Building Equity?, don't count on it for a while

The Center for Economic and Policy Research has released its latest report. It's a good read and perfectly illustrates what I harp on about on this blog. It reaches the conclusion that prices still have a way to fall in the bubble markets because they are still out of line with traditional ratios of price to income and price to rent.

The Changing Prospects for Building Home Equity: An Updated Analysis of Rents and the Price of Housing in 100 Metropolitan Areas

The Prospects for Accumulating Equity

Despite the collapsing housing bubble and consequent fall in house prices in bubble markets, the prospects for accumulating equity still look grim for homeowners as prices are still far from reaching their historical norm. The relative merits of owning and renting will be affected by the extent to which homeowners can accumulate equity. Even with the general increase in house prices at the same rate as the overall rate of inflation, homebuyers are at risk of facing plunging home values in bubble inflated markets.

Table 1 below shows that more than 60 metropolitan areas will accumulate less equity in 2012 for a recently purchased home than a home owned from six-months ago. Out of 100 metro areas, 33 are projected to accumulate negative equity in 2012, as opposed to 34 metro areas in our previous report. In fact, all 33 metro areas are in bubble markets as indicated by Table 1 below. They will generally accumulate slightly less negative equity in 2012 than our previous report predicted, due to the decline in house prices and the modest increases in rents assumed in this analysis which is returning the annual rent to price ratio to historical levels. Nevertheless, house prices across the bubble markets still have a long way to fall. In comparison, metro areas without housing bubbles will likely accumulate positive equity in a relatively short period of time.

(part of Table 1)
Major Metropolitan Areas Projected to have Negative Equity in 4 years (2012)

San Jose-Sunnyvale-Santa Clara, CA
San Francisco-Oakland-Fremont, CA
Los Angeles-Long Beach-Santa Ana, CA
Bridgeport-Stamford-Norwalk, CT
Oxnard-Thousand Oaks-Ventura, CA
Riverside-San Bernardino-Ontario, CA
Honolulu, HI
Sacramento-Arden-Arcade-Roseville, CA
Seattle-Tacoma-Bellevue, WA
San Diego-Carlsbad-San Marcos, CA
New York-Northern New Jersey-Long Island, NY-NJ-PA
Portland-Vancouver-Beaverton, OR-WA
Washington-Arlington-Alexandria, DC-VA-MD-WV
Salt Lake City, UT
Baltimore-Towson, MD
Fresno, CA
Stockton, CA
Bakersfield, CA
Boise City-Nampa, ID
Modesto, CA
Poughkeepsie-Newburgh-Middletown, NY
Boston-Cambridge-Quincy, MA-NH
Worcester, MA
Ogden-Clearfield, UT
Providence-New Bedford-Fall River, RI-MA
Denver-Aurora, CO
Minneapolis-St. Paul-Bloomington, MN-WI
Madison, WI
Chicago-Naperville-Joliet, IL-IN-WI
Colorado Springs, CO
Allentown-Bethlehem-Easton, PA-NJ
Phoenix-Mesa-Scottsdale, AZ
Miami-Fort Lauderdale-Pompano Beach, FL

Arrrr, time to hit the high seas again!

X and the wife are off for the Halloween cruise to Ensenada. Try and behave while we are away!

Feel free to use this as an open thread to discuss whatever "floats your boat".

I start by mentioning that I went out again today to look at some opens in Norco Hills. The traffic was fairly busy but I suspect much of it was due to the Auction open houses. The REDC has an upcoming auction and there were 3 auction homes open in the area. I think this drew a lot of people that then stopped at the other opens. One or two homes looked nice and the prices are getting a bit more reasonable. 2 of the homes in Bretton Gait were under $500k and one just slightly over that. I like one of the houses on Morab and another over the hill on Crestview. One home on Oldenburg was thrashed by the previous home debtor. They took the freaking base boards, Who does that? The rest of the house was a mess too. Another looked like a pack of wolves went through it and pee'd on every sq foot of carpet. Note to realtors: Get the damn carpets cleaned!

I overheard on lady talking to a realtor, she wanted and an 80/20, 100% financing. He was doing his best to tell her those are not available any more. Don't these people read the freakin paper or watch the news?

What will "the market" effect be?

How much do you think the stock market dive will affect the real estate market. I mean other than the banks and lending. How many people do you thing have lost a portion of their down payments. How many people are scared as their 401ks melt away? I've heard different opinions from realtors but most of them are trying to blow smoke up my arse, so their opinions don't carry much weight with me. I think the market troubles will take at least 10% of the potential buyers out of the picture. I think those buyers will be primarily the older buyers and the high end buyers though. I think the economy and job losses, or fear of job losses will take more buyers out of the picture in the near future.

Fontana, hows it doing?

It's been a while since I checked anything north of the 10 fwy. I was bored, so while sipping a nice 18 year old single malt I started checking out the listings in Fontana. Like every where else in the IE the carnage continues. One thing I did notice that stuck out is the amount of short sales in this area. It seems like 50% (or more) of the listings are shorts. If all these shorts turn into REOs (and they probably will) this area is really gonna be in the toilet.



