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Now The Money Has Been Cut Off

A report from KIRO in Washington. “A recent report from the Northwest Multiple Listing Service indicates that home prices in King County decreased year-over-year for the first time in seven years to start 2019. ‘Is it normal? posited Windermere Real Estate Chief Economist Matthew Gardner. ‘No, because historically speaking, housing actually appreciates in value in the long-term.'”

“That came paired with an increase in inventory that saw 7,090 new listings, compared to 6,805 in January of last year, and doubling December’s total of 3,631. In total, sixteen counties — four in the Puget Sound area — reported more inventory than this time last year. “

‘It very much comes back to simple supply and demand: We increase supply, we have a finite amount of demand,’ Gardner noted.”

“Moving forward, Gardner expects home prices to continue falling through the first half of the year, before rebounding not long after that. That being so, he predicts the increase to not be nearly as dramatic as it’s been in the past. For spring, there’s optimism that these lower prices could very well end up being the new normal.”

“‘We’ve clearly been in a transitioning market, but given the ongoing demand for real estate in the Greater Seattle area, we may have adjusted to a ‘new market reality’ wherein inventory is up and prices have re-aligned,’ said Gary O’Leyar, owner of Berkshire Hathaway Properties.”

From Mansion Global on California. “The median price of a condo in San Francisco in January was less than $1 million, the lowest reading since 2015, according to data from Compass published on Friday. The whole Bay Area recorded a significant slowdown in sales in the second half of 2018.”

“Bay Area sales plummeted 22% in December compared to the year before, according to a different report from Compass economist Selma Hepp. She also noted the share of homes on the market with price reductions had doubled in December compared to the previous year.”

The San Francisco Chronicle in California. “In 2014 and 2015, Chinese real estate development company Z&L Properties jumped into the California real estate market with a splash, going on a buying spree that would eventually include 12 housing sites in the Bay Area and Los Angeles that, when built out, would yield 3,400 condos.”

“There were additional sites in L.A., Santa Clara and Marin County. Z&L Properties, a U.S. spinoff of the Chinese giant R&F Properties, was ‘destined to become California’s premier condominium developer,’ the company website stated at the time.”

“That hasn’t exactly happened. Instead, years after the sites were purchased, none of the projects have been completed, and several have been derailed by lawsuits, cost overruns and building code violations.”

“One project has been delayed because it is no longer economically feasible. Another was started in September 2017 and then construction was abruptly shut down after the site had been excavated. Another has been under construction for five years — three times longer than it should have taken — and still not finished. The problem is made worse by government restrictions on investment money leaving China.”

“Meanwhile, with the Chinese government restricting investment in the U.S., companies invested in development deals here have been running into cash flow issues. Oceanwide, a developer constructing the largest projects under construction in both downtown San Francisco and downtown Los Angeles recently shut down its $1 billion Oceanwide Plaza L.A. project temporarily because of liquidity issues.”

“Anchor Pacific Capital Managing Partner Anton Qiu, who works with a lot of Asian investors, said he could not comment specifically on the Oceanwide or the Z&L situation. But he said Chinese government restrictions on money leaving the country over the last 18 months have forced some Chinese developers to sell sites outright or bring on new capital partners.”

“‘Projects like these have long cycles and are financed with short-term loans,’ Qiu said. ‘It’s a big problem. You have five-year projects and the developers assumed the money would come out of China to support it. Now the money has been cut off. It’s the opposite of four years ago.'”

This Post Has 92 Comments
  1. Dumbest investors in history:

    February 8, 2017

    “New York City is still the No. 1 destination for foreign capital in the world, according to this year’s AFIRE rankings, but it is no longer an environment in which foreign money — particularly from China — will buy anything in the market at any price. This year, China has clamped down on outbound foreign investment, and firms caught flouting the new laws will be punished harshly, China First Capital CEO Peter Fuhrman said. While most New Yorkers in commercial real estate are aware of the capital slowdown, Fuhrman said they are probably not taking it seriously enough.”

    “‘I have the perception that the full weight and severity of these capital controls hadn’t been fully felt here,’ Fuhrman said. ‘It’d be fair to say that the Chinese central government dropped a financial bomb on its businesses.’”

    “One of the Chinese government’s chief concerns when instituting the investment restrictions, Fuhrman said, is over outbound investors getting fleeced while paying record-breaking prices. ‘A concern of Chinese regulators is their investors have been really bad buyers,’ Fuhrman said. ‘This can sadly be seen more and more in the larger real estate deals they have done. What they are extremely concerned about is just about every acquisition the Chinese have made, is they have overpaid severely and foolishly, and that has spurred a loss of a lot of Chinese sovereign wealth.’”

    http://thehousingbubbleblog.com/?p=9989

    1. Goodbye and good riddance, Chinese infestors.

      Those of you who observed the Japanese race for the exits out of the crashing U.S. real estate market in the early 1990s have seen this movie before.

