Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Tuesday, August 26, 2008

We'll See Failures & Dumb Bankers

"Billionaire investor Warren Buffett said Friday the economy continues to be in a recession, by his definition, and will continue to be for at least several more months."

"During a live appearance on CNBC, Buffett said ripples of the credit crunch are continuing to cause problems in financial businesses and the economy. "

"Earlier this year he said a financial crisis reveals which players have been "swimming naked," because the tide goes out. That picture has worsened along with the crisis."

'"We found out that Wall Street has been kind of a nudist beach," said Buffett, who is chairman and chief executive of Berkshire Hathaway Inc., which is based in Omaha."

"Buffett said it's likely more banks will fail, especially in areas where there was a real estate bubble and the bank got heavily involved in the housing market."

"Sales of previously owned U.S. homes ticked higher in July thanks to lower prices, but record inventory suggested the battered housing market is unlikely to recover soon, a trade group report showed on Monday."

"The median national home price declined 7.1 percent from a year ago to $212,400 and the inventory of homes for sale rose to 4.67 million which would take 11.2 months to clear at the current sales pace. That matched a record set in April."

'"What we'll see is failures where the bankers were dumb in what they did," Buffett said."

"The median price, (in California), dropped 40.3 percent to $350,760, the biggest decline since the Realtors began tracking the market."

"In the Bay Area, the median sank 21.2 percent to $663,190."

"Additional waves of foreclosures are likely, because thousands of alternative-documentation loans and other exotic mortgages are scheduled to reset to higher monthly payments in the coming months, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. In addition, sales haven't increased enough yet to substantially reduce the high inventory across the state."

"There were 124,487 active listings in California last month, down 5.4 percent from 131,569 a year ago."

"Adibi doesn't expect the market to stabilize for at least another year."

"Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, had a more bearish take on Monday's numbers."

"It doesn't reflect a recovering housing market; it reflects a broken housing market," he said. "It's a reflection of the fact that foreclosed homes are being liquidated at very low prices."

"Indeed, San Diego research firm MDA DataQuick reported that 44.8 percent of all the transactions in July were foreclosure resales, up from 7.6 percent a year ago. The trade group didn't provide a statewide figure, but Appleton-Young said it exceeded 50 percent in certain areas."

"Rosen believes that investors, not actual intended occupants, are buying up many if not most of the distressed properties in the hardest hit areas. That will do little to stabilize the markets in those areas, especially if prices fall further and foreclosures continue to climb, he said."

"The median price in Sonoma County dropped to $399,000, down 30.6 percent from a year ago, driven by sales of foreclosure and distressed properties."

"Nationwide, despite the third monthly sales increase this year, the number of unsold single-family homes and condominiums rose to 4.67 million, the highest number since 1968, when the Realtors group started tracking the data."

"Until the inventory level is reduced to more normal levels, analysts say, the housing slump is likely to persist. The inventory level is being driven higher by a massive wave of mortgage foreclosures."

"Between 33 percent and 40 percent of sales activity is coming from foreclosures or other distressed properties, estimated Lawrence Yun, chief economist at the Realtors group."


At 8/26/2008 10:59:00 AM , Blogger marin_explorer said...

"...Adibi doesn't expect the market to stabilize for at least another year.

Optimistic to say the least.
Once the easy credit punch bowl is taken away, does anyone really know how much lower the new equilibrium will be? I'll guess it will be far lower than cautious optimism supposes.

In the meantime, unrealistic optimism continues to spawn bad advice and poor business. As an example, my little town has just leveled their once "showcase" shopping center for an all-new "euro-style" retail and residential complex. Condos and shops--double jeopardy at the worst possible moment. And yet, our city gleefully subsidizes this fiasco. Few are honestly considering how bad this can get; just wait until the tide goes out.

At 8/26/2008 05:11:00 PM , Blogger Lisa said...

I saw a snippet today from Reuters....the number of banks on the Fed's "watch list" went from 90 in Q1 to 117 in Q2. That's a 30% increase in 1 quarter.

