Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Wednesday, August 16, 2006

Negative Appreciation for Sonoma County


From SFGATE.com

"Home sales fell sharply nationwide during the second quarter of the year, and California showed the third biggest drop of any state, a Realtors group reported Tuesday. "

"The Realtors group found that volume slowed the most in precisely those states where sales had been hottest. Only Arizona and Florida posted a greater decline than California."

"Realtors association spokesman Walter Molony said the second quarter's results amounted to the slowest pace of quarterly sales in California since the first three months of 1996."

"The pattern of slowing home sales and flattening prices is typical when booms in the housing market end. The nation in general and California in particular are coming out of one of the strongest housing surges in recent history, owing to mortgage rates that dropped to near-record-low levels."

"Economists said it's natural, with rates rising, for sales to slow down."

"Vince Malta, president of the California Association of Realtors, said the sales slowdown, combined with the low, single-digit price increases, suggest that the state's real estate market is in a period of adjustment. The duration and result of that shift can only be guessed, he said."

"David Berson, chief economist for mortgage giant Fannie Mae, said he sees worrisome trends that suggest continued downward pressure on sales and prices from coast to coast."

"For one thing, the inventory of unsold homes on a nationwide level has risen. Berson said that, at the current pace of sales, it would take seven months to sell off all the single-family homes now on the market. From 1999 through 2005, this same indicator averaged 4.5 months."

"Berson said that in many locales, existing sellers also will have to compete with a large number of unsold new homes, roughly 570,000 nationwide as of June."

"We've never had more (new) homes for sale," he said.

"Perhaps the biggest unknown is what happens to the large numbers of so-called nontraditional mortgages -- often favored by new buyers in high-priced places such as the Bay Area -- as interest rates rise, Berson said. Such loans often have features that cause big increases in monthly mortgage payments."

"There could be some sort of payment shock when these things adjust upward," he said.

From Rereport.com

"The median price for single-family homes in Sonoma County fell 3.6% in July from the month before to $592,500. This is 2.9% lower than last July, and the first time since we've been keeping records, January 1999, annual appreciation has been negative."

Sales plummeted in July, down 21.4% from June, and down 40% from last July.

Sonoma County Home Sales:

July 2006: 338
June 2006: 430

July 2005: 563

Condo sales also fell sharply, down 27.8% compared to June, down 52.1% year-over-year. Rereport.com says this is not a trend.

Sonoma Valley July Sales Statistics:

Homes Sold: 25
Down YOY -34.2%

Condos Sold: 4
Down YOY -60.0%

Sonoma Valley June Sales Statistics

Homes Sold: 36
Down YOY -35.7%

Condos Sold: 3
Down YOY -57.1


Sonoma County MLS: 4298
(Bareis MLS)

At the current rate of sales this translates into a 12.71 month supply of homes for sale. This number only represents existing homes on the market, and does not include newly built homes.

# on Price Reduced List: 1502
(ziprealty.com)

Sonoma County listings progression
3/20/06 = 1742
3/26/06 = 1766
4/03/06 = 1888
4/19/06 = 2828
4/25/06 = 2868
4/30/06 = 2898
8/10/06 = 4072
8/16/06 = 4298

Sonoma Valley MLS: 487
(GMAC)

At the current rate of sales, this translates into a 13.91 month supply of homes for sale. This number only reflects existing homes on the market, and does not factor in newly built homes.

# on Price Reduced List: 173
(ziprealty.com)

Sonoma Valley listing progression
2/14/06 = 172
2/14/06 = 183
2/24/06 = 193
2/25/06 = 200
2/27/06 = 214
3/01/06 = 219
3/04/06 = 220
3/12/06 = 230
3/20/06 = 236
3/26/06 = 238
4/03/06 = 268
4/19/06 = 291
4/25/06 = 305
4/30/06 = 315
8/10/06 = 471
8/16/06 = 487


Associated Press. “The slowdown in the once-sizzling housing market is spreading, with 29 states reporting spring sales declines, led by big drops in former boom areas of Arizona, Florida and California."

“The five biggest declines this spring compared to the April-June period of 2005 were Arizona, down 26.9 percent; Florida, down 26.7 percent; California, down 25.3 percent; Virginia, down 23.9 percent, and Nevada, down 23.5 percent.”

“‘We are not near the bottom,’ said economist Christopher Thornberg, a senior economist at UCLA. ‘Anybody who bought a home in the last year and was hoping for appreciation to bail them out is in for a rude awakening,’ he said.”

From the LA Times.

“As the housing sector cools from its torrid pace, the Fed found that about 60% of respondents saw weaker demand for mortgages, which was ‘a significantly larger net fraction than in the April survey,’ the report said.”

“Nearly 30 percent of banks, on net, indicated that they expect the quality of the nontraditional residential mortgage products currently on their books will deteriorate somewhat over the next 12 months,’ the Fed survey said.”

15 Comments:

At 8/16/2006 02:03:00 PM , Anonymous Anonymous said...

Athena,

really appriate your insight. One question, where do you get your numbers about Sonoma MLS?

You indicated Sonoma Valley has 487 active listing, yet I check www.ziprealty.com, and I only see 357? Are you including all contingency-show, pending and probate? Your site is the only one I see dedicated to Sonoma county, and it gives us another view away from Realtors, so Thanks!!!

Thanks.

 
At 8/16/2006 02:10:00 PM , Blogger Marinite said...

"Ouch time".

 
At 8/16/2006 04:21:00 PM , Blogger Athena said...

