I have been kindly asked by the OC Register to stop posting the scanned image of the DataQuick information from their newspaper. So from now on, you will get the data in a non-scanned format.
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|||
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code
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from ’06
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from ’06
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92602
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$751,500
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-0.4%
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24
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-42.9%
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92603
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$960,000
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-4.0%
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38
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-34.5%
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92604
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$565,000
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-5.8%
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22
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-18.5%
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92606
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$679,000
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-11.2%
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23
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228.6%
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92612
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$634,000
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-9.3%
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35
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52.2%
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92614
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$567,000
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-12.1%
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24
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-33.3%
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92618
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$682,000
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35.7%
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21
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10.5%
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92620
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$790,000
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-9.7%
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34
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-57.5%
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It looks like we have a continuation of our rally in Oak Creek (92618) from last week, and it appears we have the continuation of the complete market implosion everywhere else.
Just a reminder of why we have had the dramatic decline in sales volume…
Credit Suisse saw this coming months ago. Credit tightening has eliminated many prospective buyers from the market. Plus, the unusually high sales volumes of the rally years has seriously depleted the buyer pool.
The reason the median has not declined much to date is because those people who still qualify, are able to obtain financing just like the bubble years. That too is about to change. Below is a chart of the AAA rated ABX index. AAA is the highest rating. It is composed of the highest level of prime borrowers.
This is the cost of insuring a loan against default. As you can see, the meme of “subprime containment” is no longer believed by the insurers of debt. This will cause a further tightening of credit.
- Look for the volume to decline even further in the coming months as this makes its way through the system.
- Also, look for a dramatic drop in prices this fall and winter as the banks liquidate their REO inventory at a time when there are no buyers.
What is amazing is that the people that have the means to purchase homes today, actually do it! At some point you have to conclude for yourself that the prices are not reasonable, I guess.
—–
You can also link to the DataQuick chart at :
http://www.dqnews.com/ZIPOCR.shtm
Well, the real issue is people like myself. My husband and I are about to have a second child and we have been waiting two years to buy a house. We are reaching our breaking point of waiting, but know that the prices are still stupid ridiculous. Lately our conversation has circled around how much prices are going to go down. We are looking to buy up towards 1.2 million. Our price to rent would be around $4k per mos. The house we are going to buy we are going to stay in until we die. So if it takes the market 4 years to bottom out we would pay roughly $200K or so to wait. (If rents don’t increase). Our market currently is operating with stupid ridiculous people still in it. (We finally saw an immacalute house we liked listed priced correctly at 1.2 that then had SEVENTEEN offers and went for 1.45. It’s mania. That was only 4 weeks ago). In addition, we can only afford this house because of our investments in the stock market. If the stock market took a tank in the next 5 years we would be in some serious trouble. Back in 2005 I remember being concerned about carrying an 800K mortgage based on our income , now 1.2 is my high side b/c I’ve decided that the potential for having no retirement and no way to pay for my children to go to college is a reasonable risk. (Because there is a real potential our income might drastically rise in the future and then we won’t have to use our savings). So we can afford to keep the house forever, we just will have a nastier retirement than expected, and our children will have more debt than expected.
The other issue is that we hate renting. We’ve done so well financially we have a real psychological issue with not being able to fancy up a rental, and also with the idea of buying a tiny less expensive house that will just do, that we then have to sell and move out of in a few years.
And what if prices still go up in our sector? We seem to be competing against the hyper-rich. Or are they just crazy middle income people with good credit? What if prices flatline? Then we’ve spent money on a rental and consequently can afford less of a house. Argh, it’s driving me crazy. Coupled with the fact that we passed on houses for 1 million that are now selling for 1.6 million, it just makes you wonder what “reasonable” is going to be in the future (even with a correction).
I should mention I’m looking in the desirable Pasadena and South Pasadena markets. All our friends, family, and our job is here. I’ve considered Eagle Rock, Alhambra, Altadena, La Canada, and La Crescenta, but it either adds a commute of an hour per day (again for the rest of our lives which is the sticking point). Or I’m not willing to put up with the potential of crime (again, because it is for the rest of our lives). So we are looking at older stable nieghborhoods only. The ones that aren’t near to higher crime areas. I wish I coud get my hands on Pasadena and Southpas data in the downturns.
