Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Thursday, July 27, 2006

....Must Come Down

You know the first part of the title already don't you?

What goes up....

And now even the national news media has noticed a whole lotta something coming down.

We're taking bets on how long it will take before the FB's get their glass stomach's cleaned up enough to read the writing on the wall. When the national news media is considered progressive compared to the awareness of the average joe... it makes for good fun to calculate just how much of a leading indicator they are... I say a year before they pull their heads out far enough to panic.... what are your predictions?

"Sales of new homes fell in June for the first time in four months, and the government also lowered figures for May, providing further evidence the high-flying housing market is losing altitude."

"The government marked down sales activity in May to a pace of 1.166 million units, substantially below its initial estimate of 1.234 million units. Analysts pointed to the drop in sales last month and the downward revision for May as fresh evidence that housing was slowing considerably from the impact of higher mortgage rates."

"The big worry is that home sales will fall so sharply that it could send shock waves through the economy, much as the bursting of the stock market bubble in 2000 contributed to the recession the next year."

"In June, sales were weak in every section of the country except the West, which posted an 8.2 percent increase after a decline of 7.3 percent in May. Sales fell 11.3 percent in the Northeast and were down 7.9 percent in the Midwest and 6 percent in the South."

"The Commerce Department reported Thursday that new home sales dropped by 3 percent last month to a seasonally adjusted annual sales pace of 1.131 million units. It was the first decline since an 11.5 percent drop in February."

"Analysts said the drop in new home sales was consistent with the slowdown shown this week in sales of existing homes, which fell for the eighth time in the past 10 months."

'"The housing market peaked a year ago and has been slowly deflating ever since," said Mark Zandi, chief economist at Moody's "We can expect another year of lower sales with price declines in some parts of the country."'

Wednesday, July 26, 2006

It's Just Going To Be Bad....

Really? I take my eye off the blog to tend to some problems I actually get paid to solve and look what makes the national headlines... wow... what a shock... ;-)

"After another monthly dip in June, sales of previously owned homes have fallen in all four major regions of the United States from a year ago, with nationwide sales volume down 9 percent, according to a report released Tuesday by the National Association of Realtors."

"These trends are rippling into the broader economy. Home builders, among the most impressive contributors to gross domestic product in recent years, are scaling back their plans. And millions of consumers face indirect effects: With interest rates rising even as home prices stall, fewer people can borrow on home equity as a source of free cash. Many others – those with adjustable-rate loans – are now being hit by a jump in their mortgage payments."

"The question is how far housing's slowdown will go, and how fast. So far, the impact on the overall economy has been, in the words of Federal Reserve Chairman Ben Bernanke, "orderly."
Economists generally expect that it will remain that way, although some high- flying real estate markets may face a harder fall."

'"We don't think it's going to be a disaster. It's just going to be bad," says David Wyss, chief economist at Standard & Poor's in New York."

"What this housing downturn could do is slow the pace of economic growth significantly.
Economists at Merrill Lynch, for example, reckon that the dive in homebuilding alone could subtract a percentage point from overall gross domestic product in the third quarter, tugging GDP growth down to perhaps 2.5 percent, annualized, for that quarter."

"And recession is a real possibility, in the view of Merrill Lynch's David Rosenberg. After the past 10 peaks in new-home starts by builders, an economy-wide slump has followed seven times. Housing starts, like home sales, peaked last summer."

Now that gusher is fizzling out.

'"Households are beginning to feel the full impact of higher borrowing costs, a softening housing market, and high gasoline prices," Nariman Behravesh, chief economist at the consulting firm Global Insight in Lexington, Mass., wrote in a report this month."

"If a construction slowdown represents a cut of nearly 1 percent from GDP growth, the impact from a slowdown in home-equity extraction could be almost as large, some economists say. Fixed-rate mortgage rates have jumped more than a full percentage point during the past year, as the threat of inflation has loomed larger and the Federal Reserve has raised the short-term interest rates it sets."

"The higher the Fed raises interest rates, the worse the problem gets," says Mr. Wyss at Standard & Poor's. "The rising level of home prices has been a big boost for consumers."

