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The Clunk Heard Around The World

A report from the Press Democrat in California. “Sonoma County’s housing market started the year the way it finished 2018 — in decline as buyers remain content to sit tight as sellers reduce home prices. In February, 227 single-family homes were sold in the county, a 15 percent drop from the same month a year ago, according to The Press Democrat’s monthly housing report compiled by agent Rick Laws. The median home sales price last month fell to $620,000, down 10 percent from February 2018.”

“Gail Johnson, a Realtor with Century 21 who specializes in properties in Santa Rosa’s Oakmont neighborhood, said home prices in her market have come down to where they were just before the fires. ‘They went up as much as 20 percent,’ she said.”

“Johnson said houses now listed for $900,000 to $1 million are ‘sitting,’ with some sellers ‘still thinking the houses are worth what they were right after the fires.'”

From Curbed San Francisco. “Berkeley’s Spring Mansion, located at 1960 San Antonio, is one of the Bay Area’s busiest landmarks and rarely out of the spotlight for long. This seven-bed, six-and-a-half-bath mansion the Berkeley Hills has chopped its price again. When it first listed in 2016, the asking was $7.5 million; now, it’s a touch over $5.99 million, after previously dropping to $6.99 million last year.”

From Curbed Los Angeles. “It’s not just home values leveling off in Los Angeles. Rental prices in LA County are rising at the slowest rate in five years, according to commercial real estate tracker CoStar.”

“CoStar analyst Stephen Basham suggests that rental prices in Los Angeles may simply be approaching their limit. ‘Rents grew so quickly earlier in the cycle that they’ve been pushed about as high as the market can bear,’ he says. ‘Going forward, the rate of rent growth may be limited by overall income growth.'”

From CAL Matters. “Gov. Gavin Newsom’s first budget proposal, unveiled two months ago, took a surprisingly conservative approach, given his promises of high-dollar spending during his campaign for the governorship. In the weeks since Newsom released his budget, we’ve seen several indications that California’s economy, which has been booming for the better part of a decade and generating many billions of extra dollars in state revenue, may, in fact, be slowing.”

“There’s been a marked slowdown in the state’s once-red-hot housing market, for example, and while unemployment remains at historic low levels—just 4.2 percent in January—job creation also seems to be slowing, in part because employers are having difficulty finding enough qualified workers.”

“Personal income taxes provided 53 percent of the state’s general-fund revenue. But as Newsom succeeds Brown, income taxes account for 71 percent. And half of them are paid by just 1 percent of the state’s taxpayers, thanks not only to overall economic gains but also to higher tax rates on the wealthy, which Brown championed.”

“Despite his advocacy for those tax increases, Brown repeatedly warned that relying so much on high-income taxpayers creates higher levels of revenue volatility that bite hard during economic downturns. During the Great Recession, California saw its general-fund revenue drop by about 20 percent, with most of that decline stemming from reductions in taxable income among the state’s wealthiest residents. Is California beginning to feel that bite again?”

The Merced Sun-Star. “After a streak of more than eight years of year-over-year improvement in the monthly unemployment rate, Merced County’s jobless rate ticked up in January, compared to a year ago. The state Employment Development Department estimated the county’s unemployment rate at 10.3 percent.”

“That’s not only up from the December rate of 8.2 percent, but it’s also higher than the 10.0 percent reported for January 2018. Prior to that, the monthly unemployment rate in the county had fallen from the year-prior figure for 99 consecutive months, since September 2010.”

“Robert Dye, chief economist for Comerica Bank, characterized preliminary estimates of national job growth in February as ‘the clunk heard around the world,’ as the U.S. added only about 20,000 jobs during the month, compared to expectations of about 200,000 new jobs nationwide.”

“Michael Bernick, former director of the state EDD, noted that California only gained 3,000 non-farm jobs in January compared to December, ‘well below the monthly average of around 24,000 jobs we’ve seen in the past few years.’ ‘It’s too early to say whether this represents the employment slowdown or even downturn that has been talked about for some time,’ Bernick added. ‘This is the second longest employment expansion in the post-World War II period in California.'”

This Post Has 67 Comments
  1. ‘Rents grew so quickly earlier in the cycle that they’ve been pushed about as high as the market can bear…Going forward, the rate of rent growth may be limited by overall income growth’

    Genius. These guys get paid to point things like this out. Unlike shack prices, which are only limited to what lenders will loan. To a point:

    ‘Gail Johnson…said home prices in her market have come down to where they were just before the fires. ‘They went up as much as 20 percent’

    But fire! Flood, shortage!!