Here’s a great short video from CNBC showing how WS Banks packaged subprime garbage, and made AAA paper.
https://www.youtube.com/watch?v=0YNyn1XGyWg
jefa,
What are you waiting for? Sorry to say, but sounds like your hubby needs to get some stones and purchase that home for you.
Let’s see:
1. “All our friends, family, and our job is here…”
2. “The house we are going to buy we are going to stay until we die…”
3. “Because there is a real potential our income might drastically rise in the future…”
Given above statements, there’s no reason why you should not have bought 2 years ago. Fortunately your stock gains have helped, however, any additional delay will simply cause more psychological grief.
I’m not trying to criticize, as I’m somewhat in the same boat as you with waiting. But if I were in the position with #1 and #2 I would have purchased.
I’m not as much of a bear as others on this board, because homebuyers such as you and I will enter this market sooner than later. Waiting for the bottom in home values aren’t my primary drivers, but rather family circumstances.
Just to note that you aren’t losing $200k in rent if you decided to rent for the next 4 years. If you are planning to take out a loan then you need to calculate the true buy vs rent for your situation, even if home prices stagnant renting may be cheaper. On the other hand if you are paying cash then the interest on 1.2 million will easily pay your rent while you wait.
Check out the Creek! Holdin on!
ocorbust,
Hubby isn’t the problem. I am. We are so financially secure because I am very conservative and I make us live small. But now living small with a kid screaming at midnight is driving us batty.
I guess my real issue is that the homes that are available for 1.2 million are still a little crappy. And 1.2 million is risky for me. Not crazy risky. But risky. If I knew for sure that waiting another year would guarantee me a great house in the area I wanted for under 1.2, I would do it. As it is, I’m not sure what to do. We’re so close to the margins I don’t know if I could afford the 6% commision to switch to the “perfect house” in the future. (since all the houses will fluctuate together).
I know the real answer is that we should move. Get out of LA. Even San Diego is normally priced compared to here. Bleh.
“I know the real answer is that we should move. Get out of LA. Even San Diego is normally priced compared to here. Bleh.”
Down payment funds make great bug-out funds. The idea of cashing in my chips and bailing on California has crossed my mind more than once.
jefa, I… feel… your… pain…
I don’t know if prices in Pasadena will go up next year or not. But here’s a story that may help you.
In 1987, my wife and I arrived in LA. After a year or two, we started to look for a home. It was sickening. I kept looking at our income and then at the home prices, and wondering what magic ingredient the rest of the world knew, and we didn’t, that somehow connected the two very distant dots. Then the prices increased by another 20%, and then again, and… Clearly our “commonsense” was fatally flawed, and we needed a major mind-twisting. After a while, we almost bought a piece of stupid ridiculous-priced crap out of desperation that otherwise we’d be priced out forever.
By 1990, the market was still beyond belief, but 20-25% increases didn’t seem quite as automatic. By 1991, you could tell that prices were beginning to slip ever so slightly, although they were still stupid ridiculous. It took little decreases each year until 1996 for the prices to look halfway reasonably connected to incomes. (I moved to OC then, and didn’t buy.. kick, kick.)
Since then, obviously things have changed a lot again. But there are cycles in real estate. And right now seems close to the top of the LA cycle. Your personal situation is driving you in the direction of ‘nesting’ RIGHT NOW. Is there something you could do to give your emotional self a ‘time-out’ for a few years? For example, decide to reward yourself for waiting for the next 5 years by moving now into a rental home like the one you really want to live in.
Well, IR, I was about to first compliment you on a top-notch analytic post today, until jefa’s post pulled at my heartstrings. Emotions always win, so now you’re second.
I amn’t sure what to make of the zip code data, because it bounces around so much. My guess is that because of the noise, it’ll show clear and consistent trends only well after the downturn has taken root. But then it will be satisfying to see this incontrovertible proof of our anecdotal conclusions.
