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A Lot Of Them Think They Can Offer Below Asking

A report from the Los Angeles Times in California. ” The sluggish Southern California housing market took another hit in January, with sales plunging 17% from a year earlier, according to a report released Wednesday. The median is now $32,000 below its all-time high reached in June and sales, clocking in at 12,665 last month, haven’t been this low in January since 2008.”

“‘You are hitting the limits of people’s incomes,’ said Robert Castaneda, a real estate agent who works throughout Southern California. Castaneda said some buyers ‘are fearful’ of buying at the top and don’t want to overpay. As a result, they’re submitting lowball offers. ‘A lot of them think they can offer below asking,’ he said.”

“As homes have sat unsold, the number of listings has swelled, spurring more sellers to trim the asking price to close a deal. In Los Angeles County, nearly 28% more homes were on the market in January than a year earlier, according to Zillow. Nearly 16.5% of those listings had at least one price cut last month, up from 10% a year earlier.”

The Daily Bulletin. “The housing market across Southern California continued to slow last month as home sales had its weakest January in 11 years, according to CoreLogic. The firm reported 12,665 homes and condominiums changed hands in January, a 17.1 percent decline from 12 months ago and 19.8 percent fewer sales than December.”

“Last month was the weakest January since 2008 when the housing bubble across the region had just fractured. Sales have declined year over year for the last six months and in eight of the last 10.”

“In the four-county area, the steepest sales declines in the last 12 months were in Orange County, at 20.3 percent and Riverside County, at 16.8 percent. Los Angeles and San Bernardino counties declined 15.8 and 13.1 percent, respectively. Sales in January tumbled 22.9 percent in Los Angeles County, 21.4 percent in Orange County, 20.8 percent in Riverside County and 7.6 percent in San Bernardino County.”

“The glacial pace of new homes sales dragged on January, tumbling 57.9 percent from the January average spanning the last 31 years.”

The Ventura County Star. “It’s been a slow few months for home sales in Ventura County, and the new year hasn’t brought much early relief. Ventura County saw the largest year-over-year decline in home sales of all the counties cited in the report. There were 527 homes sold in the county last month, a 21 percent decline from January 2018’s 667 home sales, according to the report.”

“A previous CoreLogic report that analyzed December’s housing statistics noted that Southern California home sales also reached an 11-year low for that month. ‘January marked the second consecutive month in which Southern California home sales were the lowest for that month in 11 years, since the early days of the last housing bust,’ said CoreLogic analyst Andrew LePage.”

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  2. ‘The glacial pace of new homes sales dragged on January, tumbling 57.9 percent from the January average spanning the last 31 years’

    Oh dear…

  3. ‘Castaneda said some buyers ‘are fearful’ of buying at the top and don’t want to overpay. As a result, they’re submitting lowball offers’

    Knife catchers are good Bob. Spreads the crater around.

      1. My husband was not pleased with the 2025 forecast for the next bottom. With the SALT and MID caps, I’m inclined to think that the time and magnitude of the decline will not be as symmetric to the rise as postulated by Charles Hugh Smith.

        1. Housing used to be shelter and not a speculative investment, but thanks to the “geniuses” on Wall St. and at the Fed, and through the “miracle” of financial engineering, we now have the latter, and in spades. Think “Three card Monte.” Caveat emptor.

          “Thus one key question each investor has to answer is whether he views the future as knowable or unknowable. An investor who feels he knows what the future holds will act assertively: making directional bets, concentrating positions, levering holdings and counting on future growth – in other words, doing things that in the absence of foreknowledge would increase risk. On the other hand, someone who feels he doesn’t know what the future holds will act quite differently: diversifying, hedging, levering less (or not at all), emphasizing value today over growth tomorrow, staying high in the capital structure, and generally girding for a variety of possible outcomes.”

          Never Forget the 6′-Tall Man Who Drowned Crossing the Stream That Was 5′ Deep on Average

          The range of possibilities – the environments with which we must deal – invariably will include some bad ones. We must prepare for them, and the unavoidable prerequisite for doing so is being aware of them. Following from the section above, the key is to view the future as a range of possibilities, not a reliable point estimate.

          How does the successful investor prepare for the uncertain future? By building in what Warren Buffett calls “margin for error” or “margin of safety.” It’s having this margin that enables us to do okay even when things don’t go our way.”
          – Howard Marks, “Touchstones”, 2009

          “Do ya’ feel lucky, punk?” – Dirty Harry (Clint Eastwood)

          https://studylib.net/doc/8102768/understanding-economic-bubbles
          Understanding Economic Bubbles
          See Figure 1.9, p.16
          This is now the “go to” device in the Fed’s tool kit. Everyone should know how it works. Children playing with matches, but it’s at your house; in your living room, actually…

          “History doesn’t repeat itself, but it does rhyme.” – Mark Twain

          6. An investor who feels he knows what the future holds will act assertively: making directional bets, concentrating positions, levering holdings

            …and ignore the circling crows, EhDan?

