Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Monday, November 13, 2006

Cutting Through the Crap


Just the important parts of the most recent Press Democrat housing bubble article- aka. The Sonoma County Real Estate Industrial Complex (REIC) paid PR service.

"The long run of escalating prices that gave every seller hope of cashing in on rising home values has ended."

"Sales have fallen more than 27 percent so far this year."

"Prices have dropped the past three months to $567,500, down from last year's record of $619,000 for a median-priced home in Sonoma County, the first such decline in 12 years. The number of homes for sale is at a nine-year high."

'"Buyers are looking for the best deal. That's the way the market works. There's nothing wrong with that," said Brian Connell, broker-manager for Frank Howard Allen Realtors in Santa Rosa."
'"Today the listed price is just a suggested asking price," said Belinda Andrews, an agent with Century 21 Alliance in Santa Rosa."'

"The correction, long expected by many economists, has been faster and steeper than many anticipated."We have not seen the bottom of this," said Chris Thornberg, a principal with Beacon Economics in Los Angeles and formerly with the UCLA Anderson Forecast."

'"It's tougher for everybody. You figure out what it takes to do business. Everybody has figured out how to reprice their homes," said George Casey, chief executive officer of Christopherson Homes, the county's largest home builder. Christopherson has cut prices in its Sonoma County projects 5 percent to 10 percent from last year's highs."

"Just this month, Christopherson launched a new incentive for any agent who brings in a new buyer - a trip to the Kona Coast on Hawaii's Big Island, valued at $5,000."

"A small local builder, The Housing Company, has followed the lead of its larger counterparts and cut prices 10percent for the five houses it is putting up in Santa Rosa."

'"You have to get creative. I thought before that just being the most affordable of everything was going to be enough," said Bruce Shimizu, a partner in the company."

'"People have been sitting on the fence," he said. "They want to buy. I just think they need to be convinced this is the best deal they're going to get."'

"Brokers described a resistance among many sellers to accept less than what a neighbor's home sold for earlier."

"Sonoma County's last housing downturn, in the early 1990s, lasted four years and prices fell 4.2 percent before bottoming out. Those declines were driven by a recession and job losses, while the current sales and price drops are more an overdue correction for an overheated market."

"A return to soaring home values is unlikely anytime soon. A number of economic forecasts predict the market will remain weak and prices flat over the next two to five years."

I really did have to cut out more than half the article as it was a whole lot of "the market is great for buyers" crap. And I do mean crap. They are trying to persuade buyers that 5-10% decreases in prices have made it safe for everyone. They claim multiple times it is now a buyer's market. They equate lots of inventory with being a buyer's market. Record high inventory, does NOT a buyer's market make.

It is still very much an F'd Borrower's Market... those who overpaid and are getting crushed by their resetting exotic loans, and any greater fool willing to catch the still falling knife.

Even REIC economists admit the last five years of runaway prices were UNSUSTAINABLE price increases, and refer to the housing market here as OVERBLOATED.

We have heard many things- UNREALISTIC, OVERHEATED, INFLATED, BUBBLY, FROTHY. Well guess what? If the price increases were unsustainable, unjustified, overheated, inflated, unrealistic- then this thing they like to refer to as a "CORRECTION" is not a wimpy, lousy, lame 5-10% decrease in unrealistic, unsustainable, overheated, inflated, housing prices. It is completely realistic that a price CORRECTION means removing the elements that were unsustainable, overheated and inflated- ... and a real correction will be a price reversion to the mean.

Some thoughts from a great article at the Marin Real Estate Bubble site:

1. First, realize that you buyers have the money and so the power.

2. It's a "waiter's market"...the longer you wait, the cheaper you will get the house So that 5-10% is probably not the best deal you are going to get. Remember, these builders and FB's are the ones who NEED to sell... you DON'T have to buy.

3. When a realtor claims "it is a great time to buy" - what they really mean is it is a great time to give them a commission.

4. It is always better to buy at reduced prices - and if for nothing else it will keep your tax bill lower. Seriously, so what if the FB is graciously offering to pay the closing costs for you? When he offers to pay half your mortgage and property taxes it will be worthwhile.

Remember the closing costs and interest rates aren't the problem. Housing prices doubled based on greed and speculation in the last 5 years. Is it really worth paying double what a house is worth to avoid a few interest percentage points or to get seller paid closing costs?

