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Inventory And Price Reductions Are On The Rise In California

A report from the Los Angeles Times in California. “Southern California home sales plunged 12% in November from a year earlier, while prices rose at the slowest pace in three years amid a broad cooling in the housing market.”

“The median — the point at which half the homes sold for more and half for less — slipped 0.4% compared with October and is now $14,250 below the all-time high reached in June. It’s not unusual for the median to peak in summer or slip from one month to the next. But the sales decline, combined with a plethora of other data, confirms that the housing market has slowed dramatically in recent months.”

“Not only were there more homes on the market last month than a year earlier, but sellers also increasingly trimmed their asking prices to close a deal.”

“Economists generally do not expect a crash like the one that happened last decade when the housing bubble popped. But they disagree on what exactly comes next.”

“Some predict that home price appreciation will slow, but that unless there’s a recession, prices will not fall. Others think prices could come down slightly. They argue that even with continued economic growth, home values have gotten too far out of whack when compared with incomes.”

“In the small, expensive market of Ventura County, the median has already come down slightly. Last month, the median for new and resale houses and condos was $575,000, down 0.9% from a year earlier. It was the first time that figure fell, year-over-year, in a Southern California county since 2012.”

“Depending on how the data is looked at, more declines are evident. When looking only at sales of previously owned single-family homes, the median price fell 0.7% from a year earlier in Orange County and 0.8% in Ventura County.”

“The last time that happened was December 2014. At the time, the housing market had cooled following a surge in mortgage rates and a run of double-digit price appreciation. But home values didn’t tank then. Instead, the Case-Shiller index showed, price appreciation slowed — and eventually accelerated.”

The Orange County Register. “The Southern California housing market is ending 2018 with the lowest number of home sales in four years and its second-lowest home sales tally in seven years, CoreLogic housing figures show.”

“‘Higher mortgage rates worsened affordability constraints this year, and in recent months, stock market volatility could have contributed to the high-end pullback,’said CoreLogic Analyst Andrew LePage. ‘Market corrections can spook high-end buyers and leave some with inadequate funds to cover down payment and closings costs.”

“Sales have seen year-over-year declines 11 times in the past 13 months. Sales were down in all six counties, ranging from sales drops of 6.4 percent in Riverside County to 15.8 percent in Los Angeles County.”

From 10 News San Diego. “In terms of year-over-year sales in San Diego, CoreLogic’s latest numbers show 2,936 homes sold in November 2018 — nearly 11 percent lower than the number of home sales at the same time frame in 2017 when 3,291 homes were sold. From October 2018 to November 2018, the number of homes sold in San Diego fell 7.1 percent, from 3,159 to 2,936.”

“CoreLogic analyst Andrew LePage said, ‘Last month’s 12 percent year-over-year drop in home sales marked the second largest decline in more than four years, behind a nearly 18 percent decrease this September. November’s slowdown affected all major price categories, including a nearly 10 percent annual drop in $1 million-plus sales, which have fallen on a year-over-year basis for three consecutive months.'”

The San Francisco Business Journal. “The Bay Area’s housing market remains chock full of contradictions. Experts say the market is softening, but San Francisco housing prices remain higher than ever. The days of multiple bids and significant overbids seem to be finished unless the property is truly a winner, with views, a desirable location and a top-notch condition, said Gregg Lynn, an agent with Sotheby’s International Realty.”

“‘Buyers do expect that our market has stopped growing at 5 to 10 percent a year and that sellers are more flexible than they were in years past,’ he said.”

“The Greater Bay Area’s median home price appreciation slowed to 3 percent to $899,000 in November compared with the same month in 2017 — the least growth since August 2016, according to Selma Hepp, chief economist at brokerage firm Compass. Inventory and price reductions are on the rise.”

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This Post Has 75 Comments

    1. It should be fixed. Man I really don’t like this Gutenberg publisher that came with the last upgrade.

  2. ‘In the small, expensive market of Ventura County, the median has already come down slightly. ..It was the first time that figure fell, year-over-year, in a Southern California county since 2012’

    These Californians really make a big deal out of this year over year thing. Meanwhile even the panhandlers know prices are dropping like turd in a well.

    1. Seattle is a great example: Up year-on-year, but down 11% over six months. The year-on-year metric is pretty useless for measuring price change during a year when a speculative bubble collapses.

          1. This is why I expect rents to initially stay high during the incipient period of downward adjustment in home purchase prices: It will be more financially advantageous to pay a high rental rate than to lose an even larger amount HODLing owner-occupied housing while prices are falling.