I agree that the big drop in the price last week of the AAA ABX index was a sign that may well presage a real reduction in supply of the riskiest mortgages. We’ll have to see if it persists. These prices do move a lot.
I love your new Credit Suisse projection. Looks like a 20% reduction in nationwide demand, based on it. Do you know how the figures would look for Cal, or So Cal, or OC? I suspect we’ll be affected quite a bit more, because people here had to rely so much more on high-risk mortgages.
Thanks again for this top-notch blog.
Great post. One small nitpick though. The AAA ABX you posted is not comprised of prime borrowers. It is the highest traunch of subprime borrowers. The index is comprised of 20 sub-prime securitizations. The price impact reflected in the past few weeks shows the market’s belief that given the massive wave of foreclosures about to hit, that even the most secure traunches of these subprime securitizations will have their cash flows impacted.
patientrenter, I can certainly identify with your experience. I moved to LA with my parents in the late 80s, although I was too young to remember a lot of things, I do remember clearly that in 1995/1996, the housing market was very bad. We went to a lot of open houses and often time we were the only family looking to buy. I believe the cycle will repeat itself again. My uncle brought at the last peak, I remember he kept on telling my parents to buy because the real estate price would go up forever. He did not break even until 2000, and he brought in 1988. ..
Huh? We made an offer on January of 87, closed scrow in May of that year and our home had doubled by 91, and pretty much stayed that way for a while. Until, of course, we blew out the old house and built a new one in its place (prop 13 you know…)
How could your uncle had been so burned?
I understand your point, but homes in LA and OC have NEVER been cheap. There are waves in the market, and prices will swing 40% in some areas, more in others, less in others still… but if you’re thinking long term, buy a home that needs some work at a discount and get a 30 year fixed at a low rate… rates are still low.
Figure that “patientRenter” has never bought since ’87. That’s the year we bought our home. The price per square foot then was 55 bucks per square foot!
Sure, not as good as the thousands and thousands of shares of Cisco I bought in the mid 90s and sold in Y2K, but hey, while patientRenter has rent increase, our mortage is a lot lower… indeed, the only reason our mortage is higher is because we rebuilt the entire home a few years ago.
IR, your comment about the OC Register reminds me of something the LA Times did back in the 1990’s.
All during the home price boom of the late 1980’s and through the early 1990’s, the LA Times published zip code tables, like the ones they do today, showing the big % YoY increases that were common then. Every now and then, they’d do a detailed report on one area or market. After a few years of worse and worse price decreases in the 1990’s, they decided to pull all the price tables. They said it was for “space reasons”. Heehee!
The OC Register action here is probably unrelated, but these newspapers are very motivated to give the majority of their advertisers and customers what they want to see… and no more.
I believe most of the people brought in late 1980s were burned pretty bad. Regarding the housing is never cheap, I don’t know if I can agree with that. My family finally brought in 1997. The monthly payment was lower than our rent (which was the reason why my family brought in the first place). Around LA, a decent town house around Cal Tech (I am currently renting there) can be had for around 1700 a month that is 3bd, 2 to 3bath, including 2 car parking. Timing the LA cycle correctly can save one a lot of money, I was too young to buy in 1997/98/99, but I refuse to buy right now, especially since my payment will be three times higher than my rent. Of course, if you look at the time from 1986 to 2006, then my uncle made out all right. But 20 years is a long time, and I am not sure I want to wait that long for any investment.
I honestly don’t believe any of us will be able to stay put in LA for 20+ years. I work in high tech industries, and I am already begining to see jobs moving to other states because no one wants to live in LA. Add on top of that, continue outsource to India/China, I have to be able to move to where the job is, and buying a house that will put meunderwater for 20 years simply won’t do.
Fitch Sees Rising Shakiness In Commercial Mortgage Arena
http://www.realestatejournal.com/indinvestor/20070713-chittum.html
tonye, I agree without reservation that buying So Cal real estate just about any time before 2000 turned out to be a great investment. It always amuses myself and my family that they all have gained many millions on housing with absolutely no thought about investing, and I have no gains even though I study investments for a living.