      WSJ
      Property Report
      Chinese Exiting U.S. Real Estate as Beijing Directs Money Back to Shore Up Economy
      Third-straight quarter Chinese investors sold more commercial U.S. property than they bought
      China’s Greenland Holding Group said in October that it was selling part of a major Brooklyn real-estate project at 550 Vanderbilt in Prospect Heights.
      Photo: Claudio Papapietro for The Wall Street Journal
      By Esther Fung
      Updated Jan. 29, 2019 3:11 p.m. ET

      Chinese net purchases of U.S. commercial real estate last year dwindled to their lowest level since 2012, as Beijing kept up the pressure on Chinese investors to bring cash home during a period of worsening economic growth.

      Insurers, conglomerates and other investors from mainland China were net sellers of $854 million of U.S. commercial property in the fourth quarter, according to Real Capital Analytics. That marked the third-straight quarter Chinese investors sold more U.S. property than they bought, the first time ever these investors have been sellers for that long a stretch.

      The selling during most of 2018 marked a powerful reversal from the previous five years, when Chinese investors went on a massive buying spree, often handily outbidding other investors for U.S. trophy properties. They spent tens of billions dollars on luxury hotels like the landmark Waldorf Astoria in New York, a nearly $1 billion skyscraper development in Chicago, and a glitzy residential project in Beverly Hills, Calif.

  2. ‘We’ve clearly been in a transitioning market, but given the ongoing demand for real estate in the Greater Seattle area, we may have adjusted to a ‘new market reality’ wherein inventory is up and prices have re-aligned’

    Wa happened to my shortage Seattle? Gary?

    1. The ‘new normal’ are prices flattening and inventory going up? I thought the ‘new normal’ was 20k over asking, waiving inspections and having your little kids write letters about how much they loved the house?

      Too many ‘new normals’ to keep up with in the REIC!

    1. As a parent of an autistic child, this story breaks my heart. Each child is a victim here. The aggressor is not getting the supports that she needs. The children are on a bus because not every home school can provide for the unique needs of each child. Private school placements are not an option because services are provided through the public school system. Non-public school (NPS) placements, some of which look like correctional facilities, require an admission by the school district that they cannot provide for the needs of the child. The school district then pays for the NPS placement. Lower property taxes will only exacerbate the problem. School districts simply aren’t equipped to handle the increasing incidence of autism, now 1 in 40 in the US.

        1. “It’s really hard understand autism unless you’ve experienced it.”

          One day at the local clinic while waiting in the queue for my turn an autistic child was ushered quickly from the entry directly through to the patient’s rooms during which the child sounded like a gibbon monkey howling. I can’t imagine the home life or the energy required for that challenge.

        2. Hey, Red, I feel for you.

          I have an 26 (almost 27) yo with mild AS, sensory difficulties. We try to laugh about it and say it’s not so bad – just enough to mess up her life. When in HS, high SAT score, National Honor but practical difficulties day-to-day, always problems making friends. There’s a lot of bullies out there, even in college.

          When she gave up on school, job interviews were hard, often ending in tears. She’s working now, and putting a nice amount of money away, but the job she has for someone with her intelligence…

          OTOH, she’s the sweetest, nicest, most caring person who often doesn’t understand why people can be such jerks. She’s nobody’s fool, happy to see her getting more savvy, but she still finds some things genuinely puzzling.

          I wouldn’t change a thing about her, except I’d like life to be easier for her.

          1. Hey Tarara, your comment really got to me. Most of my clients are autistic, and I see the profound impact Autism has on all kinds of people. I do a ton of diagnostic work, and with kids who sound a lot like your daughter, I have to explain that in many ways, despite the high abilities, their lives will be even harder than the kids with more confounding challenges. (I adore these kids, by the way.) Anyway, just wanted to drop a note to say that you’re not alone.

          2. I’m reminded every single time I drop off my son at summer school or sit in a developmental services waiting room that things could be much worse. While we have our unique challenges, we don’t expect to have the typical challenges with peer pressure and social media. He’s a happy kid in his own little world. We do our best to inform anyone in his orbit about triggers we know of. From what we’ve seen already, physical bullies should not be a problem.

            Thanks for sharing, Tarara and KidPsych. The isolation gets to me at times.

