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.’”