      2. Of course the lending limits set the cadence, but other than that it’s the weather. It’s 22-degrees F right now in eastern Washington, and I’ve been stuck indoors for nearly two months. Once the family holiday obligations have been satisfied I’m heading south to the California coast to hang glide.

    3. “Meanwhile even the panhandlers know prices are dropping like turd in a well”

      Pretty soon these panhandlers will be serving the realtors some of that Ebola stew.

    1. Even the Ferrari’s are underwater in Pa;m Beach

      Fire-Rescue: Man drives Ferrari off Palm Beach dock

      By Ian Cohen
      Posted Dec 26, 2018 at 10:48 AM

      A man drove a blue Ferrari coupe off a North End dock and into the Lake Worth Inlet early Wednesday morning, Palm Beach Fire-Rescue said, forcing the man to abandon his car as it sank 30 feet below water.

      The man was helped out of the water by those on a passing boat and taken back to shore, Fire-Rescue spokesman Sean Baker said, and was deemed uninjured by paramedics.

      https://www.palmbeachpost.com/news/20181226/fire-rescue-man-drives-ferrari-off-palm-beach-dock

  4. One thing I am not understanding very well is how rents were able to get so high, in conjunction with an economy that is white hot with massive spending on big ticket items, etc.

    Last bubble rents were much, much lower. This time, rents in the areas I am familiar with have doubled in some instances. Wages, at the same time, are stagnant to slightly higher, but nothing which would support such an insane rise. I really have a hard time understanding where the money is coming from to support them.

    1. Last bubble rents were much, much lower. This time, rents in the areas I am familiar with have doubled in some instances

      In our case, a lack of supply was the problem. We had to suck it up and pay more for what we wanted. To be fair, though, our ‘wants’ quite exceed our needs.

      1. Your situation is totally different than what I’m talking about. You’re pulling down like $400k as DINKs and renting a very expensive house over in Sammamish or wherever.

        What I’m wondering about is how the people who make the median have been able to afford median rents that are eating up more than 2/3 of their pay or more. It does not pencil out. It’s crazy.

        1. What I’m wondering about is how the people who make the median have been able to afford median rents that are eating up more than 2/3 of their pay or more.

          They spend less on other things.

          I don’t think the folks throwing cash around on cars, Rolexes, eating out, etc, are the same that are making the median salary and renting in this area.

          Instead, the cash being thrown around is from those from out-of-country who are buying houses to get money out of their home country.

        2. I can’t speak for all but most of the people I know that make a median income have had to get into co-living environments or as one of our kids friends parents did, move into a kick start community building that provides shelter and food so she could get money saved up to find a stable / affordable home for her and her kids. Her situation was sad as she had lived in a apartment complex that decided to raise all the rents 50+ % which was above her monthly income. I have other friends that gave up with working to pay just there rent and moved to a state that support there income. One close friend moved up to inland WA and got a county job paying double what he made here in CA and bought a house with a 1k month mortgage. Aside from the weather difference he is pretty happy now. I pay a hefty rent myself but I can afford it and it’s better than the mortgage payment if I was to jump into this mania of a RE market.

  6. “Economists generally do not expect a crash like the one that happened last decade when the housing bubble popped. But they disagree on what exactly comes next.”

    Well I’m sure this time is different…despite the massive piling in of speculators in the post-2009 period who have no incentive to do anything at this point but exit the market, now that prices have turned south. Nobody wants to HODL a falling knife!

    2. “Some predict that home price appreciation will slow, but that unless there’s a recession, prices will not fall.”

      Some people ought to occasionally get their heads out of their @$$es and look around before speaking to the press. Of course they can pretend they called it next year when falling home prices are common knowledge.

    3. did the loans get as crazy as last time?? Do we have “liar loans” i.e stated income stated assets? Do we have 125% loan to value loans? I don’t think the easy money this time was anywhere near as easy as the last time.

  7. “Economists generally do not expect a crash like the one that happened last decade when the housing bubble popped. But they disagree on what exactly comes next.”

    That’s funny. Those same economists assured us we weren’t in a housing bubble back in 2006/7, assured us there would be a “soft landing” as Housing Bubble 1.0 was bursting, and were blindsided by the global financial crisis of 2008. So you have to be a special kind of stupid to give these asshats any credence whatsoever.

    1. Didn’t some economist assure everyone who would listen that, “Subprime will be contained to $200 bn”? That was well before Wall Street blew up and the Fed’s balance sheet expanded by $4 trillion ($4,000 bn = 20 × $200 bn).

        1. Feb 2006

          “”Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.””

          -Bernanke

          Sound similar to what real estate shills are saying RIGHT NOW???