          3. The Economist is a Rothschild publication. If you’re not sure why that’s a problem, you’ve got some research to do.

          4. Just because the Rothschilds fund a publication doesn’t mean everything they say is false. You just have to take into account their potential pro-banking bias when you read articles in The Economist.

          5. KidPsych, that has to be rewarding work. TG for people like you 🙂
            Red, no support groups around? Not really a fan of group stuff so I never tried, but maybe?
            From what we’ve seen already, physical bullies should not be a problem.
            Happy to hear that. Girls mentally torture (no news there.)
            Article was good, the link to a second one also good, but I agree, they’re scum.

          6. In my experience, most parents are either in denial or have unreasonable expectations. Mainstreaming an autistic child isn’t going to remedy the behaviors or teach the child to manage his/her own behaviors but that’s what most parents want. I’ve noticed a strong cultural component to this. Most parents also don’t understand the legalities of the Individualized Education Programs (IEPs). IEPs are a two-way contract. I often see parents making unilateral demands of the school district then gripe about the school district when things don’t go there way. My husband and I are realists. We want our son to be who he is and happy. He is. Providing for him beyond our lifespans is my biggest concern. He’s at grade-level but it’s still too early to tell if he’ll ever be able to live on his own. He’s not so affected that he will need to be institutionalized. Friends with typical children can’t comprehend that there is really no prognosis. We hope and strive for the best but plan for the worst. People like KidPsych are angels and my support network.

          7. My special needs daughter is now 40. She is currently in a wonderful program that focuses on the Arts and is loving life. I’m no stranger to IEPs and then ISPs.

      1. Families with these challenges should not be in rural Bonny Lake for starters. Renting somewhere in King county where the professional services are would made more sense. Section 8 housing would likely place them at the top of the list.

        1. True comment. I told my sister, who lives in Renton, that she shouldn’t really be living in the city because her skill set didn’t match the area. Better off moving to a lower cost-of-living area since she isn’t a techie or an engineer.

      2. Lower property taxes will only exacerbate the problem.

        Dude, the school districts have been making bank the past several years. The problem isn’t with the amount of money coming in

  3. “Moving forward, Gardner expects home prices to continue falling through the first half of the year, before rebounding not long after that.

    Really, REIC Boy? You’re already trotting out the mythical green shoots of spring when the underlying fundamentals are terrible and deteriorating by the day? Sure, shack prices could rebound, and Scarlett Johansson might return my obsessive phone calls.

    1. “…before rebounding not long after that.”

      It’s never happened that way before in the entire history of financial manias, but one can always hope that this time is different.

      1. We increase supply, we have a finite amount of demand

        Now you get to see what musical chairs looks like when there are too many chairs.

  4. With central bankers already walking back Quantitative Tightening, is it possible they will enter the next recession bereft of ammunition needed to fight it with monetary policy?

    1. The Financial Times
      The Big Read Central banks
      Global economy: Why central bankers blinked
      Amid slower growth in China, Brexit and trade disputes, banks are putting the brakes on rate rises
      Sam Fleming in Washington and Jamie Smyth in Sydney yesterday

      As Donald Trump rhapsodised on Tuesday night about the “unprecedented economic boom” he is seeing across America, central bankers in Australia, India and the UK were preparing to join a broader retreat from plans to tighten monetary policy.

      Hours after the US president finished his State of the Union address in the House chamber, Philip Lowe, the governor of the Reserve Bank of Australia, stood up to warn of an “accumulation of downside risks” — including trade skirmishes between China and the US, rising populism and Brexit. The next move in interest rates could be down, he said, instead of up.

      The Reserve Bank of India, which has been under pressure from prime minister Narendra Modi to ease policy, trimmed rates by a quarter-point a day later. The same day the Bank of England ditched plans for multiple rate hikes. Their dovish pivots followed what was by far the most significant policy U-turn to date: a decision by Federal Reserve chairman Jay Powell on January 30 to shelve any plans to lift rates further because of possible risks to US growth.

    2. Panicky central bankers have been most kind to government bond HODLers.

      Markets
      Growth Angst Infects Every Corner of the World and Bonds Love It
      By Ruth Carson
      and Masaki Kondo
      February 7, 2019, 9:09 PM PST
      Updated on February 8, 2019, 1:57 AM PST
      – Kiwi and Aussie have both slid more than 2 percent this week
      – Morgan Stanley pushes back BOJ rate hike call to October 2020

      The rally in global bond markets is picking up pace as economists slash growth forecasts, spurring central banks to turn dovish.

