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Indications The Malaise Could Become A Meltdown

A report from the Santa Cruz Sentinel in California. “Single-family home sales in Santa Cruz County dropped in November — from 183 a year ago to 134 — and the median price, the midpoint of what sold, was $911,250, according to Gary Gangnes of Real Options Realty, who tracks the numbers. Paul Bailey, co-owner of Bailey Properties with 43 years in real estate, calculates there are 1.9 homes per buyer, up from .8 per buyer in March, when the median price set a new record of $935,100. “

“He said that means there’s a balance, with neither buyers nor sellers having more leverage. ‘We’re not used to this, he said, recalling the last time the real estate market was this way was in the late 1990s.”

“Sellers who expected they could tack 5 percent onto their asking price found fewer buyers. Deals were made after sellers lowered the price, sometimes more than once. Buyers have more to choose from  — a big change after years of shrinking listings.”

“Seb Frey of Realty World Virtuoso in Capitola contends 2018 was the peak year for local real estate, with the market stalling because buyers can’t afford to pay more for a home. He expects a drag on the 2019 market when taxpayers see the full impact of the reductions in state and local taxes and mortgage interest tax deductions. ‘For most would be buyers in the greater Bay Area, owning a home won’t pencil out favorably on a month-to-month basis,’ he said.”

From KTUV. “2018 ends with a new reality in the real estate market – the days of homes entering and exiting the market in hours are over. A sales slump in the Bay Area has turned a seller’s market into a buyer’s market.”

“Coldwell Banker realtor Brian Kiernan is still making a killing in the market. But as he welcomes prospective buyers to his latest prize, a four-bedroom, two and a half bath ranch-style home in the Almaden Valley section of San Jose, it’s with the knowledge this property sat on the market 70-days before he was able to broker a deal.”

“‘Taking a pause on the buyers’ side has led some homes to sit on the market a little bit longer than what we’d been accustomed to in the last couple of years,’ said Kiernan.”

“Earlier in the year, a long time on the market was measured in a matter of days. Now it’s months, as a six-month slide that started back in June, continues into the new year. ‘I’m not surprised that volume has dropped. This is what happens when you reach a plateau,’ said Fred Foldvary, a San Jose State University economist.”

“He says there are indications the malaise could become a meltdown. Wall Street is erratic. Interest rates are on the rise, and home prices are reaching equilibrium – a point where both buy and seller must compromise. ‘When housing becomes unaffordable, prices stop rising…I think this is the beginning signs of a coming recession such as we had in 2008,’ said Foldvary.”

“Another crash could be years off. In the meantime, realtors, buyers, and sellers are coming to grips with the new reality. ‘Too often they were throwing caution to the wind. I don’t think they have to do that today,’ said Kiernan.”

The San Francisco Chronicle. “We regularly write about one-of-a-kind properties here at ‘On the Block.’ But even though we feel these homes are worthy of your attention, some of them are so special that, as we look back at the year gone by, we have to wonder: Whatever happened to those most-memorable listings?”

“Well, in 2018, the answer, for the most part, is that they failed to sell or sold at a reduced price. Could it be that, as the market softens, there is less of an appetite for homes which may be a challenge to resell? Or does the personal attachment that often comes along with such an individualized home mean that sellers are unwilling to see their prize property get anything less than top dollar?”

The Orange County Register. “As 2018 ends, let’s recap all those economic trends that forced us, at least momentarily, to ask ‘another bubble?’ a decade after the Great Recession.”

“In 2018, developers got a rude surprise: The build-it-and-they-will-come approach doesn’t work. The number of unsold, finished new homes is running at post-recession highs. This has forced builders to offer more incentives — or a polite way of saying ‘cut prices.'”

“Builders over-bet on the upper slice of the market. Their tactics to trim inventories will reverberate — from pressuring all home pricing as well cool future development plans and construction hiring.”

“Southern California housing’s big story of 2017 was what was perceived to be a dramatic shortage of homes to buy. That changed dramatically in 2018 for reasons not fully fathomable. Was it an abrupt desire to move — whether it was younger owners seeking more space or seniors downsizing? Or investors cashing out of rental properties?”

“No matter the cause, a rush to sell puts pressure on home values and raises questions about how owners may act when economic conditions truly sour. “

“Maybe the job market is weak, so house hunters are having second thoughts. Pricier mortgages haven’t help. More choices — the supply of both existing and newly constructed homes both rose — took away the ‘buy-now-or-never’ urgency. And tax-law changes nudged the ‘rent-or-buy’ math away from ownership.”