        2. No, it takes a very long time for housing to correct. The main reason is that most owners don’t have to sell into a crash, and will try to wait it out. Since the waiting time typically includes a recession and subsequent recovery, we are talking about a period of years.

          1. According to Case Shiller, the 20 city index climbed from around 75 to 200 in the years 1996 to 2006. In the next three years it dropped back to 140, losing about 1/3. Then the second round kicked in. If this is any guide, it will take a decade to get back to 1996, if there is no second sucker’s rally. Keep in mind the bubble started back in the early ’80s.

            I can’t see into the future, but slim chance on the bubble being all but a memory in a mere three years.

          2. But like stocks, house prices are set on the margins – what the last person who sold got. So it doesn’t matter if you don’t have to sell if your neighbor does.

          4. the waiting time typically includes a recession and subsequent recovery

            I think we’re all in agreement that these are not “typical” times.

  4. More Home-Sellers are Dropping Their Prices Than in Previous Winters as Buyers Seize More Control of the Market
    by Tim Ellis on February 26, 2019
    redfin.com/blog/2019/02/february-price-drops-benefit-buyers.html
    More than one in five homes for sale nationwide dropped its price in the last month. In Fresno it was two in five.
    Top 10 Metro Areas with the Largest Increase in the Share of Homes for Sale With a Price Drop:
    1 Las Vegas, NV
    2 Seattle, WA
    3 Albuquerque, NM
    4 San Jose, CA
    5 Denver, CO
    6 Palm Bay, FL
    7 Atlanta, GA
    8 Phoenix, AZ
    9 Indianapolis, IN
    10 Orlando, FL

  5. I can almost hear the resignation in his voice when he says “some buyers ‘are fearful’ of buying at the top and don’t want to overpay. As a result, they’re submitting lowball offers’”. I laugh when I think about family in friends who in recent years insisted I hurry up and buy a house before the market “gets away from you”, to which I always replied that renters can always wait longer than sellers can. Worst case scenario, we keep on renting with lots of liquid assets on our balance sheets (cash, stocks, bonds, T-bills, etc) and the freedom to move around at will, while the “homeowners” get anchored to a location along with the debt and never-ending property tax bills on their depreciating crapshacks that they will ultimately be too old to maintain.

  8. In other news I got a good price for my POS Subaru forester at CarMax where it said use your tax refund to buy a car. Subaru will go at auction too many miles.

    1. “Subaru will go at auction too many miles.”

      They perform really well in low-traction settings, but they have too many moving parts. Also, you are dead if you can’t afford OEM parts because the aftermarket stuff is poor quality schitt.

    2. What year was your Forrester, and what were the issues you were having with it? Subarus used to be reliable cars.

      1. “Subarus used to be reliable cars.”

        Topping the list were head gasket leaks from the water jacket into the combustion chamber. That will ruin the exhaust system as ethylene glycol (antifreeze) plugs the catalytic converter, and over-heat the engine if not caught soon enough. This is a really expensive problem that could have been avoided with composite head gaskets.

          2. Yeah, but at least replacing a windshield doesn’t cost a $1000 like the TM3, and you can go to any car wash.

        2. Head gasket Yes for sure it has been leaking oil on the ground ,1500 to fix. And a new weird motorcycle sound at speed coming from the left front maybe a bearing? Transmission IDK ? My kid claims he didn’t hear it because he has music up all the time. And poor gas mileage for a 4 cylinder. New ones they burn oil .

          2010 127K

          1. Bought a slightly used Kia sorento V6 AWD a couple years ago and so far like it much better than Subaru. we will see how it holds up ? Sound system is much better and more power, smoother ride. AWD I only use in sand about the same as Subaru not stuck yet .

    3. Looking at late model Honda CR-Vs, but I see the newest ones have a small displacement 4-cyl engine w/turbo. I can’t imagine that they’ll have a long life as they push a small engine to its limits, constantly. The federal CAFE rules are likely to blame for this outcome.

      1. Pretty much all the small SUV’s are 4-bangers now, CR-V, RAV4, Mazda CX-5, Ford Escape, etc, so I’m pretty sure it’s due to CAFE.

      2. I can’t imagine that they’ll have a long life as they push a small engine to its limits, constantly.

        I used to worry about that but after many years of modifying Japanese turbo motors and running way more boost than they were originally designed for for years at a time I’ve concluded that it’s no big deal. You’re not as close to the limit as you think you are. Reliability when left stock should still be very good as long as you use good oil and change it regularly. Modern turbos last a long time as long as the bearings don’t get coked up.

  11. ‘January marked the second consecutive month in which Southern California home sales were the lowest for that month in 11 years, since the early days of the last housing bust,’ said CoreLogic analyst Andrew LePage.”