      New Zealand’s 10-year bond yield slipped as much as 6 basis points to a record low of 2.08 percent, while Australia’s benchmark declined by as much as 8 basis points. Japan’s 10-year yields fell to their lowest in five weeks, while those on German bunds are below zero all the way out to nine years. Meanwhile, benchmark Treasury yields are holding near the lowest level in a year.

      1. With so much money pouring into bonds, it’s a wonder that equities don’t collapse.

        The Global Thirst for Bonds Arrives at the Shores of European Countries
        Bloomberg Real Yield — TV Shows
        February 8th, 2019, 4:31 PM PST

        Italy is one of the major borrowers to benefit from searing global demand for sovereign bonds, with investors casting aside concerns about the country’s relapse into recession to help the government lock in funding over the next 30 years. Italy’s carpe diem sale is allowing it to raise 8 billion euros ($9.1 billion) as investors scramble to lend to some of the world’s biggest borrowers, including Japan, the U.S. and Greece. Kathy Jones, chief fixed income strategist at Schwab Center for Financial Research, Subadra Rajappa, head of U.S. rates strategy at Societe Generale, and Diana Amoa, fixed income portfolio manager at JPMorgan Asset Management, talk with Bloomberg’s Jonathan Ferro about the global thirst for bonds. (Source: Bloomberg

      2. Markets
        Why Investors Will Still Flock to Negative-Yield Japan Bonds
        By Chikako Mogi and Kazumi Miura
        February 7, 2019, 3:05 PM PST Updated on February 8, 2019, 3:00 AM PST
        – Overseas demand will remain robust this year: Sumitomo Mitsui
        – Short-dated JGBs extremely attractive for foreigners: Daiwa SB

        The return of dovish central banks is putting Japan’s negative-yielding government bonds back on the investment menu for global funds.

        Overseas investors bought 638.3 billion yen ($5.8 billion) of Japanese bonds in five days through Feb. 1, the most in three weeks, Ministry of Finance data showed Thursday. In more evidence of buoyant appetite, an auction of 10-year JGBs Tuesday drew the strongest demand in 13 years, followed by an upbeat 30-year sale two days later.

        The dovish pivot from other major central banks has lessened concerns about a widening yield gap between Japan and its developed peers, with risks to global growth further supporting a bond rally. While JGBs have negative or close to zero yields, investors are still able to make juicy returns by swapping foreign currencies into yen and then investing the proceeds into the debt.

      3. Italian bonds, anyone?

        Markets
        Bonds Faced Their Waterloo and Came Out Winners
        History shows that in the world of sovereign debt, you’re better off betting on the serial defaulters.
        By John Authers
        February 7, 2019, 9:01 PM PST
        Napoleon tries to lead the final assault at the Battle of Waterloo.
        Image: Hulton Archive
        John Authers is a senior editor for markets. Before Bloomberg, he spent 29 years with the Financial Times, where he was head of the Lex Column and chief markets commentator. He is the author of “The Fearful Rise of Markets” and other books.

        Bond investors’ Waterloo.

        The history book on the shelf is almost repeating itself. Yesterday, I explained how investment factors have performed since 1800. Today, I would like to share research on how foreign government bonds have performed since 1815, the year of the Battle of Waterloo.

        Waterloo was a watershed in history. Napoleon’s attempt to build an empire across Europe was at an end, and Britain was about to enjoy a century as the world’s hegemon. But it was also a watershed in financial history. Britain famously relied on the Rothschilds to finance its effort to fend off Bonaparte, and from that point on an international capital market developed. Foreign governments could issue bonds in the reserve currency of the day — first the pound sterling and later the U.S. dollar — as their main source of funding.

        I revealed yesterday that Robeco Groep had crunched the data on investment anomalies and found that they had persisted over 200 years. Even the “low-risk” anomaly that implies higher returns are earned by taking higher risks is wrong. Today, I can report on “Sovereign Bonds Since Waterloo,” by Josefin Meyer, Carmen M. Reinhart and Christoph Trebesch, and published by the National Bureau of Economic Research. It shows that in the world of sovereign bonds the opposite is true: Take greater risks, and the odds are that you will be rewarded for doing so.