As far as I'm concerned cut the price of the house in half and double the interest rate, and I will still come out better than most F@cked Borrowers who paid double and triple the value of their chitbox but have a 6% interest rate. (and that is if they are lucky)

So I think it is time for a Buyer's Revolution as advocated by Catherine Hockmuth of the Voice of San Diego. (referenced by Marinite's post)

Here's how you do it:

Figure out what the house you are interested in was worth 5 years ago- Adjust that price from five years ago by +28% to take into account five years of inflation, and voila, that is how much you should pay for that house, not a penny more.

That will be a correction. That will be a return to sustainable prices more in line with the incomes of the population.

Value of house 5 years ago + 28% = Buyer's Revolution Price

As for how to deal with the unbelieving Sellers and their Agents...

1. Remember the sale price is not determined by what someone owes and wants to make in profit- it is determined by what the buyer wants to pay.

2. With today's inventory there are plenty of options. If you insult one by offering what a normal market would have paid if flippers and loose lending standards hadn't screwed everything up, there are 3821 listings to choose from in Sonoma County according to norcalmls.com.

3. It's not your fault if a seller overpaid or HELOCed out most or all of their equity and don't want to sell for less. Why should you overpay because they were foolish? If they overpaid- that doesn't require you to do the same in order for them to feel less foolish. If they paid for their lifestyle with funnymoney how is that your problem?

In other news....

“‘We need a price decline, we were overbloated,’ particularly on the West Coast, David Lereah, chief economist for the National Association of Realtors, told attendees at his organization’s annual meeting here on Friday.”

“Saying that ‘the worst may be over,’ the housing industry’s chief economist said Friday that home prices must continue to come down in some regions before the real estate slump plays out.”

“Lereah said the national picture is positive. ‘I’m optimistic for 74 percent of the country,’ where local markets are, at worst, flat. The other 26 percent are in for some rough times.”
“Struggling the most would be California, South Florida, Arizona, Nevada, and metro Washington, D.C., he said, where sellers need to lower their prices.”

'“Steve Murray, an industry consultant who followed Lereah on the podium at the convention said in an interview before his speech. ‘People who think this thing is going to turn around in six months are out of their minds.”'

“There will also be fewer real estate agents. ‘We are actually predicting an 8 percent drop in membership,’ Mr. Lereah told Realtors, who enthusiastically applauded the news. ‘Productivity will get better as we have less members and the quality will improve. It’s an overall good thing for the industry.’”

22 Comments:

At 11/13/2006 09:33:00 AM , Anonymous marinite said...

By the way, that "take the price from five years ago and add 25%" rule is very conservative. When you consider that 2003 was probably the normal cycle peak, and the market would normally have corrected from there, adding 25% to 2005 prices is way too conservative. But if a seller won't accept that very favorable offer level, then blow them off, move on, find another seller; there are more than enough houses on the market now.

 
At 11/13/2006 12:42:00 PM , Blogger Athena said...

I went and adjusted the rule to 28%.

In Sonoma prices started to come unhinged 2001,and the average house DOUBLED in price by 2005.

so I figure if they get 28% from the 2001 valuation they are lucky. Because people who bought 2005 are not bloody likely to make that over the next five years. As far as I'm concerned this is where the offers start,

 
At 11/13/2006 08:39:00 PM , Anonymous tom stone said...

Athena,I agree with you on prices for homes.however i would not touch anything built during the peak years of the boom,unless it was a custom home.the materials and workmanship is so poor that many of these homes will need to be abandoned,or need a complete rebuild long before even a 15 year mortgage will be paid off.I saw an example of this today on Mirabel road in forestville,where what appear to be several townhomes are being built,both the walls and the roof sheathing were soaking wet OSB,which outgasses formaldehyde,and which is notorious for the toxic mold that grows on it if it gets wet.nasty,nasty stuff,and totally inappropriate for use on the roof,wet or dry

 
At 11/13/2006 09:46:00 PM , Blogger Veronica Lodge said...

tom stone said... Athena,I agree with you on prices for homes.however i would not touch anything built during the peak years of the boom,unless it was a custom home.the materials and workmanship is so poor that many of these homes will need to be abandoned,or need a complete rebuild long before even a 15 year mortgage will be paid off.I saw an example of this today on Mirabel road in forestville,where what appear to be several townhomes are being built,both the walls and the roof sheathing were soaking wet OSB,which outgasses formaldehyde,and which is notorious for the toxic mold that grows on it if it gets wet.nasty,nasty stuff,and totally inappropriate for use on the roof,wet or dry

OSB. So that's what that crap is. I saw the same thing today and I couldn't believe what I was seeing.