"Few are honestly considering how bad this can get."

Just wait until the sheeple do understand how bad this can get....walkaways will be stunning.

At 8/26/2008 07:27:00 PM , Anonymous Tom Stone said...

Foreclosures are selling at "very low Prices"? anyone making that claim is full of it.Case-Shiller shows we are now at 2002 prices nationwide,adjusted for inflation,and I am seeing 2003 prices now in Sonoma County.Going forward we have a rapidly deteriorating economy,A systemic credit crisis that is worse than anything I have seen in my 55 years (good luck trying to finance ANYTHING next year)and a Real estate market about to see a deluge of homes in "good" neighborhoods sprouting " REO For Sale" signs.I have actually seen a few homes for sale in decent areas that made economic sense,but anyone with a bit of cash will be able to make once in a LONG lifetime deals in a year or two.

At 8/27/2008 02:22:00 AM , Anonymous Anonymous said...


I see you posting at Calculated Risk occasionally. I'm in SoCo as well. What are you thoughts on the real estate market in areas that haven't tanked yet. Rohnert Park has had prices cut in half, but Sebastopol is still holding on with modest drops of 10-15%. Waiting for capitulation, but its taking a while for the snake to digest its food.

At 8/27/2008 12:56:00 PM , Anonymous Tom Stone said...

Anon 2:22,People who bought or refied in Sebastopol had higher incomes and better credit on the whole.Very few 2/28 ARMS,and many more Hybrid ARMS and I/O loans with payments fixed for 3,5,7 and 10 years.I am aware of one man walking away from 2 homes in sebastopol and have heard of more planning to walk away.You may also have noticed quite a few new for sale signs since August first,which is not something you see in a healthy market...and quite a bit more commercial space for sale or lease,and staying that way for a lot longer than it used to.If you are in sebastopol and would like to meet for coffee sometime,let me know,Tom.

At 8/27/2008 01:09:00 PM , Blogger marin_explorer said...

Sebastopol is still holding on with modest drops of 10-15%.

Additionally, I might guess that like Marin, some Sebastopol homesellers have simply dug in their heels (if they can) with incremental reductions, hoping the market will bounce back next year. I know a few newcomers to S. who think their nabe is bust-proof, similar to E. Sonoma or the historic area of Petaluma. Tom, does that ring true?

At 8/27/2008 05:05:00 PM , Blogger Lisa said...

I hope the historic area of Petaluma comes down at some point...that's where I want to buy my next house. But $500K+ for a cottage just because it's walking distance to downtown is laughable.

At 8/27/2008 08:14:00 PM , Blogger marin_explorer said...

But $500K+ for a cottage just because it's walking distance to downtown is laughable.

Yeah, I remember walking through a few when they were $450+/sqft. That area has a nice look, but it's no different than many small towns across the US. $250/sqft tops for those old homes, imo.

At 8/27/2008 08:26:00 PM , Anonymous Anonymous said...

"I hope the historic area of Petaluma comes down at some point...that's where I want to buy my next house. But $500K+ for a cottage just because it's walking distance to downtown is laughable."

Exactly!! We're on year #2 of trying to buy a house in Petaluma. May have to "fire" the RE agent that we've been friends with for years now. She is convinced that prices won't drop even another 10% in the next year and that we're going to miss any chance to get a deal.

Her words "don't come crying to me" and obvious aggravation with our views based on the big picture was the final straw.

Am I the only one who reads something other than the Press Democrat? Pick up the WSJ and tell me that things are going to boom in 2009.

WTF is with the arrogance of local RE agents? How can they sell small crap holes for 600k? Who are the idiots buying these things who put themselves in this much debt?

Sorry. Just had to vent. I feel better now.

At 8/28/2008 03:31:00 PM , Anonymous Anonymous said...

569 Spencer in SR

Orignally listed at $568k in mid 2005. Never sold.

Currently listed for $359k


At 8/28/2008 06:30:00 PM , Anonymous Anonymous said...