        Their database is impressive, running from countries such as Guatemala (which tapped international capital markets as long ago as 1815) to Angola and Zambia, which have both entered the market recently. Perhaps the key finding is in the following chart, which shows that over history, the more defaults a country has suffered, the better total returns investors have enjoyed:

      4. BOND STRATEGISTS ARE CAPITULATING
        For proof that the surge in global equities in January had little to do with growing confidence in the outlook and was more likely just a technical bounce from oversold levels, just take a look at the bond market. While stocks were rebounding, bond economists and strategists were steadily reducing their forecasts for how high yields on U.S. Treasuries — the world’s ultimate haven asset — will get. The latest monthly Bloomberg News survey of about 60 forecasters shows that the median estimate for 10-year yields at the end of 2019 is 3 percent. Although that’s above the current market rate of 2.65 percent, it’s far below the 3.50 percent that was forecast as recently as November. Much of this, of course, has to do with a more dovish Federal Reserve, which has signaled that it will stop raising interest rates for the time being. But the reason the Fed pivoted from its hawkish stance was because of the worsening global outlook. Central banks around the world are sounding very concerned. On Thursday, the Bank of England said it expected the U.K. economy to grow at its slowest pace in a decade. Reserve Bank of Australia Governor Philip Lowe shifted to a neutral policy outlook this week as he acknowledged increased economic risks at home and abroad.

      5. A Shift From Stocks to Bonds Is a Classic Example of a Risk-Off Trade
        So, if there’s no inflation anywhere, why have gold prices rallied 11% in six months?
        By JIM COLLINS
        Feb 08, 2019 | 02:00 PM EST
        Stocks quotes in this article: AMZN, AAPL

        While the stock market garners most of the headlines in the financial media, the bond market has put in an amazing performance in the past three months. On November 8th, the yield on the benchmark 10-Year U.S. Treasury note hit 3.24%, its highest level since April 2011. With that 7.5-year high came the usual torrent of predictions from pundits of a continued “backup in rates.” Boy, were they wrong. Today the 10-year yield sits at 2.63%.

        The 10-year hasn’t traded above 4% since September and October of 2008, and we all know what happened then. That was actually a much lower level than had prevailed in 2006 and 2007 though, and, in hindsight, the bond market’s boom in late 2007 and early 2008 was a harbinger of a crash in the global financial system.

        A shift from stocks to bonds is a classic example of a risk-off trade, and traders who took risk off the table in early 2008 were handsomely rewarded with relative outperformance versus the soon-to-crash global stock markets.

        So, I have to ask myself the question: are we seeing the same phenomenon now? Certainly 12 years is a long enough time period to fool the algorithmic traders and their formulas, which have really been honed in this market cycle, as technology was not as developed in prior ones. Is this dramatic move lower in global interest rates — the yield in the Japanese 10-year government bond has gone negative again, and with a yield of 0.11% Germany’s 10-year Bund is threatening to do so — a sign of a coming crash in global equity markets?

        1. “On November 8th, the yield on the benchmark 10-Year U.S. Treasury note hit 3.24%, its highest level since April 2011. With that 7.5-year high came the usual torrent of predictions from pundits of a continued “backup in rates.” Boy, were they wrong. Today the 10-year yield sits at 2.63%.”

          To translate this into a capital gain, it is necessary to compare the value of a 10-year Treasury bond at issuance to its current value. Supposing a bond was purchased at issuance for $1000 to yield 3.24% on November 8. At a current yield of 2.63% and a three-month shorter time horizon to maturity, its present value would be around $1060 as of February 8th, a 6% gain that occurred at a 26% annualized rate.

          But don’t bother listening to me…keep on HODLing your stocks, Bitcoin, and houses, and hoping for the best!

          1. But don’t bother listening to me…keep on HODLing your stocks, Bitcoin, and houses, and hoping for the best!

            Oh PBear, you were scaring folks out of bonds when rates were raising as well. There’s no “listening to you”.

            Trying to predict the future is a fool’s errand. Pick an investment strategy and stay the course, unless one of your assumptions becomes invalidated.

          2. The FED$ limbo $tick is @ half the height of the last party dance go.around, & they’ve put on additional weight$ … & knot is good place to keep them$elves balanced.

    3. Why is nobody asking, in the midst of the supposed longest economic expansion ever, with record low unemployment, why a central bank would have to start lowering rates? This sh!t is ludicrous.

  5. ‘Oceanwide, a developer constructing the largest projects under construction in both downtown San Francisco and downtown Los Angeles recently shut down its $1 billion Oceanwide Plaza L.A. project temporarily because of liquidity issues’

    A few months ago the Chronicle quoted a Related guy saying every single residential development in downtown San Francisco was for sale. I said at the time that bubble had officially popped. Now we can add downtown LA. Because there are billions of Yellen bucks that would eagerly dive into any of these towers, if they weren’t obvious money losers. They just paid too much for the land.

