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Another Possibility Behind The Slowdown Is Prices Are So Expensive That Everyone Is Leaving

A report from CNBC on California. “‘The housing markets are softening in California, and it’s not just the tony neighborhoods of San Francisco, Silicon Valley and West LA,’ said Jerry Nickelsburg, an adjunct professor at UCLA and director of the Anderson School of Management’s forecast. ‘This is a statewide phenomenon.'”

“Nickelsburg said home prices are falling in many major markets of the Golden State, calling the decline ‘widespread and substantial.’ The economist said the impact of the cooling is even being felt in the Central Valley of California, where home sales have fallen by more than 10 percent.”

“‘Home prices are falling in California as is the level of building,’ Nickelsburg wrote. He said one possible explanation is ‘higher mortgage interest rates are depressing prices but not the underlying demand. Another possibility behind the housing slowdown is prices are ‘so expensive that everyone (well a lot of everyone) is leaving,’ the economist added.”

The News Press in Florida. “We’ve officially made it through the start of 2019, marking an opportune time to reflect on the latest developments in the Lee County housing market. We did begin to see some declines in December 2018, with year-over-year single-family home sales down 15 percent, and townhouses and condominiums down 23 percent. This trend continued into January 2019 with single-family home sales down 18 percent year-over-year and townhomes and condominiums down 10 percent.”

“Yet this drop isn’t necessarily indicative of a spiraling market in 2019. In fact, this could be considered a normal part of the cycle. First and foremost, listing inventory is up. We entered the year with inventory at a 19 percent increase from the same period last year, which at the current pace of sales, translates to almost seven months of inventory.”

“The trend of increased listings in the first quarter is relatively normal. However, a continued period of inventory increases, coupled with a decline in sales, could signal some possible downward pricing pressures to come.”

The Dallas Morning News in Texas. “The owners of the McKinney rental community — a partnership that includes Farmers Branch-based Megatel Homes — are offering to refund up to 12 months’ worth of rent if tenants buy one of the company’s new homes.”

“‘In the fourth quarter of last year, it was a wake-up call for me that the market had slowed down,’ CEO Zach Ipour said. ‘When there is less demand for for-sale homes, we shift our investment for more multifamily development.'”

“‘Right now multifamily is facing a concession crisis — it’s the highest in years,’ Ipour said. ‘If we can get away from those concessions, it has a huge value to our rent revenue.'”

The BC Democrat in Colorado. “Real estate agents across Colorado are hoping the chill in the state’s housing market comes from the wintry weather and not the start of a longer market slowdown. Single-family home sales across the state were down 3.9 percent in February from a year ago, according to Colorado Association of Realtors. They were down 5.1 percent in January and February combined.”

“In Pueblo County, the drop was steeper. Single-family home sales were down 24 percent last month from February 2018. They were down 15 percent for January and February combined. Other metro areas reported slowdowns for the first two months of the year: Grand Junction, down 18.4 percent; Boulder-Longmont, down 17.9 percent; Fort Collins-Loveland, down 11.2 percent; Greeley, down 4.8 percent; and Denver County, down 3.3 percent.”

“The report came a day after the state Department of Labor said revised federal employment data for 2018 showed Colorado’s job growth slowed starting last summer and the jobless rate rose to 3.7 percent as of January, the highest in nearly four years. Pueblo County’s jobless rate was up to 6.3 percent and local job growth was essentially flat for a second straight year.”

From Realtor.com. “‘American Chopper’ star Paul Teutul has hit the skids when it comes to finance. About a year ago, the man behind Orange County Choppers filed for bankruptcy and was reported to be millions of dollars in debt.”

“And his real estate dealings haven’t fared much better. The reality TV star listed his rustic, 38-acre retreat in Montgomery, NY, for $2.89 million in October 2017, at a time when his troubled finances weren’t public knowledge.”

“Three months later, the price was sliced to $2.49 million. Now, just over a year later, the massive spread is priced at $1.65 million — a substantial 42 percent discount from its original price. Yet no buyer has seen fit to rev up and make an offer.”

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This Post Has 66 Comments

  1. ‘Real estate agents across Colorado are hoping the chill in the state’s housing market comes from the wintry weather and not the start of a longer market slowdown’

    It probably hurts to stamp those little feet in the cold.