Having said that, it was better to buy in 1984 than 1990, and better in 1996 than 2006. Unlike the stock market’s cycles, real estate’s are more predictable. Given the number of alarm signals flashing in LA right now, I’d recommend to almost anyone to wait, if they can, for up to 5 years, to have a better chance of avoiding a purchase at the peak of the cycle. That’s my only point.
True, and there is a big AND.
All derivatives, be they CDOs based on prime or subprime mortgages or CDSs based on corporate bonds or interest swaps based on the 10yr treasury can lose two ways. The underlying asset can decline in value or the derivative itself can lose value due to similar products being underbid. It is entirely possible that CDOs based on prime mortgages are losing value just due to market conditions.
I am wondering if the ratings agencies who did such a great job basing their CDO ratings on historical mortgage default data, did a better job rating the corporate bond default probabilities and prime borrower default probabilities. But, of course they did, because all the experts are saying the CDO problem is contained within the subprime mortgage arena.
I would really consider what is available to rent in terms of an actual house in the Pasadena/South Pasadena area if I was the previous poster.
I used the hand New York Time calculator here:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?ex=1185336000&en=92a35496df194374&ei=5070
and plugged in some numbers
1.2 million with 10% down, 6.25% mortgage, property tax of 1.35% (not sure what the exact Pasadena rate is)
that mortage would never be cost effective w/o unrealistic appreciation over thirty years compared to a rental of $4350 a month
Even if a rental costs $5000 dollars it will take you 18 years to get a financial deal out there.
This is why there is no way in hell I’m buying my houselhold income is well over 6 figures and when we can’t afford a decent house w/o killing my cash flow and be that much better off with a rental – go with a rental. Hell rent $5000 dollar McMansion and just tell you’re friend you bought it.
For those who can’t decipher this – I couldn’t this morning, but after reading “Leverage, Ratings, and Forced Unwind” over at Calculated Risk I get some idea what it’s about.
Here’s the link
Leverage, Ratings, and Forced Unwind
http://calculatedrisk.blogspot.com/2007/07/leverage-ratings-and-forced-unwind.html
Hello West Coast,
I’m a 64 year old East Coast baby who owns homes in New York, New Jersey and Connecticut. I also rent the same apartment that my grand parents had and I was brought up in in New York City. I own the homes so don’t care about what’s going up or down, just property taxes. You see, I’m not a nomad and that’s what the banks and mortgage companies are turning people into. Nomads who think they own something because they have a mortgage on it. Well, a mortgage means that you are renting and you’ll be renting till that mortgage is paid off. The only thing you have in common with a home owner is the joy of paying that property tax.
The Wall Street boys bundled up a bunch of very dubious loans and sold them as AAA packages that they made a fortune on. Those dubious subprime loans went to hell and are bringing the real estate market along with them. Wait till this fall and you’ll be able to buy that multi million dollar home at about 40% of value. Call it a bargain, distressed value or whatever you will but when Fannie Mae and Freedie Mac stop buying what Citigroup and JP Morgan Chase have been auctioning off you’ll have the market to yourselves. Will you pay cash or get a mortgage?
Looks like a cash and carry market to me.
“I also rent the same apartment that my grand parents had and I was brought up in in New York City.”
That is very fascinating.
“Well, a mortgage means that you are renting and you’ll be renting till that mortgage is paid off.”
The word “mortgage” essentially means death (“mort”) pledge (“gage”). The idea being that after you die, all your assets go to the entity to which the mortgage was arranged. Although the mortgage terms of this past housing boom were essentially financial suicide, so the word is still appropriate.
“Will you pay cash or get a mortgage?”
Even during down cycles, houses in our area have always required a mortgage for the average Joe. The difference will be that the presently patient renters will have a good deal of cash compared to their “home owner” counterparts. When these “nomads” vacate their houses after their loans reset, we will buy them at heavily discounted prices with, what should be by then, the mandatory 20% down payments.