For decades, rock was mined from the LEONA QUARRY located on the hillside off the 580 freeway, just above Mills College in Oakland. This left a huge, hideous SCAR on the hillside and then, the gravel company moved out a few years ago.

Now, a developer has put some kind of rope-like net covering over the hillside which he claims will prevent future landslides and the creation of new, destructive flood gullies. Currently, there are a few hundred condos being constructed at the base of the hillside, and they are all built extensively out of that OSB crap.

Fortunately there is a website devoted to handling CLASS ACTION LAWSUITS for OSB victims.

 
At 11/13/2006 10:25:00 PM , Blogger Veronica Lodge said...

"There will also be fewer real estate agents. We are actually predicting an 8 percent drop in membership," Mr. Lereah told Realtors, who enthusiastically applauded the news. "Productivity will get better as we have less members and the quality will improve. It’s an overall good thing for the industry."

Doesn't Dr. Lereah have any shame? First, he is the head cheerleader for a housing boom that will NOT bust. Next, he welcomes the expected correction as the "overbloated" real estate market takes a big time dump. Now, as sales tumble, he proclaims that it's good riddance to bad rubbish when Realtors everywhere are forced to leave the National Ass. of Realtors and find real work.

Dr. Lereah has turned on his own species and predicted that quality will improve because the pack of Realtor jackals will be 8 percent smaller. The pack will get a lot smaller than that. This is only the beginning of NAR problems and Dr. Lereah might soon find that he will be one of those dropped from membership in the NAR.

 
At 11/14/2006 01:20:00 PM , Anonymous Anonymous said...

Oceania has always been at war with Eurasia!
Oceania has never been at war with Eastasia!

‘We need a price decline, we were overbloated,’ particularly on the West Coast, David Lereah, chief economist for the National Association of Realtors, told attendees at his organization’s annual meeting here on Friday.”

Oceania has never been at war with Eurasia!
Oceania has always been at war with Eastasia!

 
At 11/15/2006 09:22:00 AM , Blogger Lisa said...

"It is still very much an F'd Borrower's Market... those who overpaid and are getting crushed by their resetting exotic loans, and any greater fool willing to catch the still falling knife."

Absolutely. Sellers still believe they are entitled to some profit or at least "break even" because it's impossible to lose with RE. I know a couple of people who lost money in Marin in the mid-nineties, so it's very possible, but of course no one remembers 10 years ago. Besides, it's different this time.

It boggles the mind that prices have doubled and then some over the past few years, but we keep hearing the correction will be a relatively painless 10% or so.

 
At 11/15/2006 09:32:00 AM , Blogger Athena said...

Well here is how we show them what "Correction" really means.

If you offer at all... Offer only what a normal market would have paid if flippers and loose lending standards hadn't screwed everything up,

Figure out what the house you are interested in was worth 5 years ago- Adjust that price from five years ago by +28% to take into account five years of inflation, and voila, that is how much you should pay for that house, not a penny more.

That will be a correction. and... If we force them to take down their prices to the level of reality, it will be a lesson indeed. This time it WILL be different. This time nobody is going to protect their wishing prices and they will have to face reality one way or another- either not selling their house or paying the piper if they owe more than it will sell for and can't unload it.

I bet they won't be forgetting this lesson any time soon. :-D

Did you love Lereah's statement at the NARdi Gras? When he said that you have to look back to the Great Depression to see a housing market this unique?

Let there be light! ;-)

 
At 11/15/2006 03:42:00 PM , Anonymous tom stone said...

Nice topic,I went to that apprisers dinner last night,the speaker was an underwriter with 20 years experience,and at the Q and A session she got hammered with questions about the declining market."why are UL's calling me back when i check the declining market box"renee' hardy of sacto was real straightforward.the UL was good,said she wanted justification,without time adjustments for comps,Curt Thor of novato posed a question "if i have 3 comps within the last 6 months,the newest 3 months old,and an identical house is just listed for 10% less than the lowest comp,are you going to give me grief when i come in at the lower price on my appraisal?. I met a few impressive people,only heard a few comments about tarring and feathering loan brokers.i polled a number of appraisers about whether they wer checking the declining market box.the old timers all said yes,those with 10 years or less experience were split,some saying yes,in some markets,some yes,and some saying they check "stable".I asked the ones who checked "stable" who they thought was going to get business in two years? wafflers or smart straight shooters? i got some thoughtful looks.

 
At 11/15/2006 07:44:00 PM , Anonymous ncbb said...

The PD online is reporting a 4% drop in median home prices. This number is meaningless, most homes are already priced 7 to 10% from what sellers could have sold for last year, just check out zip realty.