    Thank Goodness Old Yellen said we would not have another financial crisis “in our time,” since this looks an awful lot like a replay of the housing bubble bust that triggered the 2008 financial crisis.

    1. ‘the early days of the last housing bust’

      The time lines are amusing. I can show many FB’s and 100k losses in the 2006 archives. What’s relevant then is this is moving much faster. Many of these craters were at all time highs last spring or summer.

      1. This time around the Fed won’t be riding to the rescue with QE-to-Infinity, and any Congress critter that votes for a Wall Street bailout is going to get ridden out of town on a rail.

        Oh dear….

        1. They pretty much already monetized 4.3 trillion….what’s to say they don’t go Japan style, start buying ETFs and RE outright?

          I hope they don’t but believe they will. We’re F****ed

        2. There isn’t going to be a vote this time. The Fed will bail out the banks surreptitiously and without consultation with, or notification of, elected bodies.

        3. This time around the Fed won’t be riding to the rescue with QE-to-Infinity

          Why not? I can’t think of any reason to not do what “worked” last time. At least until it doesn’t “work” any more. It has to fail miserably at least once before that is proven.

    2. It must be difficult for Used Home Sellers to attribute an 11 year low in sales to a seasonal slowdown.

  12. Isn’t crony capitalism grand?

    https://wolfstreet.com/2019/02/27/shadow-banks-take-on-largest-mortgage-risks-federal-housing-administration-fha-on-the-hook/

    Lovingly known as “shadow banks,” nonbanks have come to dominate the mortgage market. And they originate the riskiest mortgages. The government — mostly the Federal Housing Administration (FHA) — is on the hook. Nonbanks do not take deposits and are not regulated by banking regulators (Federal Reserve, FDIC, and OCC). Their funding is derived mostly from selling the mortgages they originate, but also from bank loans and other sources. During the mortgage crisis, a slew of them got in trouble and, because they did not hold deposits, were allowed to collapse unceremoniously.

    1. And they originate the riskiest mortgages. The government — mostly the Federal Housing Administration (FHA) —

      A number of banks (TBTF) quit doing FHA loans altogether due to the triple penalty on any “cheating” of the government. Banks paid billions.
      An honest error becomes an attempt to defraud the government and get his will a triple penalty. We had 1 loan originated in 2001 that had to be bought back in 2012. How could that possibly be fraud. The average mortgage stays on the books 7 years.
      The DOJ “ain’t gonna” get squat from the non-bank lenders because, and Ben has mentioned this several times, they have no assets.

  16. Barron’s
    Real Estate
    U.S. Consumers Are Souring on the Housing Market
    By Matthew C. Klein
    Feb. 27, 2019 7:30 a.m. ET

    In August 2007, right at the beginning of the global financial crisis, economist Edward Leamer of the University of California, Los Angeles, presented a paper entitled “Housing Is the Business Cycle.” His point was that changes in residential construction explain much of the historical volatility in U.S. business cycles, even though home building accounts for a tiny share of overall economic activity.

    Add in spending on motor vehicles and other transportation equipment by consumers and businesses—other big-ticket items purchased on credit—and you can explain almost all of what causes recessions and recoveries.

    The recent weakness in everything from housing starts to home sales could therefore be a sign of concern. Formerly hot markets such as San Francisco and Seattle have even experienced slight price declines in the past few months.

    Things could get significantly worse. Consider the University of Michigan’s long-running Survey of Consumers, which tracks U.S. opinion on a range of economic conditions. Since the end of 2015, which happens to be when the Federal Reserve began raising its short-term interest-rate band, the proportion of Americans saying it is a good time to buy a house has plunged relative to the proportion saying it is a bad time to buy. The decline has been particularly dramatic among younger Americans and among Americans in the top third of the income distribution:
    …

    1. Got debt?

      As U.S. Debt Rate Rises, Auto Loan Delinquencies Hit Record High
      Despite a strong economy, Americans still struggle to pay some of their bills.
      Kris Kinkade
      (TMFkriskinkade)
      Feb 13, 2019 at 7:24AM

      If you live in America and you are in debt, you are definitely not alone.

      The Federal Reserve Bank of New York just put out its latest quarterly report on U.S. household debt and found that Americans collectively owe about $13.54 trillion, an amount that has risen for 18 consecutive quarters and is 21% higher than the $12.7 trillion owed in 2008 during the height of the Great Recession.

      Among the more troubling facts from the report is the record 7 million Americans who are 90 days or more behind on their auto loan payments. It’s a signal, economists say, that Americans are struggling to pay bills despite other indications of a strong economy and low unemployment. Approximately 6.5% of all auto finance loans are 90-plus days past due.

      Student loan debt edged higher, hitting $1.46 trillion in the fourth quarter, and serious delinquency rates in the category continue to be much higher than any other debt type.

      Mortgage debt accounted for most of the total, hitting $9.12 trillion in the fourth quarter.
      …

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