M.E.,yes,some sellerss have obviously dug in their heels,at least for a while.A bigger reason is that denial is still affecting many people.They have more savings,longer periods before reset,recast or balloon becoming they can last longer.Successful Real Estate salespeople are usually salespeople first.The better ones know their territory well.Very few have a background in Appraisal or Finance.Skepticism and analytical skills are not a big part of most good sales peoples makeup because they don't help make sales.I am actually a Licensed Real Estate Broker,and had a woman stop me on the street in sebastopol yesterday and thank me for advising her not to buy last year.I had directed her to this and other sites so that she could make an informed choice.It felt good,but doesn't pay the bills.

At 8/28/2008 06:47:00 PM , Anonymous Tom Stone said...

The American Entrepeneur Conference will be in Santa Rosa september 18th.The featured speaker is Armando Montelongo of A&E's ""Flip This House".I have recieved an invitation to be his personal VIP guest! with a FREE lunch!AND $250 Worth of Free Gasoline* just for attending!* this is not an actual gas cash card.*certificate holder must meet terms and conditions required by online provider of this free gas offer.Activation of benefits requires payment of a nominal refundable registration fee and redemption after purchase of fuel.limit one certificate per household.AND there is a MAGNIFICENT photograph of Armando on the front of this offer! Since I will be doing something that precludes my attendance (I haven't decided what yet)I hereby offer this invitation to any reader of this site that wants it at no cost.I will drop it off or remail it to you and buy the stamp myself.There is only one on offer,so step right up!

At 8/29/2008 01:43:00 PM , Anonymous Anonymous said...

"Armando Montelongo of A&E's..."

when will this jackass go away and his 15 minutes of fame end?

I wonder how people who bought his poorly rehabed houses feel after after they see the show.

"oh look honey, Armando found some old reject flooring and saved money on his flip. Thats why our living room has a weird smell and we've all developed asthma."

"Don't worry dear, with that roof leak we'll be replacing the flooring soon enough"

At 8/29/2008 02:53:00 PM , Anonymous Tom Stone said...

Anon1;43,my offer was serious,you could eat his free lunch,and speak out.The cover pic is special,his hair looks like it was spiked using KY jelly.I worked in the test center of an SF bank in the 80's and had some,mmm,odd.Odd coworkers,so I know what it looks like.Knowledge is not always a good thing...

At 8/31/2008 10:57:00 AM , Blogger Lisa said...

"WTF is with the arrogance of local RE agents? How can they sell small crap holes for 600k? Who are the idiots buying these things who put themselves in this much debt?"

Give it another year for credit to seriously tighten up. To buy that $600K POS you'll have to be able to document an income of about $175K and have a chunk to put down, plus savings in the bank and no other debt.

I think the nicer areas will cave last, but they will cave. Just because it hasn't happened yet doesn't mean it won't happen. The tsunami of AltA and Prime resets kicks in next year.

At 9/01/2008 07:31:00 PM , Blogger marin_explorer said...

"Who are the idiots buying these things who put themselves in this much debt?"

It really makes you wonder, doesn't it? Of course where market psychology is still strong, I'm still seeing avg. tract 3BR/3 1800 sqft homes clear $1M--even this month! Some people will be for a very rude awakening when reality re-asserts itself. When it dawns on you that crushing $800K+ debt cannot easily be re-financed, your Bay Area joie de vivre is gone...forever.

"I think the nicer areas will cave last, but they will cave"

My feeling is they will not only cave, but crater. Many over-leveraging to get into nice zip codes are already up to their eyeballs in "lifestyle upgrades".

At 9/02/2008 01:23:00 AM , Anonymous Sofia property said...


I think there is a big list of statics real estate market.

At 9/08/2008 09:34:00 PM , Blogger marin_explorer said...

Did anyone catch the "Nightly Business Report" tonight on PBS? They had a talking head from Wharton extolling the bailout and alleging what America needs now is a "stabilization" of house prices--and a resurgence in mortgage volume. Good grief! Wasn't this same Wharton saying there was "no bubble" when prices were getting pushed sky-high? Yet NBR did not call them on that...beyond belief!


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