Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Wednesday, September 27, 2006

Next Comes the Freefall, Baby.

(video for your viewing pleasure from anon)

"First came a slowdown in the volume of home sales. Now prices are falling, and the question for anyone selling, buying, or even just hanging onto a home is: How far and how fast?

'"The housing market is weak and getting weaker," says Mark Zandi, chief economist for Moody's "It appears the downturn has a ways to go.""

"Last month, the median price of a single-family home was down from a year ago - the first significant national decline in 13 years, according to tracking of previously owned homes by the National Association of Realtors."

"Historically, it's rare for prices to sink very far nationally even when recessions occur. The National Association of Realtors (NAR) predicts a return to stability next year. But some economists are forecasting a tougher climate, thanks to an extraordinarily large run-up in prices in the past couple of years and homebuyers' increasing reliance on exotic new types of mortgage loans."

"The expert consensus: The slump could last into the summer of 2007. And the speed could depend on how many people hit the panic button or take their homes off the market."

"After a five-year boom in the housing market, where home prices head from here could have a significant impact on the direction of the economy and on the pocketbook finances of millions of families. But economists differ in their forecasts of how the current real estate cycle will unfold.

"NAR has taken a largely upbeat view. "This is the price correction we've been expecting - with sales stabilizing, we should go back to positive price growth early next year," NAR economist David Lereah said in a statement accompanying Monday's numbers."

"Pessimists say a speculative "bubble" had built up and now needs to unwind - possibly over several years."

'"As draconian as that sounds, a 5 percent price decline would only reverse one-tenth of the price run-up over the previous five years," Merrill Lynch economist David Rosenberg wrote in a recent report."

'"Additional price declines should not be surprising," says Asha Bangalore, an economist at Northern Trust Co. in Chicago. "We have a recession in the housing market.... Usually it takes two to three years to stabilize."'

"She points to a rising supply of homes on the market. There are now enough homes on the market to meet demand for 7.5 months, up from 7.3 months supply in July, Dr. Bangalore says. The last time inventories surpassed current levels was in October 1992, during the last housing downturn."

"One new uncertainty in this cycle is today's greater reliance on adjustable-rate mortgages. With the interest rates on those loans shifting upward, a key question is how many owners will have to unload homes they bought during good times when values were rising and interest rates were low."

'"The probability of a more disorderly correction is raised by this element," says Bangalore of Northern Trust."

"The decline in last month's prices of new homes on a seasonally adjusted, year-over-year basis is the first such drop since February 1993, except for a very slight blip on a seasonally unadjusted basis in April 1995."

"Prices may continue to fall, since many of the leading economic indicators have continued to weaken."

'"The rising number of unsold homes reflects the home sellers who were hoping to cash out at a high price and have kept their homes on the market for an extended time," says Mr. Zandi."

"Some of these trends are likely to continue, until next summer, says Zandi, when he expects to see housing start to stabilize. With such a long period of weakness, he says, it's beginning to look as if home prices might fall in 2007 by about 5 percent on a year-over-year basis."

"This would be the first calendar-year decline since the Great Depression," he adds."


At 9/27/2006 06:38:00 AM , Anonymous tom stone said...

i expect this to be the first calendar year drop since the last great depression.there are two infinities,the universe,and human stupidity,said will be quite a ride yeeehaw,splat.

At 9/27/2006 01:48:00 PM , Blogger Lisa said...

Prices are so far detached from incomes, once the price declines start to take hold, I think there's NO WAY folks are going to step up and pay these prices. Why?? For what?? There is a record amount of inventory in markets across the U.S.

Any flattening or small decline completely defeats the purpose of "owning" a home, that is riding 20% appreciation every year. Most people can't afford with traditional financing, and the MSM has been hammering on the dangers of "creative" loans. So what's left??

At 9/27/2006 02:45:00 PM , Anonymous tom stone said...

what is left is a whole lot of economists saying a recovery is "on the horizon" that imaginary line that recedes as you approach it.

At 9/27/2006 05:12:00 PM , Anonymous Anonymous said...

re: comment from Lisa. Income vs price, as is rental price vs monthly total house cost.

I think that the 2nd is more important, and it will depend on what the rental demand is.