    ‘The report came a day after the state Department of Labor said revised federal employment data for 2018 showed Colorado’s job growth slowed starting last summer and the jobless rate rose to 3.7 percent as of January, the highest in nearly four years. Pueblo County’s jobless rate was up to 6.3 percent’

    Isn’t it amazing how the bubble popping does this?

    2. So many people (millennials) are beginning to realize that moving to Denver was a mistake, and now it’s time to move away.

      “This sucker could go down” — George W. Bush, 2008

  3. ‘Right now multifamily is facing a concession crisis — it’s the highest in years…If we can get away from those concessions, it has a huge value to our rent revenue’

    But that’s the thing Zach, you can’t get away from them.

    ‘Another possibility behind the housing slowdown is prices are ‘so expensive that everyone (well a lot of everyone) is leaving’

    Nobody wants to live there?

    You have to wonder about California. For many months, maybe longer, we’ve read polls saying “we’re outta here”. Maybe those high shack prices aren’t the big bonanza it’s made out to be.

  4. “The trend of increased listings in the first quarter is relatively normal. However, a continued period of inventory increases, coupled with a decline in sales, could signal some possible downward pricing pressures to come.”

    WOW such insights….those bribed college admission and education really help out SEE

    “‘In the fourth quarter of last year, it was a wake-up call for me that the market had slowed down,’ CEO Zach Ipour said. ‘When there is less demand for for-sale homes, we shift our investment for more multifamily development.’”

    “‘Right now multifamily is facing a concession crisis — it’s the highest in years,’ Ipour said. ‘If we can get away from those concessions, it has a huge value to our rent revenue.’”

    YOU just got to build your way outta this mess!

    1. “a continued period of inventory increa$es, coupled with a decline in $ales, could $ignal some po$$ible downward pricing pre$$ures to come.”

      Foghorn: “He’s about as sharp as a bowling ball”

    2. Zach is the “CEO” of Megatel.

      I’m uncertain if Zach has built a thing in his life but what I am positive of is he doesn’t stand a snowballs chance in hell that he could build profitablity in the absence of massive federal subsidies via Fannie, Freddie and HUD.

  6. How’s the housing bubble in Rapid City, SD?

    Flyover country has just as terrible prices compared to the opportunity available for wages..

    Thanks..

  7. “In Pueblo County, the drop was steeper. Single-family home sales were down 24 percent last month from February 2018. They were down 15 percent for January and February combined.

    Pueblo is a gang-invested, graffiti-tagged, open-air drug market where the barrios are getting more run-down and dangerous by the month. I can’t for the life of me understand why prices in that wasteland ever rose high enough to drop in the first place.

      1. Hey now, let’s not insult Albuquerque. At least it has a halfway decent airport, a balloon fiesta, and the tram.

        1. “Hey now, let’s not insult Albuquerque.”

          Eye kinda remembers, an awesome native.America mu$eum? … Has it been repurpo$ed to MAGA?

    2. Pueblo

      I was first there in the ’60s on the way to Philmont. The Boy Scout’s Kiva was very awesome to a 14 year old.

      Last time I was there maybe three years ago employment seemed to depend a lot on the railroad and how Colorado coal was selling.

      1. “employment seemed to depend a lot on the railroad and how Colorado coal was selling.”

        Colorado? … Eye’$ cornfused …
        ( Union Pacific R&R for sure, where in Coloraido cometh the coal?)

        l
        Which states produce the most coal?
        In 2017, about 757 million short tons of coal were produced in 24 states. Five states produced a total of about 538 million short tons, or about 71% of total U.S. coal production. The five largest coal-producing states with production in million short tons and their share of total U.S. coal production in 2017:

        Wyoming—316.5—41%
        West Virginia—92.8—12%
        Pennsylvania—49.1—6%
        Illinois—48.2—6%
        Kentucky—41.8

        1. Never.mind$ … Researched my own que$tion!
          (Looks like they$ all near NEW.Mexico!)

          Go ga$ & wind$! …

          Colorado is the tenth largest coal-producing state in the country. In 2014, Colorado mines produced 21.8 million metric tons (24.0 million short tons) of coal, and employed 2,069 miners. Most Colorado coal is used for electric power generation. Eleven coal mines operate in Colorado, including eight underground mines in Delta, Garfield, Gunnison, La Plata, Rio Blanco, and Routt counties, and three surface mines in Moffat and Montrose counties. All active coal mines are on the western slope, although the New Elk coal mine in Las Animas County is expected to reopen in 4th quarter 2010