“One wonders where pent-up demand went. This most worrisome of 2018’s economic hiccups hints that demand for housing ownership in Southern California is badly overstated.”

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This Post Has 46 Comments

  2. ‘I’m not surprised that volume has dropped. This is what happens when you reach a plateau’

    REIC: Good Fred, good boy!

    ‘He says there are indications the malaise could become a meltdown…‘When housing becomes unaffordable, prices stop rising…I think this is the beginning signs of a coming recession such as we had in 2008’

    REIC: Bad Fred, bad!

    We had yet another poster here recently saying, “the bad loans don’t exist today, waaah!”

    ‘realtors, buyers, and sellers are coming to grips with the new reality. ‘Too often they were throwing caution to the wind. I don’t think they have to do that today’

    Who can doubt they’ve been “throwing caution to the wind” for years? It’s all fun until someone loses an eye.

      1. 25% price reduction has to hurt those specuvestors that bought last year. These are the stats that will really panic and bring home prices back to where they should be!

    2. Re: “the bad loans don’t exist.” – I make six figures and have a credit score in the 800s. On paper I look like an amazing borrower. That half-a-million dollars the banks want to lend me won’t get paid back if I lose my job. At these prices, even with my income, I can’t make the math work out. People making way less are rushing headlong into home ownership and I can’t see it ending anything but badly.

      1. People making way less are rushing headlong into home ownership and I can’t see it ending anything but badly.

        Because they really don’t have anything to lose, while you do.

        If you have low income and little assets, and can get a zero- or low-down loan to buy a place that’s nicer than you can afford to rent (or buy in a more reasonable financial environment), then it’s all upside. Get a nicer place, hold on as long as you can, then stop paying. Declare bankruptcy if needed, but wait it out in the house for a good six months to a year (or more) before getting kicked out.

        2. This is 1000% true. Fresh out of college in 2010 I loaded up like 50% DTI, zero down payment, obama tax credit, etc. to buy my first place in a “hip,” “up-and-coming” neighborhood.

          Since I had literally no assets it was 100% my plan to walk away if things kept going south. I was born far from wealthy, and this seemed like my best chance to roll the dice. Downside was truncated, upside was not.

          I got lucky and it worked out well, no bankruptcy required. But now that I actually HAVE assets I could LOSE it’s a totally different ballgame. I agree nothing pencils out for the responsible middle class adult… So I guess we just have to wait.

      2. People making way less are rushing headlong into home ownership and I can’t see it ending anything but badly.

        These are victims. So are the banks who foolishly lent them money. So you should have no problem with being generous with your six-figure salary when it comes to funding another bailout. It’s for the children….

  3. ‘One wonders where pent-up demand went’

    Ha…

    ‘This most worrisome of 2018’s economic hiccups hints that demand for housing ownership in Southern California is badly overstated’

    …ha!

    There is nothing so rich as watching Californians’ myths get taken down by their own writers.

  4. From the first link:

    ‘Asking price was $849,000 in July for a two-bedroom Southview Terrace condo on the Westside; after two price reductions, it sold in November for $745,000. Asking price in May was $4.899 million for a gated oceanfront estate at 1425 San Andreas Road, La Selva Beach; after three price cuts, it sold in November for $3.8 million. The priciest home sold in November, a 4,931-square-foot oceanfront home at 1443 San Andreas Road, was a finalist in the 2017 HGTV “Ultimate House Hunt” and fetched $9.4 million but the seller had listed it for $9.999 million.’

    Wa? But HGTV? Don’t say the Tee Vee lied to us? They broke drywall and stuff. Say it ain’t so!!!

    1. “Wa? But HGTV? Don’t say the Tee Vee lied to us? They broke drywall and stuff. Say it ain’t so!!!”

      They got everybody thinking demo is performed with hammers instead of the headache ball, chainsaws and dyno-nobel. So yes… They’re liars.

      San Luis Obispo, CA Housing Prices 13% YOY As Borrowers Sink Deep In The Red

      https://www.movoto.com/san-luis-obispo-ca/market-trends/

      1. I’m just an observer, but I imagine TV time is expensive. Next time you watch one of these things, see if they don’t spend an inordinate amount of time showing the buyers cracking up drywall with a hammer. And it’s usually the woman.

        1. It’s all DebtDonkey and HousingHen appeal which also happens to be completely devoid of truth or reality.

    2. “‘Asking price was $849,000 in July for a two-bedroom Southview Terrace condo on the Westside; after two price reductions, it sold in November for $745,000. “

      A good start but much more slashing needed for these air boxes. Not sure how accurate trulia is with foreclosures but if they are accurate, Santa Cruz is about 25% foreclosure listings currently. I expect to see many properties reposted this month after the greedbags removed them in dec to refresh the long DOM.