"The full extent of the housing slowdown will unfold slowly, and in ways that are often unique to individual markets, economists say."

"Often a down cycle involves two or three years of flat or falling prices, followed by a slow recovery."

"Nationwide, the inventory of homes for sale is up 39 percent – leaving a 7-month supply of homes on the market."

Tuesday, July 18, 2006

Going Down??!

They're finally getting around to what those of us who track the housing bubble sites have known for a long time now. San Diego,is in trouble.

Some are going as far as to declare all California will go the way of San Diego, one of the hottest U.S. housing markets in recent years, with large gains in home values soon to be undone, perhaps by a sharp correction.

Ooooh, a sharp correction. Such as a big fat interest rate nail to pop this bubble. They still use such terms as "some going so far" as though one were speculating about UFOs and not the reality of the RE market. Observing how things have gone up and down in cycles over the last several decades one would think they are merely toying with the idea of RE gravity.

I remember being urged by our economist friends' wife to jump into the condo pool in SD back in '04. A great investment fior ones' mad money. Personally I've never been much in favor of the concept of "mad money", or as they call it in Hollywod "F you money". Mad money should be no sum over 100 dollars, a cool purse, a cute pair of sandals (gotten on sale) not a condo down payment. Oh, but now I remember, people were getting condos back then for no money down and I/O loans, with neg am , stated income only and all that good junk. If one asks the experts what thy think about all this here's what they have to say:

"The conditions aren't there for a big rebound in prices or for a big drop," he said. "We would need a big drop in interest rates to get any significant movement on prices on the upside. We would need to see some significant job losses, a recession at the national level, to get a big drop in prices."

No mention of a rise in interest rates. They act as though that is not even a possibility. Everything is tied to jobs and not the toxic deals that so many have gotten themselves into.

Meanwhile, this article on timing the housing market
has some interesting reminders on past bubbles and crashes. Though why they see no connection between the hard landing of the early nineties, which they partially blame on the S&L bailout, and what's been going on in the lending industry in the last several years puzzles me. It would seem that we're dealing with very similar conditions, so why should be be talking soft now, hard back then?

Back at Toll Brothers and their ilk, homebuilder shares have dropped, which is attributed to the Fed "bombshell" of interest rates.

``If the Fed wanted to cool housing, they certainly succeeded,'' said Dan Poole, assistant director of equities research at a unit of National City Corp., holder of 382,000 shares of D.R. Horton, the second-largest homebuilder. ``It's like a bombshell went off in the housing industry.''

Monday, July 17, 2006

FlowerGate in Sebastopol?

"Did someone in this wine country town illegally plant an endangered flower to sabotage a proposed housing development? That is the question at the center of a quarrel folks here have dubbed "Foamgate."'

"Bob Evans, a 72-year-old retired elementary school principal, says he was walking with his dog last year when he came upon the tiny white flowers of Sebastopol meadowfoam poking from shallow pools of water in a grassy field."

"The former bean farm happens to be the site chosen for the 20-acre Laguna Vista housing development."

"Evans and other opponents seized on the discovery of the federally protected species in hopes it would force the developer to scale back plans for 145 houses and apartments. "It was the bad luck of the developer that it popped up," Evans said."

"But state wildlife officials investigated and concluded that the meadowfoam had been transplanted there. They ordered it dug up."

"This year, the flowers returned, and with them the controversy. The dispute has held up final approval of the building project."

"When the meadowfoam appeared in April 2005, and the Department of Fish and Game determined it had been planted, it appeared to be the work of zealous conservationists."

'"The people who planted it mistakenly believed that it would be the silver bullet that killed the project," said Scott Schellinger of Schellinger Brothers, the developer behind Laguna Vista."

"Threatened by agriculture and urban development, the meadowfoam is listed as an endangered species by the state and federal governments. That makes it illegal to harm, remove or transplant them without permission. Wetlands and pools has been set aside to protect them."