  8. “Housing is also more affordable than it was last decade, if you can get a mortgage.”

    That’s a BIG if now…

    1. More expensive yet more affordable…I’m going to have to ponder that for some time in order to fathom it.

    2. The other thing to not miss about home ownership costs is that it is very financially devastating to own a home when prices are falling.

      1. It’s also financially devastating when you develop a massive roof leak in mid-winter and don’t have the $15,000+ for a new roof. Or, when the HVAC unit goes out mid-winter and you’re short the $5,000.

        1. Living in San Diego, we tend to dress warm in winter and cool in summer to avoid heat and AC costs (don’t have AC, and haven’t yet turned on the heat despite 40 degree F evening lows). We are otherwise blessed with responsive landlords who have eaten necessary major repairs as they arose.

          By contrast, I have a friend who lives alone in a rental with a broken toilet that is almost too decrepit to use. She doesn’t tell the landlord for fear that he might fix it and up her rent to pay for it. So she instead makes do with a broken toilet and below-market rent.

        2. My rental house sustained $15K in damage from a hailstorm in 2016. Needed a new roof and the siding and windows replaced at the rear of the house. Landlord covered it all, and only raised the rent $50 a month in January 2017, which was and is still a relative bargain for my zip code. I take good care of his place, and in return he keeps the rent reasonable and responds immediately if something needs fixing that I can’t do myself. That’s the way it’s supposed to work.

        3. “Or, when the HVAC unit goes out mid-winter and you’re short the $5,000.”

          Our spec rancher HVAC needed a few repairs. But a newer high pressure r-410a refrigerant became law, so no more repairing the old system. I coughed-up $10k for a quiet variable speed heat pump system that is actually cheaper to operate.

      2. “The other thing to not miss about home ownership costs is that it is very financially devastating to own a home when prices are falling.”

        Especially if you are still paying the mortgage.

        1. That’s the point. I wonder how many homeowners realize it before their mortgage goes underwater that they have to keep paying principle and interest on the purchase price, even if the market value of the home subsequently falls?

      3. Especially for those who have repeatedly used their homes as ATM’s. Won’t be as easy to manage that credit card, auto payment and student loan debts.

  9. “The average rate for a 30-year fixed mortgage was 4.55% this week, according to Freddie Mac. That’s down from a recent high of 4.94%, but it’s far higher than the 3.99% level of a year ago. (Of course, they were in the teens though much of the 1980s.)

    The annual increase in borrowing costs adds $131 to what previously would’ve been a $2,528 monthly mortgage payment on a $500,000 house.”

    WOW and just to think that 0.50% increase in rate did all this? What’s gonna happen when interest rate go back to 5%, or 6%???

      2. I once had a mortgage at 7% and thought it was an amazing deal. If we returned to those levels there’d be soup kitchens everywhere. Thanks to QE the ferryman is finally returning to collect his pay. With interest!

  11. “December 2014. At the time, the housing market had cooled following a surge in mortgage rates and a run of double-digit price appreciation. But home values didn’t tank then. Instead, the Case-Shiller index showed, price appreciation slowed — and eventually accelerated.”

    What they don’t mention is that lending standards were forced down to the gutter to save the market in 2014, after about 8 months of falling prices. Then the ECB started QE in early 2015 and the global liquidity floodgates re-opened.

    I’m still annoyed about 2014. It was the start of a significant housing correction and the people who would have gotten burnt were mostly post-2008 buy the dip speculators and knife catchers. It was really this market save in 2014 that gave normal people the false confidence to jump back into housing after an already huge “run of double-digit price appreciation.”

    If the market had been left alone to correct in 2014 we would be 4 years into the second housing crash by now, with prices likely lower than the 2009-12 era. The lesson that housing is not a speculative vehicle would have been reinforced in the minds of the public. And everyone who got suckered in 2015-18 would have been saved from themselves.

    1. “And everyone who got suckered in 2015-18 would have been saved from themselves.“

      Totally agree and share the same frustration. The fact that we blinked through this last correction is why this time it’s likely to be much much worse. Think of all the fake money that will vanish if and when all these housing piggy banks plummet back to reality

    2. Paid $1,575,000 in 2008!

      Tried to sell in 2012 for $1,995,000 and they been walking the price down for 6 years. Connecticut real estate is a mess. The property taxes alone are $30,000/year on a $1,100,000 assessment.

  14. The Fed’s Frankenstein
    Thursday, 27 December 2018
    By Dave Kranzler

    “Commentators keep asking why the Fed can’t raise rates if the economy is so strong? They still don’t realize that the economy was never strong. They confuse a bubble for strength. Without 0% rates and QE the bubble can’t survive. But a return to those policies kills the dollar” – Peter Schiff on Twitter

    I made that same argument about the Fed funds rate, the dollar and why the Fed has to keep “nudging” the Fed funds rate higher in a podcast conversation with James Anderson at Silver Doctors last week.