  6. “He said that means there’s a balance, with neither buyers nor sellers having more leverage.

    What a crock. The prices buyers are willing to pay is what determines market value. Buyers have all the leverage in the world, as long as they refuse to pay greedhead wish prices and wait for the cratering to reach terminal velocity. It’s great being a renter in the current economic environment, because time is not on the side of the housing bubble or the FBs caught in the reverse wealth effect.

    1. You need knifecatchers all the way down. In a way, the REIC spin to get buyers in the door, while telling sellers to adjust expectations, helps the meltdown.

    1. Note: Home equity is a function of price. As prices go up and down equity goes up and down. This rule does not hold true for mortgage debt.

      Prices are voted up and they are voted down. These votes are made possible – are powered – by debt.

      When ignorant pukes cannot take on debt then rising prices cannot be powered. When gobs of money are thrown to these ignorant pukes then rising prices become powered and hence they rise.

      So the valve that controls prices is the gobs of money that is thrown to or is withheld from ignorant pukes.

  8. “‘Taking a pause on the buyers’ side has led some homes to sit on the market a little bit longer than what we’d been accustomed to in the last couple of years,’ said Kiernan.”

    Not so much a pause there Mr Kiernan, more of a complete retraction of foreign investors. The ones that are buying now are primarily locals who think they are getting a deal because of a price cut on a majorly over priced asking price. The rest (like me) continue to wait until we get back to a sane price level.

    1. ‘sales in Santa Cruz County dropped in November — from 183 a year ago to 134 — and the median price was $911,250…Paul Bailey calculates there are 1.9 homes per buyer, up from .8 per buyer in March, when the median price set a new record of $935,100’

      Lower prices, fewer sales. Not how supply and demand works. Sounds more like pork belly futures trading. And what happened to the 6 months inventory thing? They quit talking about that pretty much.

      ‘He said that means there’s a balance, with neither buyers nor sellers having more leverage. ‘We’re not used to this, he said’

      Yes, having to actually work for money is a quaint idea you might want to get re-accustomed to Paul.

      ‘recalling the last time the real estate market was this way was in the late 1990s’

      Maybe some locals can chime in. I remember some sad pandas in Santa Cruz about a decade ago.

        2. We do have a few larger companies that support employment such as Plantronics (just acquired Polycom), fox racing, Bay Photo, Santa Cruz Skateboards, O’Neill, etc. the proximity to Silicon Valley is close in mileage but not always the case with commute time. Over all it used to be a very desirable place to live but with the high cost and the overwhelming amount of homeless, crime, and drugs I don’t consider it desirable nor affordable or worth the cost of living.

  10. “‘recalling the last time the real estate market was this way was in the late 1990s’

    Maybe some locals can chime in. I remember some sad pandas in Santa Cruz about a decade ago.“

    I can’t say much for the 90s as I was just a teenager but a decade ago I watched it all unfold firsthand amongst friends who lost homes, I was fortunate enough to get in post bubble and walk away in 2017 with more than I “invested” although at the time it was a purchase for shelter not investment.

    1. Santa Cruz is a crowded bedroom community to the Santa Clara Valley aka Silicon Valley. Those who work in technology must endure the HWY-17 commute, which is dangerous when not bogged-down in traffic. It’s fun to visit there, but I couldn’t imagine living that close to the coast.

      1. “but I couldn’t imagine living that close to the coast”

        That is actually what brings most people here. The ocean air and beaches.

        1. We used to live near Morro Bay along the coast, and while we enjoyed the fresh air when the off-shore layer moved-in it was too much. A couple of miles inland might be just about right.

          1. Got ya. Morro Bay is beautiful but the fog can be overwhelming at times as with anywhere else on the coast. Scott’s Valley is a nice town inland from Santa Cruz that many of the Silicon Valley workers chose to live and has been part of the RE mania. There are rumors Google is opening up a location there in the future but those are just rumors…

          2. Too bad Salinas is over-priced as it’s an easy drive to Hollister (inland) or Marina (coast) where I can hang-glide and skydive. Maybe in the next life; thanks Wall street!

  11. So the tone of real-estate ads has changed. Last ad I heard on the radio was “helping anxious sellers find a buyer” kind of tone. Few years ago it was more “helping anxious buyers find a home” kind of tone. Still a lot of anxiety but now looks like the sellers have it.

