Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Thursday, June 08, 2006

To Put it Mildly...We Have Too Much Supply

This bubble crash update brought to you by Marketwatch...

"The slowdown in the housing market is being driven by growing inventories of homes from overbuilding and by speculators leaving the market, Toll Brothers Inc. Chief Executive Robert Toll said Thursday."

'"The housing market is experiencing an oversupply, to put it mildly," Toll said during the luxury-home builder's annual analyst conference."

'"The supply is coming from speculators who bought in 2004 and 2005 who are now sellers, and to make matters worse aren't buyers anymore," he added, noting that many homes built by more aggressive builders also are sitting unsold now."

"As a result, there is uncertainty about the market's direction, and potential buyers are remaining on the sidelines to see how things shake out."

Uncertaintly? Who's uncertain about where this train goes?

'"Since the early 1990s, there hasn't been one straight boom for housing, but instead high market volatility," commented Fred Cooper, Toll's senior vice president of finance. Housing starts have dropped several years during that period, and the Federal Reserve has been raising interest rates partly in response to housing-bubble jitters."

'"We recognize we're in a bumpy time right now in the market," Cooper added."

"So far this quarter, Toll Brothers has repurchased about 1.65 million shares through Wednesday. About a quarter of the firm's shares are held by insiders, executives said."

'"We've been using excess cash flow to repurchase stock, and will continue to opportunistically buy back more," said Joel Rassman, chief financial officer."


At 6/08/2006 09:35:00 PM , Anonymous Anonymous said...

Great graphic, athena, as always.

I guess the only embellishment I can imagine is a great big bare foot, with ink on it pledging allegiance to TollBrothers or a HomebuilderIndex, as it painfully treads on all that excess Monopoly(tm) inventory a second before the light goes on.

Ah... I loves me da metaphor

At 6/08/2006 10:49:00 PM , Blogger Athena said...

Love the bare foot idea. Can you do that graphic? I am creatively challenged! I tried having the monopoly guy pulling the houses out of his pockets... but well, like I said... I am creatively challenged. :-/

I think these guys need to all get together and talk... Toll says there is an oversupply, to put it mildly... oh to be sitting within earshot when he puts it bluntly... and that guy from coldwell banker etc.. insists there is not enough supply to meet demand. The realtor in Sonoma claims there are many qualified buyers who are just put off by crappyass houses...

personally... I think my money is on Robert Toll... he seems to at least be trying to tell Wall Street how it is... I have a feeling he knows it is going to get a whole lot worse before it gets better, hence rolling the truth is sugar.

At 6/08/2006 11:17:00 PM , Anonymous Anonymous said...

hey 'thena-- alas, your mad Photoshop skillz are likely to outstrip mine.

But I think you hit a nerve... the true renter envy is not a jealousy borne of paying a property manager versus paying a (probably nervous) bank collections center, but rather, a misplaced desire to be a fly on wall at Bob Toll's, or General Lyon's, or Vahak Hovnanian's dinner table, when those many eyes might sense the extra beads of perspiration that betray the warm gas that emanates and resonates so confidently. The poor insect doesn't give proper appreciation to waveforms like "effing Fed" and "shi-itbag-flippers," at least not like you and I could. What a pity...

At 6/09/2006 05:56:00 AM , Anonymous tom stone said...

i how does toll explain the stock purchases to his shareholders? didn't he dump millions of shares last year...while pumping up the market? essentially selling most of his stake to the bagholders who are now having their stockprice inflated by repurchases?and could perhaps the corporation be better served by having cash in hand during a market crisis?

At 6/09/2006 09:31:00 AM , Blogger marin_explorer said...

Oversupply: the builders can debate about it, but the effects are already here.
Comparing a bunch of Sonoma co. mls listings yesterday to my experience last fall, I'm generally seeing much more house for the same price, with many recent reductions (according to Ziprealty). The exception appears to be eastide Sonoma, aka "The New Sausalito™"--sans bay views of course! What is it about that place?

The recent buzz about Toll and other builder stock strikes me as rather late. Judging by trading volume, it looks like somebody hit the exits in January-Feb. When Joe Six-Pack wakes up, he'll already be shorn; dot-bomb redux.

At 6/09/2006 10:57:00 AM , Blogger Athena said...

