Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Wednesday, March 14, 2007

Too Much Of A Bad Thing....










An oversupply and an underdemand in housing , or what's that trickling down my leg??? Remember when all the cool kids were buying houses? Everybody was doing it. Of course there were those of us who "just said no!" Nobody listened. there was no "Very Special Episode" of House Hunters on HGTV for us. We were renters, losers, we actually put our money in Banks rather than granite counter tops. All of our houseowning friends said we were gonna get an economic wedgie and we'd better get ourselves a mortgage PDQ . House builders kept putting the houses up , and then they started super-sizing them. Some people couldn't just stop at one. If one could make money off of one house, how much more money could one make if one bought two or three or more? The lenders made it easy. Of course they did. Enablers.Go out on any street corner, the first vial is always free. But now the tipping point has come

NEW YORK (CNNMoney.com) -- Subprime lenders are already getting crushed, but the impact rising mortgage delinquencies will have on home prices overall is still an open question.

At a minimum, it means financing is drying up for those with less-than-perfect credit and that spells fewer home buyers.

And foreclosed properties will add supply to a housing market that already has too much.

"It's going to be a really big deal," says Dean Baker, co-director of the Center for Economic and Policy Research.


The PTB have finally roused themselves and smelled the Sanka. They're calling it Scarey Math and you can bet that it's a class that all those RE folks and Eager Flippers out there would like to cut.

Mark Zandi, chief economist for Moody's Economy.com, is also concerned. "I think the subprime problems will take housing activity to a whole other level," he says.

Zandi is projecting a doubling of subprime defaults this year to 800,000. "Those homes will go on the market at a discount and will weigh on the market," he says. He also believes that 500,000 fewer Americans will be able to obtain financing because of the tighter standards.


Ok, so nobody can afford to buy a house and nobody can qualify under the new stringent loan standards , so where is everybody supposed to go??? Rentals! Ergo, higher demand and higher rents. At least that's what the nice man down at the RE office has been telling me. They're not making anymore land so better get onboard before it's too late. Well, they may not have been making anymore land but they have been building a whole s---load of Condos, and Flipper Palaces .










Check out the Market Oracle for a peek at where the rental market's going. Just a tasty taste. Just for you:

the bulls argue that traditional apartment construction has been weak. And to a certain extent, they're right — companies haven't been building all that many 200-unit or 300-unit rental complexes.

But here's the problem with that argument: Too many homes, townhomes, and condominiums WERE built — and sold to buyers as investments. In other words, they were sold to people who were going to turn around and rent them out anyway!


And even more homes were bought as “flips” — houses that would be quickly fixed up and resold. Heck, some buyers never even thought they'd have to go through the fix-up stage … they figured they'd be able to sell for higher prices with no additional work whatsoever.

Unfortunately, the housing market plunge has turned many of these flippers into unintentional landlords. They can't sell, and they can't afford to pay mortgages, insurance, and taxes while their houses sit there empty, either. So they're trying to rent their properties to staunch the cash flow bleeding.

In other words, while the construction of traditional apartment complexes may have lagged during the boom, plenty of town homes, condos, and single-family homes were churned out along the way. The result: Hundreds of thousands of those units are now sitting empty!

The U.S. Census Bureau says 2.7% of the country's homes were vacant in the fourth quarter of 2006 — the highest percentage in U.S. history!


For those who do not chose to buy. Yet. Or ever. It appears that there will be no shortage of housing options available. Why settle for an apartment when one can have a lovely view condo, or townhome, or a flipper palace. After all most of the people trying to find tenants for these places in a "loose market" as they call it, were actually only tenants themselves who couldn't make the rent.

6 Comments:

At 3/15/2007 03:19:00 AM , Anonymous Anonymous said...

I'm renting and have been so avoiding the BA mess.

I keep saving but now my money is being swayed by these jerks.

Maybe the lesson is that we have to love each other and help each other.
No, that can't be it!
What's mine is mine.

What is the higher purpose?

Soul searching.

 
At 3/15/2007 06:26:00 AM , Anonymous tom stone said...

Athena,it is nice to have a little local news to go with my coffee in the morning.If anyone still wants a mortgage,i understand that about $40 billion worth of subprime and alt-a notes are stuck in the pipeline and are available.considering the default rate on the '06 vintage,and falling prices an offer of $.15 on the dollar would probably be appropriate IF you could find the right folks to do the due diligence,service,and liquidate them.I think i'll pass,myself.

 
At 3/15/2007 09:14:00 AM , Anonymous Bob said...

Athena

I agree with your view of rentals. Last year I decided to move further south -- Laguna and give up the place where everyone wants to live...so we are roughing it in one of those flipper places seeing new flipper places going to rentals at the same rent we paid a year ago -- so the increase in rentals has yet to happen down here. And the rental is in a home, only 9 years old, and we were able to demand that the landlord put in new central air conditioning, new carpet and new paint (not really a soft market is it).

What I also know, b/c I want to make sure my landlord does not go REO, is the exact mortgage and property taxes on the place I rent. The property taxes alone will eat up 4 of the 12 months of the rent I pay to my landlord -- he is subsidizing our place by at least $18k a year and rents are at the same level this year and last. Oh and the volume of available rentals appears to have increased exponentially looking at craigs list and re sites.

What the guy in the local re office also forgets is that while there will be a flood of foreclosed sellers looking for rentals, those sellers will have very bad credit and the one thing you need to get a good rental is very good credit -- so for the better rentals I really doubt we will see a large increase in viable demand.

No what this country needs is a good 20% to 40% decline in house prices and elimination of loans underwritten using the teaser rate (I still think we need a place in the market to give mortgages to the truely self employed not the self employed who use the business as a hobby and tax dodge). Getting this over sooner than later would be best but alas I think we are in for a multi year slow painful decline...americans can't diet and be truthful about their health so expecting them to be on a healthy financial diet is equally unrealistic...denial will rule the day and things wont move until people have absolutely no more choices....

 
At 3/15/2007 09:36:00 AM , Anonymous tom stone said...

BOB,check your local county recorder's office for the note and any subsequent refi's.you may be able to do so online.check both by name and address,your home may be held in the name of an LLC.Athena,i still have the doc's on 660,let me know when you have time for coffee,and i'll get them to you.

 
At 3/15/2007 11:25:00 AM , Blogger moonvalley said...

This is Moonvalley, or MV for short. Athena's wingman....er woman. Glad you enjoyed the post. I've been hearing about some sort of bailout for these doofuses. I think the only bail we should be talking about here is for the forged loan doc types who started this mess.
Bob, we did the same thing you did in reverse. Got rid of the house in LA and moved up to Sonoma (I grew up in SF) where the rest of the family is. We're renting a great place in the hills and our money is working in other quarters not servicing a house debt.

americans can't diet and be truthful about their health so expecting them to be on a healthy financial diet is equally unrealistic...denial will rule the day and things wont move until people have absolutely no more choices....

Couldn't have said it better myself.

 
At 3/15/2007 01:14:00 PM , Anonymous Anonymous said...

Looks like the apartment-to-condo conversion fad up until now might be going the other way.

A lot of apartments got converted to condos over the past couple decades; looks like it's time to start converting them back into rental units...

 

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