    1. Of one thing we can be certain: whoever at Century 21 approved the infamous “Suzanne Researched This” ad was probably terminated soon thereafter, and the role of the mousey husband getting browbeaten by his harpy of a wife into making a disastrous financial decision based on realtor “research” (right before the bottom dropped out of the housing market circa 2006) is unlikely to be reprised in any future realtor ads.

      https://www.youtube.com/watch?v=20n-cD8ERgs

      1. “and the role of the mousey husband getting browbeaten by his harpy of a wife into making a disastrous financial decision”

        I would give $20 to be in that situation and data dump just one days content from the HBB on Suzanne and that harpy skank.

        1. “…and that harpy skank.”

          She’s just begging for some discipline, but that pudgy cuck doesn’t have the stones to own her. Bitchy? Yeah!!

  12. I came across this:

    Letters from readers Jan. 1, 2019

    Investing wisely

    In response to George Jung, I’m glad my letter on the coffee can investment made you chuckle.

    I seem to make a lot of people chuckle and there’s nothing wrong with that.

    I just want to clarify that I wasn’t saying don’t invest at all in the stock market. That was my grandfather’s opinion.

    I was simply saying don’t invest more than you can afford to lose. Don’t put all your eggs in one basket.

    As for your, “Gee Whiz, we recovered a long time ago from that..” referring to the last stock market crash, I’m happy for you, but you speak only for yourself.

    The Barack Obama stock market numbers you followed up with don’t tell the whole story. If they did, we wouldn’t have an increasing number of tent cities popping up everywhere. Have they recovered?

    The crash of 2008, which was caused by massive fraud resulting in trillions of dollars lost and thousands of families losing their homes, has not resulted in one financial executive going to jail.

    I have a small amount in the market in the long-term investments with a variety of stable, proven companies, which George correctly indicated is a wise move.

    I saw the housing bubble of 2005 getting ready to burst. I sold my condo and made out like a bandit. The person who bought it qualified with a bogus mortgage sold to them by one of my former banks, which is no longer a bank.

    Are you all looking forward to the day when it gets down to one bank? Not me.

    The best investment you can make for yourself, which is better than the stock market or a coffee can, would be to get a fixed rate loan on a home mortgage and pay it off as quickly as you can.

    Mitchell Seyfer

    Palmdale

    https://www.avpress.com/opinion/letters/letters-from-readers-jan/article_5247bd94-0d67-11e9-80c2-87725b48ee2a.html

    1. ‘The crash of 2008, which was caused by massive fraud resulting in trillions of dollars lost and thousands of families losing their homes, has not resulted in one financial executive going to jail’

      Translation: I am a victim.

      ‘I saw the housing bubble of 2005 getting ready to burst. I sold my condo and made out like a bandit. The person who bought it qualified with a bogus mortgage sold to them by one of my former banks, which is no longer a bank.’

      So he made out like a bandit, the buyer defaulted, the bank failed and he sees no irony at all. Oh and go out and buy a shack – it’s an investment.

      ‘The best investment you can make for yourself, which is better than the stock market or a coffee can, would be to get a fixed rate loan on a home mortgage and pay it off as quickly as you can.’

    2. “I saw the housing bubble of 2005 getting ready to burst. I sold my condo and made out like a bandit.”

      Translation: I did some DonkeyMath.

  13. A new year seems like a good time to teach new folks about the JoshuaTree browser extension for reading/keeping up with this blog. Adds a couple of features to make life easier:

    * Lists # of new comments to each blog post on main page
    * Highlights new comments within comments section, giving a toolbar to jump to the next new comment
    * Adds an ignore list to tune out “those” people (you know who I mean!)
    * Adds formatting buttons for italics, bold, etc, so you don’t mess up your HTML tags
    * Cleans up the layout/formatting a bit, esp. on mobile, making it easier to follow comment threads

    Firefox Version
    Chrome Version

    As always, if you use/enjoy the extension, throw some coin Ben’s way to keep this blog running!

  14. “Paul Bailey, co-owner of Bailey Properties with 43 years in real estate, calculates there are 1.9 homes per buyer, up from .8 per buyer in March, when the median price set a new record of $935,100. “

    “He said that means there’s a balance, with neither buyers nor sellers having more leverage.”

    By my calculation, this implies available homes per buyer has increased at an annualized rate of ((1.9/0.8)^(12/10)-1)×100% =
    182% since March. If that keeps up for long, there’s going to be a serious inventory glut.

    1. As noted in the article we haven’t yet really felt the effects of Trump %uckery with the tax code. In CA the loss of state and local tax deduction is going to make owning a house even less attractive.

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