    Yesterday’s 1000-point spike up in the Dow may have been the largest one-day point gain in Dow, but it was far from the largest percentage point gain. The two largest percentage point gains occurred in October 2008: a 11.08% gain on October 13, 2008 and a 10.88% gain on October 28, 2008. Those two days took the Dow just above 9,000. A little more than four months later, the Dow closed at 6,626. Yesterday’s market action was nothing more than evidence that the Fed’s Frankenstein has gone off the chain…

    Some chart “experts” have labeled the market “extremely oversold.” But the stock market has been extremely overbought for the better part of the last 8 years. By what measure is the market “extremely oversold” in this context? Looking at a monthly chart of the SPX going back to 1999, the MACD was at it’s most extreme overbought by far at the beginning of 2018.

    But the current sell-off has barely moved the needle on the monthly MACD. It’s nice to draw symmetrical geometric shapes and lines which are fit to charts ex post facto (i.e. Monday morning armchair QB). But the fundamentals beneath historically overvalued financial assets are cratering very rapidly.

    The drop in stocks since early October has done little to correct the extreme condition of overvaluation – aka “the bubble.” Using real numbers to calculate preferred valuation ratios used by “analysts,” rather than manipulated Government GDP/inflation and phony GAAP numbers used by these “analysts,” the overvalued condition of the stock market is the most extreme in history.

    A coordinated Central Bank-engineered bounce is to be expected and certainly there’s extreme political pressure in the U.S. for this. But more intervention preventing true price discovery merely defers the inevitable rather than fixing the underlying systemic problems. Furthermore, as evidence of the market’s reaction on Monday after reports hit the tape that the Treasury Secretary (head of the Working Group on Financial Markets) was convening the CEO’s of the six biggest banks to discuss the market sell-off, official intervention serves only to signal to the markets that something is profoundly wrong with the system, contrary to official propaganda.
    …

    1. I think next year should be good for those who kept the faith in gold, due to a combination of flight-to-quality moves with interventions that weaken the dollar.

      1. A lot of burned cryptocurrency bagholders who touted Bitcoin as the modern-day replacement for gold when it came to protecting one’s wealth against the Keynesian counterfeiters and racketeers at the Fed are now realizing they were sold a bill of goods. After mocking the “old bugs” as Bitcoin went parabolic, I suspect those that have any money left have seen the light and will be buying the “barbaric relic” they used to scoff at.

      2. It had better be. I started following Peter Schiff about 15 years ago, with good results initially but after that, devastation. See charts of JNUG, GLD, USLV, AGQ for evidence.

    1. “Slowing home price appreciation can be read by many as an ominous sign — a kind of canary in the coal mine — for a more general downturn to come, but it’s not necessarily an indicator that the sky is falling,” said Zillow Senior Economist Aaron Terrazas. “In fact, this slowdown could turn out to be more of a present for the market than a penalty.”

      It’s not “slowing price appreciation” it’s DECLINING! It’s going DOWN not slowly going up in retrospect to shooting to the moon as it has been. These guys try so hard to twist the truth it amazes me.

      1. How about “negative appreciation”? Or “positive depreciation”? As long as there is a “good” word in there the proles won’t get spooked.

      2. ‘It’s not “slowing price appreciation” it’s DECLINING!’

        There is no mathematical law that says the first and second derivatives cannot be simultaneously negative.

    2. Sounds like our poor landlords just missed the peak of Housing Bubble 2.0. It should be interesting to see how long it takes them to catch on that the glory years of high rates of appreciation are over.

      1. Unfortunately, most of the LLs we’ve had here in Las Vegas weren’t that dumb. It seems to me, though, the bubble denial here this time around has an even thicker skin. Go teams!

        Not a peep from my latest LL, and the lease is up on the 31st. Last time it took them six months to send us an one year extension, after repeated calls. I haven’t had too many personal interactions with the property manager, but I can tell he’d rather be doing anything else. A little nastiness peeked out though his cool when I was arguing with him that the property condition did not merit the rent increase.

        A friend of mine was urging me come back home and visit (NYC). I’d love to, but don’t feel comfortable making plans – I never know when we’ll have to move again.

    2. “Lawrence Yun, the NAR’s chief economist, said in a statement on Friday that the pending home sales data was not yet reflecting recent favorable mortgage rate conditions.”

      Captain Obvious weighs in.

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