    1. Unlike shack prices, which are only limited to what lenders will loan. To a point:

      It’s brilliant really: On the one hand, the central bank injects vast amount of money into the FIRE sector, blowing asset bubbles. On the other hand the government increases the amount of debt it will insure for one type of asset (a house). A foreclosure machine.

      Cannot count these guys out, ever.

      The only thing that’s going to prick the mania is the sense that being house poor is not worth the benefits of a fantastically expensive house.

      1. The only thing that’s going to prick the mania is the sense that being house poor is not worth the benefits of a fantastically expensive house.

        The other thing is that human debt is deflationary. Businesses can simply go poof, and debt goes with them. Humans are the actual physical thing at the bottom of the economic chain and they cannot go poof. Policy makers do not differentiate between the two.

        Humans who try to arrange their finances like businesses wind up in trouble. The field of accounting is designed to understand and manage business finance, not individual finance, which leads to confusion (like a primary residence being classified as an asset even though it requires a cash outflow for carrying costs, i.e. an expense or a liability). This confuses policy makers and individuals.

        1. “The only thing that’s going to prick the mania is the sense that being house poor is not worth the benefits of a fantastically expensive house.”

          One other thing is availability of money to finance the mania.

          Take away the money and the mania runs out of fuel.

  2. ‘income taxes account for 71 percent. And half of them are paid by just 1 percent of the state’s taxpayers’

    Great, soak those rich bashtards!

    ‘That’s not only up from the December rate of 8.2 percent, but it’s also higher than the 10.0 percent reported for January 2018. Prior to that, the monthly unemployment rate in the county had fallen from the year-prior figure for 99 consecutive months, since September 2010’

    Well, it felt good to ride a housing and tech stock bubble. But all booms end in…. Say hello to your bust California.

    1. ‘we’ve seen several indications that California’s economy, which has been booming for the better part of a decade and generating many billions of extra dollars in state revenue, may, in fact, be slowing’

      Lot’s of places have been booming for a decade. Is it a coincidence this came after the biggest money creation splurge in history? I think not. So no, it wasn’t that Vancouver had been discovered. Or Sydney’s ship had come in. Or that empty multi-million dollar condos round the world were a new asset class, like money losing taxi companies.

      Behold, the folly of central banking. I read the other day the EU guy was “trying to prevent a recession.” Have they really repealed the business cycle? Cuz that would be a headline of all headlines. Endless boom? Just how dumb are these people?

      1. “Behold, the folly of central banking.”

        But what they did was wildly successful. The wealthy became even more wealthy than they ever could have imagined.

        1. +1. I’m always baffled by people who cling to the fiction that the Fed is a responsible central bank that somehow lost the plot, instead of being what it is: a private banking cartel set up for the express purpose of serving as the oligarchy’s chief instrument of plunder against the 99%.

          1. +1

            And they’re going to keep doing it, with a populace that essentially shouts “thank you sir, may I please have another?!!” Until we see some sort of mass riots where tens of millions of people are torching banks and trying to kill bankers, nothing’s going to change.

    2. Evidently California has enjoyed perpetual waves of boom and bust since the Gold Rush gave way to mass impoverishment of newly arrived prospectors once there wasn’t enough gold to go around any more. The California housing bubble and bust is just a modern version of the Gold Rush.

  3. “Sonoma County’s housing market started the year the way it finished 2018 — in decline as buyers remain content to sit tight as sellers reduce home prices.

    Ya know, the longer buyers sit tight, the more greedheads will be forced to saw n’ slash their shack prices.

    Food for thought, friends & neighbors.

  4. A video:

    https://www.kusi.com/southern-california-housing-slump-impact/

    Near the beginning, “If it’s wise to invest in real estate…What kind of question is that? It’s always wise to invest in real estate!”

    2:40 “If you buy a home, you’re locked in!”

    3:30 “Dallas, New York, Miami, they’re a little overbuilt right now. Seattle.”

    Etc. You’ll need hip-waders to get through the horsesh$t in this interview.

    1. she says rents are going up and throwing money away on rent isn’t smart when you can jump into a low interest loan with 3% down. Likely a REIC sponsored interview. Sadly, I do believe some people will watch this and feel the necessity to go over extend themselves and get into RE before they are priced out forever… seems to me the tail end of this bubble is near and ridiculous media coverages such as this are a beat effort way to lure in the last of the FBs

      1. Why is paying rent throwing money away, but not interest upfront, repairs and prop taxes throwing money away?

        1. Good questions. To each there own I guess. I don’t feel as if it is any different than the overhead costs of owning but from there perspective they are saying by renting your not building equity.