          In 2015, coal provided 31 TWh of electricity in Colorado, while ga supplied 12 TWh and wind$ made 7 TWh

  8. Lee County is kind of belweather county for the state economy. It encompasses Ft. Myers and Coral Gables and is typically lower priced and less desirable than other coastal counties. It is it last to rise and first to fall. That in itself is a clear sign. The thing that really stands out is that the data is coming at peak season rather than deep hot summer which is typically the time when slowing occurs.

    The baby may not be in the bag quite yet, but all the signs are there. Is refreshing to hear some straight talk from multiple individuals in the paragraphs above. May mean that a threashold of reality has been crossed. At some point there is no use in the spin game. Even MSM will eventually talk straight once the fog lifts.

    As for Paul senior, I think he set his fate once he ran junior off on his own. Junior was the creative genius. Used to love watching American Chopper back in the day.

    1. “Canada home prices drop in Feb for 5th straight month ”

      It’s not their fault they were expecting a bunch of promised buyers from the U.S. after the last presidential election.

  10. I came across an interesting price history today (luxury LA condo). It shows the weakest hands in the luxury market have been price cutting since 2017 –

    Jul 2017 Sold $2,800,000
    Apr 2017 Reduced $3,275,000
    Feb 2017 Listed $3,425,000
    Oct 2005 Sold $1,785,000
    Jul 1979 Sold $109,500

    For percentage geeks –
    +2500% in 38 years
    -18% from Feb-July 2017

  11. LOLZ at future pent-up demand:

    “More U.S. adolescents and young adults in the late 2010s, versus the mid-2000s, experienced serious psychological distress, major depression or suicidal thoughts, and more attempted suicide,” said lead author Jean Twenge, PhD, author of the book “iGen” and professor of psychology at San Diego State University. “These trends are weak or non-existent among adults 26 years and over, suggesting a generational shift in mood disorders instead of an overall increase across all ages.”

    https://www.newswise.com/articles/mental-health-issues-increased-significantly-in-young-adults-over-last-decade

  13. Denver is Los Angeles but with nasty winter weather. Full of illegals, awful traffic, run by hard left Democrats and insane housing prices. At least in LA it’s 65 and sunny in January and there’s a beach.

    1. True, Denver chose sprawl like LA. Easier to go skiing from LA than Denver on a weekend in Jan.

        1. A few others in the area, Baldy, Mt High, snow…. something… world class Mammoth – 4 hrs.

          1. Try 6 hours. La traffic is rough. 395 is two lanes and getting through the exurbs when freight traffic is moving is both enervating and terrifying given the way people pass.

  15. https://www.advisorperspectives.com/dshort/updates/2019/03/14/new-home-sales-down-in-january-worse-than-forecast
    New Home Sales Down in January, Worse Than Forecast
    by Jill Mislinski, 3/14/19
    “We’ve included a six-month moving average to highlight the trend in this highly volatile series.”
    Check out the most recent “peak” in the first chart. Is “the” top in for housing bubble 2.0? Other charts useful data as well: “real”, or inflation adjusted data. Cheers.

  16. BTW, new and pending home sales are leading (housing) indicators. New home sales are recorded when contracts are signed vs. when they close, as for existing home sales. Not to mention, but I will, housing is a leading indicator for the U.S. economy.

  17. ‘so expensive that everyone (well a lot of everyone) is leaving,’

    We’ve certainly seen a lot more people leave our circle in recent years than enter it.

    And apparently our experience is representative.

    More Than Half of Californians Say They Plan to Leave as State Leads U.S. in Outmigration
    San Francisco skyline / Getty
    BY: Bethany Blankley – Watchdog.org
    March 9, 2019 4:55 am

    California leads the nation in outmigration, and has experienced a domestic outmigration decline since 1991, according to the California Department of Finance.

    According to a recent survey, 53 percent of all Californians, 63 percent of millennials, and 76 percent of residents in the Bay Area say they are seriously considering leaving the state.