At 9/27/2006 07:45:00 PM , Blogger moonvalley said...

I guess everyone has been noticing all those articles that are predicting that this slump will only last oh say, six months or so and then everything will be hunkey dorey again.
I mentioned before that my ex-neighbor was enticed into a flipper deal a few months ago with some "friends" of his. He paid somewhere north of 799k for his sb on the wrong side of the tracks and now I've heard that they plan on selling for two years! He was wrried that the partners choice of cheap appliances would hurt the price, helloooo ...have you looked out the window??? Appliances are the least of their problems.
Mind you this house is in a neighborhood where even in the best of times (till now that is) prices have never been much above 200..maybe 300k to think that they're planning on moving this turkey for that much is insane. I've seen the place, as a hide-out it might be great, as a 1m dollar wine country cottage, fuggedaboutit.

At 9/27/2006 09:00:00 PM , Blogger Athena said...

So I realize they have a plan for selling their albatross for $1m... but where are they planning on finding a buyer?

Also, in two years WHO is not going to know they are the greatest fool if they pay such a price for it?

In two years I predict that the only offers they receive will have given them no more than 5% a year since 1997. ;-)

At 9/27/2006 09:29:00 PM , Blogger marin_explorer said...

"...enticed into a flipper deal a few months ago"

Is there a sizable population of RE investor wannabes in Sonoma? I only assume so, due to the prices I've seen for some homes, with some laughable renovations too. Do people really think this is some new cottage industry?

It's actually quite hard to be an entrepreneur, regardless of the field. I tried it once; I'm not sure I'll do it again.

At 9/27/2006 10:36:00 PM , Blogger moonvalley said...

Athena we've got to get together as there are some things I can't write here. These realtors all think higher prices are just around the corner.

At 9/27/2006 10:50:00 PM , Blogger Athena said...

Definitely... let's make it happen.

I have heard several realtor stories recently along that same line.

Oh, people are just reacting to the media, that is for the other areas that have been overpriced for no reason. That isn't going to happen here. People aren't buying as much because they are finding out in places like San Mateo that they can't sell their houses for as much as they thought and buy something way cheaper here. We were so undervalued for so long that too many people took advantage of that. Sonoma is the new Sausalito and so now that prices are fair for the market and closer to what other houses in the bay area are priced it is tough for someone to just take out a home equity line of credit on their peninsula house and buy a vacation house here. But don't worry, we still get a lot of rich people that want to live here and come here for the quality of life. So give it a couple months and prices will come back as people start buying after the bubble news dies down. There are a lot of places that were just really outrageous and those areas are going to have to correct first. Hopefully that will be done in the next couple months and then people will come back to Sonoma and buy.


Are you hearing stories like that? Those are the ones I keep hearing. I try to make sure I am not eating or drinking anything while I listen as it isn't polite to have things come shooting out your nose in public. ;-D

At 9/28/2006 09:34:00 AM , Blogger marin_explorer said...

Hopefully that will be done in the next couple months and then people will come back to Sonoma and buy.

LOL...sounds like wishful thinking to me. If people aren't buying close to job centers, why would they buy up in Sonoma?

At 9/28/2006 01:29:00 PM , Anonymous Anonymous said...

Eighties music video flashback:

Gonna drive on
Up to Mulholland;
Gonna write my
Name in the sky;
Gonna free fall
Out into nothin';
Gonna leave this
World for a while...
I'm freeeeee
Free Fallin'...
I'm freeeeee
Free Fallin'...

At 9/28/2006 01:33:00 PM , Blogger Athena said...

That was exactly where I got the title from. ;-) That and driving down mulholland recently and seeing all the signs and balloons there too.

At 9/29/2006 02:50:00 PM , Anonymous Anonymous said...

Here's a bootleg of it on YouTube.

At 9/29/2006 03:39:00 PM , Blogger Athena said...

that was awesome anon! Thank you!



At 10/02/2006 11:38:00 AM , Anonymous Anonymous said...

P.S. Another angle to "Free Falling" and the RE market:

Ever since I first heard the lyrics back in the Eighties, I keep wondering if the song is actually a veiled reference to suicide...


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