          1. Isn’t that the same as term vs whole life insurance? Pay for 30 years and the equity builds up to the point your “dividends” pay your yearly premiums.

          2. renting your [sic] not building equity

            I guess cash in the cookie jar isn’t equity. It’s just cash.

      1. Right! I was getting a pre scripted early 2018 vibe from this one. Opening it with it’s always wise to invest in real estate. I am sure he said this back in 2006 too

        1. Are you sensing a shift in the tech bubble, BubblevilleCa? I’m really curious to get your thoughts. Did you happen to catch the Twitter thread I posted about the Uber IPO signaling the top?

          1. I have been sensing it since 2016 but seems like we live in the “everything is awesome” economy. As many state on here, we can only keep taping over this leak until it finally bursts. I have noticed companies curbing budgets and hiring so that tells me they are getting worried or prepared. I think 2020 we will see clearly (pardon the pun) and all the funny money will start evaporating. I don’t have a tweeter account. I can only handle a couple social media outlets ;). What was the consensus of that thread? I’m curious about it to as some think it will magically fluff even more Bay Area RE insanity

          2. Thanks for the link, I never noticed you can simply close the sign up page and read tweets. Seems with the high level of negative income Uber would not be a smart investment. I surely won’t be investing but I’ll watch.

          3. 25 tweets? I never understand this. Why not write a few paragraphs and then tweet a link to that?

        2. “I have been sensing it since 2016 but seems like we live in the “everything is awesome” economy.”

          I greatly underestimated the ability of the Fed to reflate the housing bubble, and also the staying power of the whole thing. Right now, there is as much traffic and money sloshing around as I have ever seen.

          I guess it is going to take a while longer to start seeing the effects of a bursting housing bubble and all the associated ramifications that go along with it.

          1. I have noticed companies curbing budgets and hiring so that tells me they are getting worried or prepared.

          2. I greatly underestimated

            Yeah, makes one hesitant to predict the future to much of a schedule.

            But a crash is baked in the cake. Later is worser.

      2. This brokerage sends me addresses that don’t really exist:

        Best Value in the Hills – 1514 RISING GLEN RD, SUNSET STRIP, CA

        I looked it up:

        https://www.zillow.com/homedetails/1514-Rising-Glen-Rd-Los-Angeles-CA-90069/20799575_zpid/

        1514 Rising Glen Rd
        Los Angeles, CA 90069
        4 beds 4 baths 3,700 sqft
        For Sale
        $5,250,000
        Price cut: -$1,250,000 (3/12)

        Date Event Price
        3/12/2019 Price change $5,250,000 -19.2%
        11/12/2018 Listed for sale $6,500,000 +35.4%
        8/14/2014 Sold $4,800,000 -8.6%
        5/31/2014 Price change $5,250,000 -12.4%
        5/16/2014 Price change $5,995,000 -11.2%
        4/26/2014 Listed for sale $6,750,000 +40.6%
        2/5/2013 Sold $4,800,000 +47.7%
        9/25/2008 Sold $3,250,000 +140.7%
        7/20/2004 Sold $1,350,000 —

  5. This could be worth a look.

    Tipping Points Symposia

    The Center for Household Financial Stability and the Private Debt Project are pleased to present the papers, slides and executive summary from the 2018 Tipping Points symposium, joining the materials from the first two symposia held in 2016 and 2017. All three sessions were centered on the question of “tipping points” in regard to debt: How and when does household debt move from being wealth-building and productive for households and the economy to being wealth-depleting and destructive for both?

    1. This is getting interesting. It’s almost as though the Fed is becoming vaguely aware of the unwitting role they played in transforming a home purscase from a stable long-term household wealth accumulation strategy into a high-risk financial gamble.

      Executive Summary

      “Tipping Points” III Household Debt Research Symposium — Oct. 12, 2018

      Download the Executive Summary (PDF)
      Prepared by Ray Boshara
      Center for Household Financial Stability, Federal Reserve Bank of St. Louis

      On Friday, Oct. 12, 2018, the St. Louis Fed’s Center for Household Financial Stability and the Private Debt Project convened, in partnership with the Financial Security Program of The Aspen Institute, a one-day, invitation-only research symposium in Washington, D.C., entitled, “Debt-Financed Homeownership: Its Evolution, Impact, and Future”. The papers, discussions, main themes and key questions for future consideration are summarized here.