Hi Anon. I got the Sonoma MLS numbers from a pal at GMAC who runs all listings that are not closed. Pendings are included, though I haven't asked for the breakdown. I used to look at the pendings, but since the # of sales has been declining significantly & the number of sales each month was only a minute number of those listed "pending...." they seem to be an an attempt to pretend the market isn't in the tank.

 
At 8/16/2006 04:46:00 PM , Blogger M.S.A. said...

Bubble, what bubble?
Price erosion of 10% will appear
by November.

 
At 8/16/2006 05:04:00 PM , Anonymous tom stone said...

thank you.it is interesting to see how fast the inventory is growing during a period that traditionally hasn't had very many.and seeing the percentage of price reductions this early in the crash is indicative of future trends.the first of the mortgage resets showed up in june,this year.

 
At 8/16/2006 08:03:00 PM , Anonymous trailer trash said...

Regarding the article from SFGATE.com

I particularly liked these comforting words from Vince Malta, president of the California Association of Realtors: Malta said he thinks prices will flatten, perhaps even fall, in the near term. "But don't look for any big declines in the foreseeable future, because the underlying situation is still strong," he said.

This "underlying situation" would appear to consist largely of people who are upside-down in their optimistically-appraised homes. Many of these homes were financed 100% with negative amortization loans, variable-rate loans and interest-only loans. How can such a shaky financial foundation possibly be the cornerstone of a strong housing market?

 
At 8/16/2006 10:08:00 PM , Blogger Athena said...

Great point TT. I looked at that quote and wondered what underlying foundation he was referring to... because the housing bubble has had nothing but hot air and hype underneath it since the beginning.

 
At 8/16/2006 10:24:00 PM , Blogger epicuria said...

You should know that East MacArthur 2/1 on the large lot that you discussed in May did sell in July for ... $1,258,000, virtually twice the zillow value! What gives...?

 
At 8/16/2006 10:32:00 PM , Blogger epicuria said...

I'd be interested to know the YOY supply of housing. I think the supply of SV homes priced between $500 and $600 K is significantly less today than the supply a year ago, though no question sales are way down, so supply is way out of whack with demand.

_____________________

On my previous post: yes, it's got to be a blatant money laundering scheme. Don't these sort of red flags trigger some sort of investigation...?

 
At 8/16/2006 10:33:00 PM , Anonymous russ_riv said...

East MacArthur 2/1 on the large lot...did sell in July for ... $1,258,000,

Bwahaha! Fools!

 
At 8/16/2006 10:43:00 PM , Blogger Athena said...

I don't know the price listings for last year, but can ask. From the new listings emails I get every day it seems that they are still predominantly above 500k. Seems everyone feels their house is worth 500-600k.

The last 5 years of 20% appreciation was nothing but hype and speculation. The next 12-24 months will flatten it all out.

As for that E.MacArthur place... there will be greater fools buying all the way down.

We are still here:

Stage 4: Financial distress
"Insiders sell to outsiders. The greater fools are now streaming into the trap. The last fools are the ones who stood on the sidelines for years, watching the prices go up, terrified of jumping in.

Finally, the euphoria and stories of friends and neighbors making a killing in the market gets to them. The latecomers, skeptics, amateurs, and the timid are finally overcome by greed and rush into the trap, cash in hand."

"It's not long before reality and distress sets in. The greater fools realize that they're in trouble. Terror sets in, and they begin to sell. They begin to hate the asset they once loved, regardless of whether it's a stock, bond, mutual fund, real estate, or precious metals."


Coming Soon to Sonoma County...

Stage 5: The market reverses, and the boom turns into a bust
"The amateurs begin to realize that prices don't always go up. They may notice that the professionals have sold and are no longer buying. Buyers turn into sellers, and prices begin to drop, causing banks to tighten up."

"Minsky refers to this period as "discredit." My rich dad said, "This is when God reminds you that you're not as smart as you thought you were." The easy money is gone, and losses start to accelerate. In real estate, the greater fool realizes he owes more on his property than it's worth. He's upside down financially."

 
At 8/16/2006 10:49:00 PM , Blogger Athena said...

I did hear a little gossip over the past two days. a friend has been wanting her sister to move from the peninsula to sonoma. turns out the sister has refied her house a few times, and now it seems they can't get the price they want.

Seems they want to sell the house for more than they owe now, after using the old house ATM. Can you imagine the audacity of those reluctant buyers not wanting to pay off their debt for them?

the nerve. looks like they aren't moving to Sonoma any time soon.

 
At 8/17/2006 10:06:00 AM , Anonymous tom stone said...

everytime i see the word "flattening" in relation to the real estate market,i think of the black widow i found in the garage this spring.i flattened it with a 4 pound sledge.

 
At 8/17/2006 10:45:00 AM , Blogger Athena said...

Here are the new listings I received today. This seems to be typical of the daily listings. Still some in the 600s 500s and usually one in the chithole of boyes springs or agua caliente below 500k


NEW LISTINGS


20630147
452 2nd St Sonoma, CA 95476 $650,000

311800
710 East Thomson
Sonoma, CA 95476
$535,000

20629826
18356 Lucas Ave
Sonoma, CA 95476
$485,000

 
At 8/17/2006 11:04:00 AM , Blogger Athena said...

Great comment stolen from Sacramento Landing's site:

Anonymous said...
Listening to a realtor make predictions is like asking Mr.Rogers what kind of day he was having.

There's no credibility when there's an agenda at stake.

...the seller doesn't get it yet and by the time he does, he'll flush another 10-15% down the drain. Gotta believe the ARM armies are marching into the valley and are about to bushwhacked from above.

When this reality checks in, todays inventory numbers could explode upward from here.

 

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