Reskeptic... I am going to be real blunt, and very un-pc. East Side Sonoma is the mexican free zone. So people pay a premium for that service.

At 6/09/2006 11:53:00 AM , Blogger marin_explorer said...

"East Side Sonoma is the mexican free zone..."

...ironically a stone's throw from General Vallejo's barracks and the Mexican mission. Vestiges of that first white-flight movment, the Bear Flag revolt?

I think you're dead-on. Unspoken but true, I'm sure that applies to Marin as well, and probably accounts for disparaging views of Novato.

At 6/10/2006 06:46:00 PM , Blogger moonvalley said...

well, about the Eastside of Sonoma and being all un pc and all..we're currently renting up in the hill above the Mission Inn. Every single one of our neighbors has been here for at least 15 years, except for the people building the monster house across the road. We moved here from 2nd Street East, and though one has to drive past some funk on 12 to get here, once on the hill it's beautiful and private. We were talking RE with one of our neighbors, an old timey Italian who owns a good chunk of this valley, a couple of hotels and a ton of rental properties and he just shook his head about what's going on. He figures a lot of these people just aren't going to make it.A lot of them are already struggling, sez he. Of course his family bought it all up when it was like a nickle an acre, now that's the way to make money on rental properties. BTW, I heard again that the place we used to rent, which was sold to the developer who was going to build mc mansions on it, still hasn't closed yet. Wonder if someone's getting cold feet. That's the sorrow of the Eastside, living cheek by jowl with some butt ugly house, paying through the nose for no privacy, even if when one first bought there were nothing but pristine fields around one. Who will tear down the flipper cities once they fail to sell, or will all those McCastles turn into boarding houses?
PS..that former neighbor who's buying the flipper house is coming up here tonight. I will have dirt to report.

At 6/10/2006 06:49:00 PM , Blogger Athena said...

awesome! can't wait to hear the details. I am feeling unmotivated.

At 6/10/2006 07:17:00 PM , Blogger moonvalley said...

Athena, look at what my buddy GU wrote..what the hell is he smoking???
The report discussed the San Diego region's status as one of America's least-affordable housing markets. It said the cost of a median-priced home locally now equals about 10 times the median household income.

"Despite the lack of affordability, G.U. Krueger, a housing economist in Irvine, said sound economic fundamentals will prevent the region's home prices from dropping steeply.

“It is really hard for me to believe that home prices will drop dramatically when economic growth is still relatively good in San Diego,” Krueger said."

At 6/10/2006 07:19:00 PM , Blogger Athena said...

maybe your buddy needs a refresher course on the definition of fundamental.

I would say his pot is cracked just because he stated the cost of a house is ten times the income, but economic fundamentals will keep the prices from crashing.

bwahahahahaha... and what fundamentals would those be being the leading measurement has lost all sanity?

At 6/10/2006 07:31:00 PM , Anonymous tom stone said...

hi athena,too much partying?i went to another brthday party today,talked to a nice lawyer!! who was there with her daughter,she and hubby bought a nice place in sebastopol last year...started talking real estate,said she and husband refied home in novato to come up with downpayment,didn't know what kind of loan that was sd thinks they have fixed on new home but not sure.....this is a freaking attorney,hubby a stockbroker...and don't know the terms of the million dollar loan they took out a year ago! they bought 4,000 sq ft home on 5 acres,beautifully remodelled...she said "i'm an attorney,but i didn't understand a word the loan officer said" she asked me if the loan officer lied to her...i told her more likely that the loan officer didn't understand a word they said either...and told i'd charge a cup of tea and a muffin to go over it with her.where did all these guppies come from? how did they survive long enough to breed? these people exist in a universe i have never even visited.

At 6/10/2006 07:35:00 PM , Blogger Athena said...

well their universe sounds like a very interesting place to visit, but I wouldn't want to live there.

why am I not surprised at their folly?

At 6/11/2006 09:12:00 AM , Blogger Athena said...

REskeptic said...
"East Side Sonoma is the mexican free zone..."

...ironically a stone's throw from General Vallejo's barracks and the Mexican mission. Vestiges of that first white-flight movment, the Bear Flag revolt?

I think you're dead-on. Unspoken but true, I'm sure that applies to Marin as well, and probably accounts for disparaging views of Novato.

Ironic isn't it? Very true I think.

At 6/11/2006 11:36:00 AM , Blogger moonvalley said...