      The symposium addressed, through commissioned papers from leading academics and discussion, four key issues:

      The evolution of homeownership from a relatively stable low-risk investment to a higher-risk financial asset;

      How highly leveraged homeownership came to be the norm in the U.S., and its effect on household balance sheets over time;

      The trade-off between the policy goal of expanding homeownership as a tool for reducing poverty and building wealth, and the risks entailed in navigating increasingly complex and cyclical housing and mortgage markets; and

      The policy reforms necessary for achieving affordable housing and financial stability in the future.

      This symposium was the third in the “Tipping Points” series, which has explored when household debt “tips” from being productive and wealth-building for families and the economy to harmful to both. The summaries and papers from the first two symposia also may be found on the Private Debt Project site.

      1. A lightbulb goes on:

        Framing Paper
        Emmons et al. Kicking-off the symposium was a framing paper by William R. Emmons, Ana H. Kent
        and Lowell R. Ricketts of the Center for Household Financial Stability of the St. Louis Fed. The paper
        begins with the premises that debt-financed housing was central to the recent financial crisis and
        subsequent Great Recession; that millions of leveraged homeowners lost trillions of dollars of wealth,
        resulting in the near collapse of the global financial system; and that, accordingly, our system of highly
        leveraged homeownership deserves critical scrutiny. At the household level, the authors identify three
        key features of housing leading to the crisis: (1) a widespread preference and policy support for
        ownership over renting; (2) external financing exclusively in terms of debt (rather than equity); and (3) a
        relatively high amount of leverage, especially among ex ante financially vulnerable families. The
        collapse of the housing market proved, they demonstrate, to be profoundly damaging for many of the
        families concerned. They also show that, at the macro level, a boom-bust cycle has emerged as a result,
        at least in part, of government policies of three types: (1) tax preferences for owner occupation and debt
        financing; (2) an asymmetric monetary policy reaction to economic downturns known as the “Fed put,”
        which supported a private-sector debt buildup; and (3) financial liberalization, which contributed to
        large housing bubbles and financial instability by increasing typical loan-to-value ratios. Despite clear
        links between highly leveraged homeownership and severe financial crises, Emmons et al. believe that
        little serious discussion of changing our housing-finance system has taken place
        . As a first step towards
        reform, the authors discuss modifications to the tax code that could support alternatives to leveraged
        homeownership.

        1. It almost seems like some thinkers at the Fed are beginning to question the wisdom of encouraging everybody to buy a house to make everybody get rich, since real estate always goes up.

        2. “…the authors discuss modifications to the tax code that could support alternatives to leveraged
          homeownership.”

          The moment this thinking gains traction at the Fed, you can kiss the Housing Bubble goodbye.

  6. “‘income taxes account for 71 percent. And half of them are paid by just 1 percent of the state’s taxpayers’”

    Here’s an interesting read with some snips …

    The open secret about California taxes | CALmatters

    “Millionaires and billionaires contribute a disproportionate share of tax revenue—so much so that the top 1 percent of taxpayers now generate half of personal income tax receipts.”

    “The tech sector has an outsized influence on California’s tax volatility. According to the legislative analyst, the nine counties that make up the San Francisco Bay Area contribute 40 percent of personal income taxes but are home to only 20 percent of the state’s population.”

    “It’s why California budget watchers pay attention to stock-market gyrations. When the Dow experienced two 1,000-point plunges in one week in February, it triggered anxiety over state revenue. There’s a saying that when Wall Street catches a cold, California gets the flu.”

    https://calmatters.org/articles/the-open-secret-about-california-taxes/

    Hence: The stock market needs to be kept elevated in order for the evil one-percenters to keep making their wealth so that these evil one percenters will be able to keep paying their personal income taxes so that the state of California will be able to keep on with its spending.

    1. If the stock market declines then the evil one percenters incomes will decline and the incentive and the ability for them to pay higher and higher prices for houses will decline and thus the magic of ever-increasing wealth creation will decline. This factor should be added to the potential financial woes of California along with the decline of personal income tax revenue.

          1. “I will make you fishers of men.” — Jesus

            “I will reel in the suckers.” — Mr. Banker

        1. I was reading an article during one of those endless fires near Sonoma. One person recalled listening to propane tanks exploding nearer and nearer. I thought, propane tanks? What kinda hill-billies are these people? Did their wash-board melt too?

          1. Propane tanks are very common if you’re too far away from an urban area to get natural gas piped in. Nothing hillbilly about it. Usually the tanks are buried underground.