 
At 11/15/2006 09:08:00 PM , Anonymous ncbb said...

After doing a bit of reseach on the PD's report about the 4.2% Sonoma County median home price reduction I discovered that the use of their real estate reporting sources seemed kind of quirky.
First, the PD claims median So County median home prices fell 4.2% (coincidentally the largest drop ever reported in So County) from last October, the source is apparently the PD's monthly real estate report.
That's some real optimistic reporting PD.
The next paragragh states that home prices were flat at 614,000 across the Bay Area in October after falling the first time in September, siting data quick.(flat huh? well that doesn't sound that bad)
If you google dqnews(used in second paragragh) and click release, you'll see SO County had a 5.9% drop for October.
While you're there, click on Ca monthly city chart and see every town and city in Sonoma County that sold more than a handful of houses. These places are gettin hosed, and this is just the begining.

 
At 11/15/2006 09:52:00 PM , Blogger Athena said...

Did you notice that in the last PD article it said YoY Sonoma County had already dropped by 8%? Let me go and find it and use it in the next post. Also, in today's SFGAtE article- dataquick said Sonoma County has had double digit declines in median price. SO... the PD remains in my opinion nothing more than a hollow, lazyass PR regurgitation mechanism for the local Real Estate Industry.

 
At 11/15/2006 11:47:00 PM , Blogger Athena said...

Previous PD article

"Homes are taking longer to sell and price cuts are accelerating, with the median dropping to $567,500 in September, a 7.7 percent decline from a year ago. It was the first three-month price drop in 12 years."


SFGATE.com
"In Contra Costa County, even though the number of new homes sold bounced up 9.5 percent to 472, the median price fell 20.5 percent, to $570,000. New-home prices in San Mateo, Napa, Solano and Sonoma counties also suffered double-digit declines.

DataQuick's LePage said he sees Sonoma and Napa counties as the most vulnerable to price erosion, although because they are small markets, it's harder to extrapolate from the numbers. Sonoma's resale home price was down 5 percent for October, the fourth month in a row it has sunk."

 
At 11/18/2006 12:12:00 PM , Anonymous Anonymous said...

Take a look at my market history report for the Bakersfield and Los Angeles at

http://homepricehistory.blogspot.com/

 
At 11/21/2006 10:57:00 AM , Anonymous Anonymous said...

Today’s report on San Diego has been released!
Local Home Price Analysis

 
At 11/22/2006 01:39:00 PM , Anonymous Anonymous said...

Today's report is out on Atlanta and it's first for AnalysisGuy. No big bubble.
Daily Home Price Analysis

 
At 11/28/2006 08:28:00 PM , Anonymous Anonymous said...

Today’s report on Sacramento has been released!
Daily Home Price Analysis

 
At 11/29/2006 12:11:00 PM , Blogger moonvalley said...

yes, I love all the chatter that I've been hearing at the Boulange that Now's the time to jump at a house..not hardly. Good to be back at this site. The realtor that was trying to sell my dog a house a couple of months ago sadly lost a customer as we had to put poor Sula down a few weeks back, we had her for 13 years and she was nearly 14, I just haven't been posting much or reading about RE since then.

 
At 11/29/2006 12:14:00 PM , Blogger Athena said...

Oh MV! I was wondering where you've been. I am sorry about poor SulaPup! it is good to have you back. I have been a slacker and have some stuff to get posted, but have been slammed with this real life job. It has totally gotten in the way of my blogging. :-/

 
At 11/29/2006 12:20:00 PM , Blogger moonvalley said...

I also see my old pal GU is up to his old tricks....
The Market is Stabilizing???


"It appears that we're settling down to a steady state," said G.U. Krueger, an economist at real estate advisory firm IHP Capital Partners in Irvine. "The steady state will mean different things to different people, but it will be fine for most Californians who have owned their homes for a while."

Such a stable market could be reminiscent of much of the 1990s, when prices showed small or no gains after booming by double-digit levels during the late 1980s and falling during the early 1990s. Although no one knows whether the current slowdown will follow a similar pattern, many analysts don't anticipate a market crash as long as Southern California's economy continues to expand."

 
At 12/04/2006 01:09:00 PM , Anonymous Anonymous said...

Today's report on Boston has been released on both my blog and our new website. History has shown us that Boston is a great indicator of what will happen here in California.

thebubblebuster.com
or
Daily Home Price Analysis

 
At 12/07/2006 12:12:00 PM , Anonymous Anonymous said...

Those are shocking rates. Wow! Wow! Wow!

 

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