Well, our former neighbor came over last night. He bought the house...for the magic number of get this 666k..I made a mark of the beast remark which I don't think he got. I asked whether he closed on 6/6/06?
One of the partners is an RE agent with a place on the plaza whos' name will not be mentioned here. One of the other partners is putting in sweat equity, except for our pal who is also putting in money.
I don't see how these people are going to do it, as the flippers haven't even rented out their present place here in town yet, and they've just re-fi'ed to buy out the partner they had in their city (SF) place.
How did these guys ever qualify for a loan? Oh, of course I shouldn't even ask that question since this is the land of voodoo financing.
Anyhoo....he's going to live in the "guest unit/garage/whatever" and make it over into a granny unit. The F''s are going to live in the big house, with the three bedrooms. I don't know how all this is going to work out but we'll have front row seats with which to test our bearish theories.
I have to add , this friend who is totally unsophisticated is all matters computer, was sitting around with us last night ad we were explaining the art of search engines to him. my husband said, just ask a question, we'll find the answer and show you how it works. We were expecting something on the order of the GNP of Togo or something like that. He asked...."What's the best city to invest in Real Estate and make money?"
the answer....this is what came up.

At 6/11/2006 12:35:00 PM , Blogger moonvalley said...

Just wanted to add one more nugget here. There's a large oldish house on west Spain, about 5th west I think. Anway a For Sale sign went up on it a few months ago, followed by a Sold sign, followed by an in escrow sign, followed by a Sale Pending sign, then nothing. That sign went down, now replaced by a For Rent sign. The place is large and empty. Anyone know what's up there?

At 6/11/2006 03:37:00 PM , Blogger Athena said...

wow MV! Great scoops. well, we will see how it turns out, I guess we are in for the full As the Flippers Turn show... I wonder how long the minidrama will run?

The W. Spain house... I saw that too and was going to see if you knew what was up with it...?

At 6/11/2006 04:08:00 PM , Blogger moonvalley said...

the other note that I didn't mention was that he came over having bought a painting. Let's just say thathe paid waaaay too much for it. It was a charming scene of a moonlit cottage a quiet pond, a fulll moon, lovely trees. Lights were glimmering in the windows. Why did he buy it? It symbolized home to him sez he. No wonder he overpaid for that dump. Hopefully it'll hang on the walls there long enough for him to enjoy it.

At 6/11/2006 07:13:00 PM , Blogger Rob Dawg said...

Nice comments but we honestly don't have anywhere near enough supply. We'll not even have barely enough supply when sellers are accepting prices replecting moderate appreciation over the period thay've owned. We'll have almost enough supply when investors are losing everything. We'll have exactly enough supply when people having bought 2002-2007 uniformly lose money. "Too much supply" will only be when owning is cheaper than renting.

At 6/11/2006 11:06:00 PM , Anonymous Anonymous said...

"we honestly don't have anywhere near enough supply..."

Anywhere = nowhere.
Price corrections are already underway in Sonoma county; supply ~ prices.

At 6/11/2006 11:09:00 PM , Blogger Athena said...

I think it will help out the supply issue quite well if and when we do decide to buy we all tell our realtors not to show us anything purchased after 2001.


At 6/12/2006 09:36:00 AM , Anonymous tom stone said...

it appears to me that the supply has just begun to increase...many speculators have yet to put their "investments" on the market...and a lot of new stuff will be coming on the market this summer,just as demand is waning.demand can come and go a lot more quickly than inventory,and by this fall their will be very few a sense it doesn't matter if there are 1,000 or 5,000 homes for sale in the county,what counts is whether there are willing and able buyers at or near the asking price.once the mood of the buyers changes,the tide has turned and all the blather of the nar won't change things, markets are not rational!

At 6/22/2006 06:28:00 AM , Blogger Mayapix said...

I like to follow the market and I love Sonoma. Thinking about buying there. I'm not sure I understand why you are "pro" bubble.
By the way, I do understand the meaning of fundamentals! Fundamentals are things like job growth, income growth, population growth, & high-end industries such as Pixar. I also have a lot of respect for some housing analysts. The great ones are GU Krueger and John Karevoll; Krueger is always the voice of reason when others think the sky is falling.
My husband would like to contact these guys. Maybe I can reach them through a contact at CNN.


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