          2. The majority of Sonoma county population live in RVs. That’s to be expected in the poorest state in the US.

  7. Here’s an article that talks about rich people as measured by income and as measured by wealth. I cannot tell you the number lf times I have heard people bitch about wealthy people because of how much money THEY EARN when they really meant to bitch about how much money THEY HAVE.

    FWIW.

    Who Are the One Percent by Income and Net Worth?
    https://dqydj.com/who-are-the-one-percent-united-states/

  8. Some completely useless trivia I found on the Net …

    “The crescent or half moon cutout and the star cutout on the door of many outhouses goes back to Colonial times. In a time when few people could read, the crescent moon was the symbol for women while the star cutout was for men. … The cutout also let light into the outhouse as there were usually no windows.”

    1. Built in 1928 with gorgeous windows, a vaulted ceiling and exposed wood beams. Plans for a modern farmhouse.

    2. “…now it’s selling for 1.75 million.”

      It’s ASKING $1.75 million, but I’m not sure it will be SELLING for that. Did you notice that they put it back on the market 4 months after buying it? I don’t think they had any intention of scraping it, I think they bought it on pure, 100%, speculation and thought they could make a quick buck, but realized the market was tanking and turned around and tried to get all their money back immediately. These people are screwed. Keep an eye on this one, because I’d bet the losses are going to be at least $100k, possibly a lot more.

  9. The shift of wealth from the middle class to the rich is a first world phenomenon that is past its golden anniversary. It’s older than the digital economy and reflects the natural evolution of power accumulation. No need to get into the weeds. Any marginal middle class wealth gain is temporary collateral success. As this blog correctly points out, this HB is a wealth transfer.

    1. There are so many people neck deep in auto loans, RV loans, etc., that there should be a plethora available for pennies on the dollar by the time this whole thing shakes out.

  10. This financial episode seems quite certain to end badly.

    Americans Are Paying Massive Amounts of Money on Monthly Car Payments, Catapulting Consumer Debt
    Auto loans in 2019 have become the most expensive for consumers in over a decade.
    By Rob Stumpf
    March 3, 2019
    News

    Year after year, the American car buyer is finding themselves paying more and more for the vehicle parked in their driveway. On top of that, new car buyers are extending the average length of their loans drastically, paying an average of $551 per month for a total of 69 months.

    On the business end of the inflated payments is the actual cost of the vehicle. In 2018, the average consumer paid $35,444 to put a brand new, current-year vehicle in their driveway—a price which continues to increase thanks to the insatiable appetite of money-making crossovers and larger SUVs. Over the nearly six-year length of the vehicle’s loan, consumers find themselves paying an average of $551 per month, an increase of nearly 10 percent when compared to the same data set from 2016.

    1. There are over 7 million Americans who are at least 90 days late on their auto loan payments. These people will never catch up. That does not even include all the people who are more than 30 and 60 days late. Those people rarely catch up, either. The numbers are extremely ugly, and it has everything to do with PRICE. Automobiles, like everything, became too expensive, thanks to the good ol’ credit bubble.

    2. $35K is a nicely equipped Toyota Camry.

      Median household income is $59K a year. So a $550 /mo car payment is 11% of income.

      So a typical household is paying around 10% of income to drive a brand new Camry. And this is cause for panic? So very typical MSM.

      1. 559…after taxes. 559/(59k/12)*.75 ends up being 15%, not including insurance and gas.

        You cited household income, so double that for two cars.

        Up to 30% household income, before taxes and insurance.

        Consumer math is not America’s strong point. FB is, and from the posts I’ve seen on that nuclear waste heap, we’re farked.

    1. “What may be the first-ever hijacking of an active real estate listing online – a palatial mansion overlooking the Pacific Ocean in Bel Air, Calif. – has led to a lawsuit seeking $60 million in damages against home-sale marketing company Zillow.”

      Um, Bel Air doesn’t overlook the Pacific Ocean.

        1. We have “ocean view” homes ten miles from the coast in San Diego, for those with high-powered binoculars or a telescope.

          1. I saw houses on the Big Island in Hawaii that were 15ish miles from the ocean with the most incredible ocean views you’ve ever seen.

            At a height of 1000 feet, the human eye can see about 30 miles off in the distance without anything blocking the view. At 5000 feet elevation it’s 80 miles.

            So yes, up in the hills, without any obstructions, 10 miles and ocean view is not at all an issue.

    1. The author lost credibility with that first sentence/paragraph. He also failed to cite the actual case. Strike two for credibility in my book. In the last paragraph, he notes the hacking is “highly unlikely.”

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