    ‘You have five-year projects and the developers assumed the money would come out of China to support it. Now the money has been cut off. It’s the opposite of four years ago’

    This exposes another aspect of these bubbles. It wasn’t about demand. Demand was irrelevant. There was this huge tidal wave of cash from China and elsewhere. That was the motivation as I’ve documented here very clearly. Observe, as billions of Yellen bucks sail off to money heaven.

    1. Like oceanic tsunamis do, the tidal wave of Chinese cash into U.S. real estate has washed back out to sea, leaving behind a trail of financial destruction.

  6. Seattle bubble was so obvious. Long way to go from here. Only 30-50% downside left. The Chinese are not coming back, they are net sellers and soon will start leaving in the middle of the night like they have done in DTLA

  7. Here in San Diego flippers had to go farther and farther afield to find properties. The last couple of years I noticed them invading Ramona, buying up cheap properties, giving them a superficial make over, and putting them back on the market at a 100-200k$ mark up. These outlying areas are always first and hardest hit when sales collapse and inventory balloons. It’s hard to flip a house when the one across the street is in foreclosure and was only purchased 2-3 years prior.

    1. “It’s hard to flip a house when the one across the street is in foreclosure and was only purchased 2-3 years prior.”

      When foreclosure homes inside the San Diego city limits are selling for less than recent sale prices on comparable properties in Murietta, Temecula or Ramona in a few years, you’ll know those outlying areas are toast.

      1. I’ve also noticed the old RENT TO OWN scams popping up on Craigslist real estate for sale. Hadn’t seen that since what…2007? “FHA/VA OK” appended to listings. We will see year over year price drops all over SoCal by late spring/early summer. Most who bought using FHA and VA loans in 2018 will likely be underwater by the end of the year. At that point, nothing short of another epic Fed QE and NIRP campaign is going to stop the ensuing carnage. Late last summer in the jacuzzi one of my neighbors was telling me about her real estate investor friend who had bought 23 houses in SoCal. If you talk to these “investors” you find that most of them know nothing about real estate, inventory, sales, days on the market, tax law, etc. They were just enamored by the easy riches. If this is not a bubble, I will put a jellyfish in my swim trucks on La Jolla Shores beach and dance the Macarena on July 4rth 2019.

  8. Just sold my eBike to a nice trucker and his wife sporting a MAGA hat. Couple is semi-retired and every enthusiastic about all-electric vehicles. Just a reminder to myself that stereotypes are rarely accurate about how the real world is.

  9. Been reading this blog for awhile. I have to say reality does not match the bursting of a bubble that the daily barrage of stories here would try to convince you of- I’m not even seeing a slow leak. I sold my home in Belmont, CA last April to take a relocation offer by my employer to move to Denver area. I have been renting in Englewood, Co for the past 10 months waiting for an oppoprtunity to buy another home either here or in another low tax state in the Western U.S.. Well, the already high home prices in the south of Denver area have gone up another 5% or so since I’ve been here (I’m looking in the 750k to 850k range). I have also taken many trips to the Reno, NV area and Vancouver/Camas WA area. The Reno area is just bananas. Any nice ranch style home with some country space is gone off the market instantaneously. I have been watching Southwest Reno like a hawk and homes disappear within hours of listing unless they are just obviously too outrageously priced. My belief is that there are many, like myself, who are nearing retirement age and have decided to escape the high taxes of California. Likewise, in Camas, I have not seen any noticeable depreciation in price since I started making home purchase trips there starting last April. Again, any special home with a river/mountain view is gone quickly. The sale strategy in that region seems to be to list your home with high expectations and then slowly lower the price until someone bites. I am tracking a couple of homes like that (seem to be $50k to $100k overpriced) and my initial offers have been rejected -so waiting it out. But my point is. No one in these areas is feeling pressure to sell and the median prices are still going up.

    1. One predictable dynamic in the next unwind will be that the initial unraveling will occur in the priciest coastal markets, not the inland areas where people relocate after selling to get away from the high-priced areas. This should result in an initial leveling of prices, during the stage when the coast-to-heartland migratory dynamic plays out.

      1. The Chinese stopped buying… it takes time and Reno crashed hard in the last downturn. The Tesla effect brought in speculators. It is still Reno, no one wants to live there. No way would I be a buyer now.

        1. The Southwest area of Reno is very nice. It is more alpine than high desert and is close to Lake Tahoe. Most of the Southwest communities are gated. I’m interested because buying there would still keep me close to family in California and I can keep my retirement medical in California as well which would be chaeper than getting an out of state PPO (until I’m 65 and go to Medicare). Not to mention the tax benefits. Reno has grown up quite a bit with an international airport if you like to travel and has plenty of entertainment and amenities.

