now throw in the number of risky mortgages in the county due to the known unaffordability issues.
Add to that the greed fueled price increases from rampant speculation by amateurs in Sonoma County and think of the number of people who over-paid for houses they couldn't afford even on a good day. Now let's ask the experts what they see. Can't be good....
"Past housing downturns have seen builders slash their work forces by up to 40 percent, said Baker, the housing market bear, and with an estimated 3.5 million people working in residential construction, the loss of more than 1 million jobs would obviously cause problems for the labor market."
"Add job losses at mortgage firms, building supply retailers and real estate agencies and the downturn in home building could itself further weaken one of the key supports for real estate."