Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Wednesday, May 03, 2006

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."

18 Comments:

At 5/03/2006 09:35:00 AM , Anonymous tom stone said...

came to believe that a power greater than myself could foreclose on my home...for step 3 i suggest "made a decision to turn my will and my life over to the bankruptcy court"?zkxae

 
At 5/03/2006 11:51:00 AM , Blogger Athena said...

bahahaha!!! I love those! The 12 step program for the housing bubble is in progress! :-D Except- think of those poor FB's with the stated income loans that committed fraud who will be caught between a rock and a hard place... what to do, what to do!

 
At 5/03/2006 01:55:00 PM , Blogger moonvalley said...

well, they're going to have to hold Debtors' Anonymous meetings in the Moscone Center after this melt down.

 
At 5/03/2006 08:24:00 PM , Blogger moonvalley said...

OMG! I just wanna cry, while cleaning out boxes in the garage from our recent move I came across a Home GUide For Sonoma Valley, RE magazine from 2000.
Here are the real Sonoma housing prices....my particular favorite, 3 bedroom 2 bath house on the eastside on 2.25 acres, lots of fruit trees...419k!!!!

 
At 5/03/2006 08:27:00 PM , Blogger moonvalley said...

oh, I also love the ads that start out, Anxious Seller..and all the little articles telling sellers how to price their houses lower.

 
At 5/03/2006 10:52:00 PM , Blogger Athena said...

Oh my! Save those! ;-) We may see prices like that again and it will be great to have a before and like before comparison pictures!

 
At 5/03/2006 11:38:00 PM , Blogger moonvalley said...

there's not much above 200k...wow!

 
At 5/04/2006 09:40:00 AM , Anonymous tom stone said...

hi athena,i have suggestions forr steps 4 and 5,step 4,made a searching and fearless inventory of my possessions,and sold them on e-bay.step 5,admitted to god,myself and my bankruptcy attorney,that i lied on my "stated income" loan application.btw i have a great deal of respect for AA and other 12 step programs,i have had close friends and relatives die of alcoholism,and known others who have dramatically changed and improved their lives by working the steps...so if this offends,buy shoes that fit.

 
At 5/04/2006 09:54:00 AM , Blogger moonvalley said...

Tom, me too..and I think that what you say is very apt for these times. Also, there are many deals to be had on ebay.

 
At 5/04/2006 10:13:00 AM , Anonymous tom stone said...

i'm asking for help with this one...i am REALLY sick of hearing "but,everyone wants to live here" i have tried to explain that if true,it is a "desire" and not demand...the analogy i use is"if desire were demand britney spears wouldn't get much sleep".i still get blank looks.if you have a better analogy i would like to hear it,and at this point i do not care if is rude as long as it is not obscene.gffsv

 
At 5/04/2006 01:52:00 PM , Blogger Wickedheart said...

Nah, Tom, can't do better than that one. Hahaha. I am also sick of that one. That and "the rich all want to live in San Diego." I can assure you it wasn't "the rich" who were buying half million dollar homes in my "pocket" neighborhood.

 
At 5/04/2006 03:48:00 PM , Blogger Marinite said...

Step 9: Apologies. Apologize to everyone for helping to run up prices to absurd levels.

 
At 5/04/2006 06:27:00 PM , Blogger Athena said...

I really love those step suggestions! Really! Not offensive in the slightest and the home debtor gambling is a serious problem... but it is healthy that we all have a sense of humor about it while we watch them all fall down.

I will get to working on some posts... just arrived in so.cal for a couple days...and grrrrr having trouble staying connected to the flipping wi-fi and of course the front desk is not answering!!!! so will be spotty on posting. Tom and MV when you want to be able to post topics and such just say the word.

 
At 5/04/2006 06:37:00 PM , Blogger Athena said...

As for the everyone wants to live here dilemma... you know what?

I just say no... and tell them that is what everyone says about where they live, and would give them the rundown that San Diego thinks that, and LA, and SF and Silly Valley, and Fl, and TX and criminy... even Bakersfield says that. The fact is in Sonoma County not everyone wants to live there... there are no jobs... and if people believe that we have a lot of commuters with high paying jobs and that there are a lot of rich people that will always want to move here... remind them that if those people really existed we would have a higher average wage for the county... at this time it is right around $40k per year... so their fantasies may in fact help them sleep better, but the data proves them wrong. If everyone wanted to live here we would have more companies moving here and moving people here and we would have a better economy, and probably would have ADDED jobs since 2001. Read the post a few days ago... we only have added 2500 jobs since 2001. We lost something like 6500

 
At 5/04/2006 08:18:00 PM , Blogger moonvalley said...

The one I'm tired of hearing are that there are soooooooo many rich people out there that Sonoma prices will never go down.
Athena,
you're in SoCal?? Isn't it magica? You know prices never go down there.

 
At 5/04/2006 09:17:00 PM , Blogger Athena said...

yes... in so.cal... and of course it is an enchanted place, doesn't tinkerbell live here? I am sure she has sprinkled some pixie dust upon the chosen people of southern california and of course their property values will be immune from the bust of the bubble. After all... everyone wants to live in so. cal...and there are lots of rich people here, and more moving here every day. ;-)

I did see a big fat bill board just after leaving the airport advertising the opportunity to win a 1.1 million dollar mcmansion... a big white elephant looking chitbox! ;-D was laughing too hard and didn't catch the name of the housing development raffling it off.

 
At 5/04/2006 11:41:00 PM , Blogger moonvalley said...

Hahaha...I remember that billboard. I also remember my house in Santa Monica which lost about half it's value in the early nineties downturn, just in what seemed like the blink of an eye.
and as they say in It's a Wonderful Life everytime a bell rings another Realtor gets his license.

 
At 5/05/2006 12:02:00 AM , Blogger Athena said...

I remember a few friends in Sonoma County who were upside down on their mortgages, declared bankruptcy and had to sell. Took them almost 10 years before they could buy again. I hope this time they have learned their lesson. I did hear one of them was refinancing after I gave one of my saturday morning housing bubble breakfast lectures a couple months ago. She said she was "consolidating" before the interest rates went up. Let's hope she got a good fixed rate.

 

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