          1. “Lake Tahoe. Most of the $outhwest communitie$ are gated.”

            Well, Iffin’ ya get in the $pecial club$, get clo$e & imitate ’em.

            This fella had a plan of livin’ in the $ilver $tate & commuting back to the Golden $tate … didn’t end well.

            Yorba Linda plane crash: Investigation continues into cause of OC plane crash, background of pilot.

            YORBA LINDA (CNS) – The 75-year-old pilot and Nevada restaurant owner whose small plane broke apart and crashed into a Yorba Linda home, killing him and four people inside the residence.

            Channel 10 news | San Diego

      1. ‘One Vancouver realtor says the decline of foreign investors is partly to blame for the cooling effect. “The West Side housing market…became very reliant of foreign capital flowing in,” said Andrew Hasman, whose client finally managed to sell their 1920s character home last week after more than a year on the market and $600,000 less than they paid for it.’

        https://bc.ctvnews.ca/vancouver-real-estate-which-cities-are-seeing-the-biggest-drop-in-home-prices-1.4285643

        1. I’ve been looking in the “original” Vancouver, in WA. Sorry, should have been more specific. Still seems to be trending up there.

    2. Sounds like a good plan then for you Scott to spend 750-800k of your retirement funds on a house in Tahoe. Wouldn’t try to dissuade you. Hope it works out.

    3. “…(I’m looking in the 750k to 850k range)…”

      Sounds like you owned Belmont place prior to the bubble inflating, so it is much easier to drop that kind of money rather than committing to a life of debt servitude while AI robots and H1B Indians are closing-in.

      1. I owned homes in the Bay Area through 3 housing cycles. As a newby engineer during the 1989 housing boom I had to camp out overnight in order to be close enough to the front of the line to buy a new home 60 miles outside the Bay Area in the small farming town of Tracy. Of course, the Loma Prieta earthquake and the Base Realignment And Closure (BRAC) brought that party to an end in 1990 and put the Bay Area into a prolonged recession that lasted about 7 years. I gave up on that 2 hour commute in 1997 and sold the house for a $40K loss so I could be closer to my job in Sunnyvale. I bought a small 2 bdrm condominium for $150k in south San Jose with an 8K down payment (all I had left from my loss on previous house). Lived in the condo for 9 years and decided it was time to own a SFR again and sold it in 2006 for $370k. Bought a 1650 sqft home in Belmont that needed some TLC but had the beautiful bay view from the top of a treelined hill for $1.1 million. All my friends and relatives told me I was crazy to spend that kind of money. I also had to get 30 year due in 7 fix loan that was interest only in order to afford. Of course everyone knows the story of what happened in 2008 but luckily I was able to persevere through the bad times. Kept my job, refinanced several time (had to use savings of 100k to pay off first loan in order to qualify for new lower rate loan since my house had lost 20% of it appraised value by 2009). But the gambit paid off in the end and I sold the property last year for $2.4 million and cleared $1.6 million after taxes and loan repayment. I’m still only 56 but I plan on retiring this year due to some health issues. My wife and I are lucky to both have jobs that didn’t dissolve their pensions plans until recently and we’re fully vested so as long as we don’t go too crazy on the purchase price of our next home I think we should be okay until our tickets are punched for the final time.

        1. Glad the ups and downs of a crazy Bay Area housing market worked out for you. There should be a special place in Heaven for those who live in and commute to the Bay Area from Tracy.

          1. I used to live in Mission San Jose not far from the I-680 pass that drops into Sunol. The daily commuter traffic jam stretched for miles in both directions!

          2. Traffic in San Jose is crazy bad…much worse than in San Diego. I was stuck in traffic one mile from the San Jose Airport exit for something like fifteen minutes (4 mph). Almost missed my flight home as a result.

  10. Been reading this blog for awhile. I have to say reality does not match the bursting of a bubble that the daily barrage of stories here would try to convince you of- I’m not even seeing a slow leak. I sold my home in Belmont, CA last April to take a relocation offer by my employer to move to Denver area. I have been renting in Englewood, Co for the past 10 months waiting for an oppoprtunity to buy another home either here or in another low tax state in the Western U.S.. Well, the already high home prices in the south of Denver area have gone up another 5% or so since I’ve been here (I’m looking in the 750k to 850k range). I have also taken many trips to the Reno, NV area and Vancouver/Camas WA area. The Reno area is just bananas. Any nice ranch style home with some country space is gone off the market instantaneously. I have been watching Southwest Reno like a hawk and homes disappear within hours of listing unless they are just obviously too outrageously priced. My belief is that there are many, like myself, who are nearing retirement age and have decided to escape the high taxes of California. Likewise, in Camas, I have not seen any noticeable depreciation in price since I started making home purchase trips there starting last April. Again, any special home with a river/mountain view is gone quickly. The sale strategy in that region seems to be to list your home with high expectations and then slowly lower the price until someone bites. I am tracking a couple of homes like that (seem to be $50k to $100k overpriced) and my initial offers have been rejected -so waiting it out. But my point is. No one in these areas is feeling pressure to sell and the median prices are still going up.