    California has recorded net domestic out-migration since at least 1991, according to state data, meaning it has lost more people to other states than it has brought in from them – nearly every year.

    In 2018, the Bay Area hit its highest level of outward migration in more than a decade, and still holds the top spot in the country for outmigration.
    …

    1. “…76 percent of residents in the Bay Area say they are seriously considering leaving the state.”

      Wha? Are these the same people who two years ago wanted Cali to secede? Maybe they’re planning to finally head for Canada!? 🙂

  18. “‘The housing markets are softening in California, and it’s not just the tony neighborhoods of San Francisco, Silicon Valley and West LA,’ said Jerry Nickelsburg, an adjunct professor at UCLA and director of the Anderson School of Management’s forecast. ‘This is a statewide phenomenon.’”

    but But BUT! Chris Thornburg, also UCLA, says everything is fine.

    1. Anybody have any recent Thornberg quotes in the face of growing evidence of falling California prices? I’m curious if he will play the denial card, or just settle for a delicious baked crow dinner.

      2. I’m curious if he will play the denial card, or just settle for a delicious baked crow dinner.

        My money is on “nobody could have seen it coming” (get that bird out of my face).

    1. Chinese muppet slaughter alert!

      The Financial Times
      Private equity
      Chinese private equity funding hit by sharp downturn
      Fundraising and exits collapse for smaller funds investors that bought tech stocks
      The Bund Bull stands in Shanghai, China, where fundraising for renminbi-denominated private equity funds has plummeted © Bloomberg
      Don Weinland in Beijing
      4 hours ago

      Fundraising by renminbi-denominated private equity groups in China plummeted 86 per cent last year, squeezed by a tighter availability of credit and a slower initial public offering market.

      The fall — revealed in a new report published on Friday — underlines how the Chinese private equity market has gone into reverse from the boom times of a few of years ago, when scores of new funds were launched and the country’s technology companies attracted sky-high valuations.

      Hundreds of small, inexperienced Chinese private equity funds that rushed into investments in technology and new economy companies have begun to suffer from a sharp contraction in fundraising and tougher environment for exiting investments.

      Private equity houses raised about $13bn in renminbi-denominated funds in 2018, down about 86 per cent from the $93bn raised the year before, according to data compiled by the consultants Bain & Co.

      At the same time, small Chinese private equity groups struggled to cash in on their investments in 2018. Sales and initial public offerings worth less than $100m fell by about 64 per cent last year compared to a five-year average.

      “The level of optimism and fervour for investing in the tech sector foreshadowed what we are seeing now,” said Usman Akhtar, a partner at Bain & Co, referring to how many small private equity houses are struggling to exit from investments at expected prices. “It’s the start of this and it may take a few years to pan out.”

      The tightening of credit in China is a broad trend with an impact far beyond private equity. Banks, trusts and other sources of capital have been squeezed during China’s attempt to slow the growth of debt.

      So-called shadow banking has been an important source of funds for small private equity groups. Without these channels to fresh cash, many of the imperilled funds are simply shutting down, raising doubts over whether investors will be paid.

      China’s woes are mirrored across Asia where large private equity is sucking up most of the available capital while also finding means to exit their investments, Mr Akhtar said.
      …

      1. “It’s the start of this and it may take a few years to pan out.”

        Sounds remarkably similar to the collapsing global housing bubble!

        1. No need to be alarmist, professor Bear. I have it on good authority – the REIC and the MSM parrots on its shoulder – that the green shoots of Spring should be bursting forth any day now in all their verdant glory.

          It’s gotta be just around the corner, my academic friend….

  22. NYC’s “political climate” – the rise of the Gimme Dats who are replacing staid, corrupt corporate Democrats with far-left AOC clones – is causing hedgies to join Amazon in looking at more friendly locales. Wise move, but it doesn’t bode well for all that real estate bid into the stratosphere with the Yellen Bux hot money flows of yesteryear.

    https://www.zerohedge.com/news/2019-03-14/citadel-may-scrap-plan-new-york-headquarters-after-amazon-fiasco

    1. Well there it is, a tad late but the gov shutdown has now been blamed nonetheless. So far in just the last few months we got the following excuses: interest rates rising but then lowering back to where they where (low), gov shutdown (Yun previously said no impact), unstable stawk market (been at all time highs), weather (it’s to hot or to cold or not cold or hot enough to buy), student debt (ok), buyers went on vacation (an apparent buyer organized globally spread movement to take this whole summer off together), what else am I missing…