"Evans and other conservationists say the $70 million development could damage the nearby Laguna de Santa Rosa, a 240-square-mile basin of wetlands that runs through Sebastopol."

"Sebastopol, a well-to-do community of about 8,000 people 50 miles north of San Francisco, is known for its environmentally conscious residents and restrictive growth policies."

'"Our community takes a very hard, careful look at development," said Kenyon Webster, the town's planning director. "That small-town character is the reason a lot of people want to live here."'

"Evans called Sonoma State University biology professor Phil Northen and the head of the local chapter of the California Native Plant Society. They visited the site and agreed the plants were native."

"Northen, who does not live in Sebastopol, said that the field was "perfect habitat" for meadowfoam, and that there was no evidence the flowers had been planted."

"But when a Fish and Game team visited the site at Schellinger's invitation a few weeks later, it reached the opposite conclusion."

"Eric Larsen, the department's deputy regional manager, said the flowers had never before been seen at the site, which is at a higher elevation than the typical meadowfoam habitat. Team members also noticed plants beneath the meadowfoam, leading them to believe it had been transplanted."

"They didn't belong there," Larsen said.

"If the plants had been found to be indigenous, it could have triggered another round of environmental studies and forced the developer to reconfigure the project."

Sunday, July 16, 2006

PSA from a Mortgage Broker...

My name is Steven Krystofiak, President of the Mortgage Brokers Association for Responsible Lending.

I have a letter in a word document form that highlights the risks of the current loan industry unrealized by regulators and economists alike, mainly due to stated income loans.Email me at if you want me to send you a copy.

~ Steve Krystofiak

13 main points in the letter are;

1. Stated income loans are associated with fraud, and started to become popular in 2002.

2. Banks originate these loans because they are profitable and then sell them to reduce their risk.

3. Fraud is encouraged by the banks

4. Stated income loans help no one.

5. Exotic loans originated with stated income are now causing foreclosures or forcing homeowners to refinance into negatively amortized loans.

6. Stated income loans are why home prices have skyrocketed. They have caused a large demand in the US housing supply.

7. Banks have sold their loans and have already made their profit. Investors will soon realize stated income loans are too risky and stop purchasing them.

8. Almost anyone can get a stated income loan for $950,000.

9. Stated income loans cost consumers hundreds of dollars a year because of higher interest rates.

10. Stated income loans allow tax cheats to purchase homes easier.

11. Stated income loans are not always faster than fully documented loans.

12. Appraised values are often inflated. Underwriters are basing their decision on inflated home values, inflated incomes and inflated assets. The only “real” number is the FICO (credit) score. This is why underwriters have become focused on FICO scores.

13. Rules are not enough, they must be enforced.

Bears in the Drivers Seat?

Maybe not quite yet, but we do have our learners permit.

The Northern California housing market is all a tremble over the increasing interest rates according to this item even though it appeared about three weeks ago the handwritings on the wall:

"in Northern California we are seeing hundreds of price reductions daily, but that doesn't tell the true story. Home sellers are pricing themselves right out of the market to begin with, only having to drop their listing price three weeks into their listing"

People don't want to face the fact that they paid too much for their domicile, they can't carry the payments, yet they don't want to take a penny less then their inflated purchase price for getting out, thus a series of stuttering price drops. Sort of like hitting your ass on every step all the way down to the bottom. Painful, yes.

The one thing I disagree with in this article is that it's not yet bargain time. Things haven't fallen far enough for the most part. Of course most RE agents will say now's the time to jump in but the Marin RE Bubble Blog had links to an interesting article: Marin Real Estate Bubble: Deflation is More Likely than Hyperinflation which would be enough to put the skids under any prospective house shopper.

Meanwhile, I checked in on what's going on at ZipRealty, always a great place to look, as they show one the price reductions and the number of days on the market, quite a rarity these days in looking at RE. There are 96 price reductions in todays listings. The average amount of DOM for these reduced price houses is 80 days.

Down in San Diego,,they're writing about the Housing Hangover. Even if the party may be continuing in this movable housing feast, Excederin stock looks to be a good investment.

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