    1. “Ten months later, it is still half empty:”

      At $3,539 – 4,794 for a 3 bedroom and $1,616 – 2,326 for a 1 bedroom I can’t imagine why.

      Below you have a “month free” post, perhaps if Continuum Partners went with “6 months free” they could get that building close to 90 percent occupancy rate.

  11. What good does it do for us all to have the “early insight” but not make money off it? Short builders? Banks? China? HBB called the last bubble spot on.

      1. Shorts are hard to time, even among those who see it coming, a theme driven home in The Big Short movie.

        And even if you get it right, the gov’t may change the rules out from underneath you, foiling your genius plan

    1. “What good does it do for us all to have the “early insight” but not make money off it?”

      We get awarded some precious gloating rights. Sometimes these rights can be more precious than money.

      1. What good does it do for us

        Might prevent some of us from throwing our money into a black hole. I’ve been spending mine on women, gas, steaks and single malt. The rest I’m just wasting.

          1. I credit this blog, a more local housing blog and two general economic blogs for not buying in 2006 when I easily could have as a single, professional with a six-figure income. I lived the life you earlier advised but having a child, later was diagnosed with ASD, changed everything. A purchase back then would have been a black hole and made things even more stressful.

  12. Reno is pretty much open space all around some pretty ghetto casinos. There is a growing tech segment, and Tahoe is close by, but the prices in the area have no business being that high. Nonbank financing has grown to worrisome levels. I worked at a major lending institution selling mortgages from 2003 to mid 2008. Banks use market based risk factors to determine credit worthiness and have redlines they are not willing to cross when it comes to funding loans. In the early days that redline was 20 percent down. When prices rose it became 20 percent plus a 10 percent Heloc. Later it became a 5/1 or 7/1 ARM with 5 percent down. That was the furthest my bank was willing to go. However, other entities were going much farther. No income verification zero down interest only mortgages that started with payments that didn’t make up the full interest. Loans set up to completely fail. We even had a joke for when someone would call in asking to refi a crazy loan. We called the Countrywide refi’s. Loans so grotesque they had no business being made, but they were because they were being rubber stamped through Freddie Mac and Fannie Mae to be turned into securities and taken off lending institutions books.

    The crash for banks started in the summer of 2007. Everyone likes to talk about 2008, but it was June of 2007 when our bank went wonky. All of a sudden we had new lending standards requiring 40 percent down in six states including California, Florida, Michigan, Nevada, Arizona, and Ohio. Our incentive base line went from 2,000,000 in loans to 10,000,000 in loans to obtain commissions. Even basic lending standards such as the 35/45 Debt to income ratio rule (35 percent max Debt to income without mortgage payment/ 45 percent max with mortgage payment) became more strict And dropped to 25 flat. We are on the verge of a major systemic crisis that may be worse off than 2008 due to a tax code that removed many home ownership incentives, a fed rate already low by historical standards having very little ammunition left to rejuvenate a falling market, China’s role in pulling investments, and the fear of being left behind in a market like 2008 where even rich people walked away from homes they could afford because their equity disappeared

    The same risk issues are ha

    For banks the crash started

    1. ***posted a bit too early by accident. Continuing after disappeared.: The wealth of real estate is no longer in the land itself rather it’s the paper note being created to be securitized and sold on the market. Until the rules change to force lenders to take full responsibility for the loans they sell bubbles will continue to grow and pop every 10- 15 years.

      1. Thanks for your insights Formerbanker. I agree that the prices in the Reno vicinity have gotten way too high and I am intent on waiting the craziness out. My employer has offered to pay the closing costs on a home in Denver if I choose to stay beyond 1 year. Denver is not growing on me after enjoying Bay Area weather for 56 years and the traffic here is nearly as bad but I may just buy a townhouse in the Denver Tech Center area that I can turn into a rental later. Then I will just wait it out until the housing downturn goes into full swing and hopefully find a nice retirement location at that time.

    2. “…even rich people walked away from homes they could afford because their equity disappeared…”

      For the wealthy it was simple arithmetic, a business decision in a “walk away” state.

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