  24. Are you buying the stock market bubble while hoping to never hear that popping sound which investors greatly fear?

    2. In central bank stimulus we trust!

      Global Economy Slows, Pushing Europe’s Central Bank to Make a Surprise Move
      The European Central Bank, concerned about the sluggish eurozone economy, pushed back the date of its next increase in benchmark interest rates.
      Credit Daniel Roland/Agence France-Presse — Getty Images
      By Jack Ewing
      March 7, 2019

      FRANKFURT — Just a few months ago, the European Central Bank put the brakes on a vast economic stimulus program devised during the financial crisis. On Thursday, it unexpectedly reversed course and revived some of the measures, signaling the rising threat of a recession.

      The quick turnabout, from confidence to concern, reflects the broader weakness in the global economy. A slowdown in China, exacerbated by rising trade tensions with the United States, has reverberated around the world, dragging down growth in Europe and elsewhere.

      The United States is Europe’s largest trading partner, while China is an increasingly important market for its cars, pharmaceuticals and manufactured goods. The industrial powerhouse Germany barely escaped recession in the latest quarter, as the country’s economy was battered by the American tariffs on its steel and waning Chinese appetite for its machine tools and Volkswagens.

      Europe has been particularly vulnerable to global forces, given the turmoil at home. The uncertainty over Britain’s exit from the European Union has put pressure on the British economy, while Italy and Spain have been shaken by their own political fissures.
      …

      1. In 1921 we don’t d nothing and cpi dropped
        10.34% then the roaring 20s followed.
        Stirring makes it stink

  27. Why Mortgage Rates Once Reached a Sky-high 18.5%

    Zelkadis Elvi
    Just Explain it•November 22, 2013

    Imagine paying over 18% interest on a 30-year fixed mortgage. It’s almost unthinkable. But that was the reality for home buyers in October 1981 – a year when the average rate was almost 17%.

    According to the Census Bureau, the average cost of a home in 1981 was $82,500. With an interest rate of 18.45%, buying a home was expensive. A monthly payment, after putting 20% down, would have been $1,019. That’s the equivalent of $2,500 today, adjusting for inflation. And that doesn’t include property taxes, home insurance, etc.

    The average cost of a home today is $322,700. If the same 18.45% rate were applied – along with a 20% down payment – the monthly cost would be $3,986. The total payments after 30 years would be about $1.43 million, with roughly $1.18 million of that going towards interest alone.

    In both cases, 82% of your payments over 30 years would go towards interest.

    http://finance.yahoo.com/blogs/just-explain-it/why-mortgage-rates-matter-152241574.html

    1. “The average cost of a home today is $322,700. If the same 18.45% rate were applied – along with a 20% down payment – the monthly cost would be $3,986.”

      That is incorrect. The adjustment would come in the form of a much lower price, as the payments are constrained by buyer incomes. Incomes don’t automatically adjust upwards with interest rates; quite the contrary, in fact, as anyone who was working a career-track job during the 1980-1982 recession can attest. (I was working, but it was a low-paying student job…)

      1. And further to the point….

        The average cost of a SFR in 1981 was in the $38k range, not 81k.

        Somebodys a lion again.

      2. The adjustment would come in the form of a much lower price, as the payments are constrained by buyer incomes.

        This was one of the most important concepts that I learned during Housing Bubble 1.0. Low interest rates aren’t necessarily good. With property taxes and MID, buying a house at a lower price with a higher interest rate can be better over the long term.

  29. From the advisor perspective link, on the page re existing home sales:

    “For a longer-term perspective, here is a snapshot of the data series, which comes from the National Association of Realtors. The data since January 1999 was previously available in the St. Louis Fed’s FRED repository and is now only available from January 2018. It can be found here.”

    Previously available at FRED back to 1999 now conveniently only dating back 1 yr when the chart shows a pretty clear peak?

    Anyone else find this suspect? This is how they’ll attempt to hide the truth. You know “when the facts change i change my mind” kind of thing. If the facts can be changed or obscured well enough this allows for more gleeful dotted line signers… Mr banker rub hands

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