We will essentially swap places with the present owners, except the condition of our mortgages will be sane.
Interesting link … see the chart
Foreclosure’s now 10% of O.C. home transactions
http://blogs.ocregister.com/lansner/archives/2007/07/foreclosures_now_1.html#comments
Fixing the URL so it doesn’t scroll down the page
http://blogs.ocregister.com/lansner/archives/2007/07/foreclosures_now_1.html
Hi Jefa,
Like PatientRenter, I too feel your pain, and I have to say it kinda hurts me to read others here suggest there is some kind of easy answer. Of course, I can do no better, because buying a house is never an “easy” decision for the financially minded person, but I can let you know you’re not alone. I’ve been waiting since 1999 (oh how I wish I had bought then…)
The best analogy I’ve heard about the So Cal housing market is like a merry-go-round that is going too fast for any of us renters to get on. The kids on the merry-go-round (those who already own houses) can move around with ease, but for the rest of us, it is not possible (or would be dangerous) to get on now.
I know you’ve waited. I know it’s no fun. I’m not enjoying watching the wealth merry-go-round either. But it will slow down. Read up on IrvineRenter’s analysis. We’re seeing the same speculative bubble from the late ’80s playing out here on a bigger scale. By 1993, the terror on the ride down from that last housing boom actually pushed prices below fair market value.
Just imagine that for a second. How could that happen? If everybody wants to live here and if the wealth cycle only goes up, how did that ever occur? It was not an anomoly, and if you read the articles here you will begin to see things will be worse this time around. Not because we all want to see people lose their homes, but because the cold, hard trutch is that many, many people bought into a delusion and were empowered to act on it.
Of course nobody here including myself knows exactly what the future holds, but the whole point of this blog is to show through hard evidence the factors at play that will cause a downturn. Correction. That should be “causing” a downturn, because it’s already happening. This roller coaster hit the peak last year, we’re rolling slowly over the edge right now, and it will be scary ride down for sure.
It probably sounds like I’m just a doomsayer, but if you look at the data available on this website I think you will have these same images in your mind.
In an effort to help you, I feel I should also point out that the days of buying the “home that we will die in” may be over. Unless you have a home-based business that is very secure, it is unlikely you will live in the same spot for the next 30 years. Job change, death, and family needs, are factors that can lead to a decision to move even when the original desire was to just stay put. Truth be told, the velocity of our lives are accelerated here in So Cal. Life happens fast and change comes quickly. So this is another risk for anybody who buys on the way down.
If you had to move and couldn’t sell you could normally just rent, but with housing prices skewed so far from reality it doesn’t seem as though rent will cover the mortgage payment.
I hope I’ve not depressed you. Listen to Patient Renter, if you need a bigger place, consider renting. The market has been against you for a long time, but time is now on your side. It would be a shame to have accumulated your wealth through conservative financial stewardship only to risk losing it by buying at the top.
IrvineRenter,
I was first attracted to this website by your analysis and “behind-the-scenes” information for houses up for sale. I’ve enjoyed your themed articles. I feel I have really benefitted from your housing market analysis articles.
Perhaps the most surprising aspect of reading your articles has been the presence of intelligence and humor without arrogance or bitterness.
I mean nobody’s perfect, and as surely as I write this you will probably have a bad day and shoot off at the mouth, but I have been very pleased to read your articles without my mental “filters” going off. I wish real journalists were as honest and intelligent.
I hope you don’t get a big head from all this (I realize I’m not helping with that at this moment) and I hope you don’t get into any trouble with your work (by dedicating too much time too this). Just the same, I appreciate your willingness to contribute as well as the skills you possess which help you to contribute so effectively.
Thank you.
My worry is – will rents just go up as more and more people need to rent out their homes at a price that will cover their mortgages?
It seems to me that if many folks need to sell or rent out their homes, the oversupply will push rent prices down relative to incomes rising. Our one year lease is ending in September and our landlord asked us if we would like to sign another one year lease with no raise in monthly rental amount.