This home is 50% off and still hasn't sold. 5917 Pine Valley Dr, Fontana. This home is in the Sierra Lakes development. It is a 4 bed, 3 bath home that is 2581 sq/ft in size. The last sale price for this home (before the bank bought it) was $580k in June 06. It has been listed for 63 days at $294K and still has not sold. That is nearly 50% off the bubble price. The listing is amusing. It says "reduced". Big woop, it went from $295k to $294k! A one freeking thousand dollar reduction, 0.3%. What a tool....



The part of Fontana south of the 10 fwy is doing even worse. Sub $100 sq/ft listing here are easy to find, like this one listed for $89 sq/ft. 17026 Via De Anza. This home is a 4 bed, 2.5 bath of 3099 sq/ft. It was last purchased in April 05 (At least a year before the peak) for $469k. It's currently listed as an REO for $275k. This one has been listed for 75 days. If the picture looks cropped a bit too tightly there's a good reason for it. There is a giant high power transmission line right behind this house. I bet that sounds cool on those foggy mornings.

What's really happening

Reader Osa posted this,

golfer_x. Why do you always show the low side of San Jacinto? Why not take a look at Trulia. 605 Wamblee (3127 sq feet) - $110 sq/ft 496 Peregrine (3127 sq feet) - $103 sq/ft. Why don't you show what is really happening

Ok, I'll take the challenge. Let's look at what is really happening in San Jacinto and these two properties in particular.


605 Wamblee Ln, San Jacinto. A 3 bedroom, 3 bath home of 3127 sq/ft. reader Osa indicates it recently sold for $110 sq/ft. Well it did, kinda. That sale was the bank foreclosing on the property. They took it back for what I will assume was the loan balance of $345,095 from poor Hector Escamilla and his wife Rebeca. It's not currently listed but the bank purchase was fairly recent so they may not have it out to a broker yet. This home sold new in 2006 for $411K. Any guesses on what it will list for? This house had been for sale by owner for quite a while. He even tried an auction without any success.



The second home is;

496 Peregrine Ln, San Jacinto. This is a 3127 sq/ft home, also with 3 beds and 3 baths. It was purchased in Sept 06 for $375K. The owner had some trouble paying for it and the bank took the home back for $324,068 in August. It listed as an REO in Sept for $205k. The price has dropped to $189,900 as of Oct 20th. The asking price is 49% less than the selling price only 2 years ago. It's currently listed for $61 sq/ft.

And that is 'What's Really Happening!"

very tempting....

This house hit the market today. It's in one of my favorite areas. It has a pool (the kids want a pool, dad, not so much!) and it has a synthetic putting green (oh yea, dad likes that). The price is very good for the area (currently). It is a two story and we really would prefer a single. My wife didn't like the finish on the kitchen cabinets. But when she saw the pool she gave it the thumbs up anyway. I'm quite sure this will go quick and probably for way more than the $482k it's listed for. This one is by far the best deal in the area currently. The only drawback I see is the location. It's on the corner of two busy streets. This home sold new in 2004 for $704k. It sold again in 2005 for $815k. I assume that there folks put the pool in and the rest of the lanscaping. They had it on the market for quite a while at 1.13 Million. The banks took it back for $462k. That woulda been a great deal to pick up on the court house steps! Unfortunately my checking account is about $461K short.....



So far this week I have seen at least 6 homes hit the market at prices that make me want to get off my butt and go see them. Although they are still more than I want to pay, they are getting closer. Of course who knows what they will end up selling for.

I've noticed more homes hitting the market each day too. Maybe the banks are getting caught up with that new foreclosure law. Lets hope so. It's been quite slow for the last few weeks.

I think I will take a week off, go on a cruise and ponder when to break out the low-ball cannon.

How low will they go?

How low will they go? What's your guess this month. Last year I would never have guessed that nice, newer homes would be listing under $60 a sq/ft. But here were are, and if you look, there are some very nice houses listed that low. Yup, they are in the boonies but so what, that price is darn low.

I know, I know, it seems like it's taking forever for the prices in the desirable areas to fall. But, they are desirable for reasons and those reasons will slow the price declines in those areas. It won't stop them, it wont make the fall any less it will just make it take longer.

Check out what you can get it you don't mind living in the sticks. Can these go lower?? I keep looking for one under $50 sq/ft but no luck so far.

3030 Cat Tail Ct, Hemet is a 3335 sq/ft home with 5 bedrooms and 3 baths. Built in 2005 this home sold new for nearly $450K! IN HEMET...nope no bubble here..... The bank is trying to unload this house for $190K. That's about 57% off the new price. And this is a nice looking house. Even the inside looks good (in the two pics). It has nice hardwood floors and the kitchen looks very nice. At that price this house works out at $57 a sq/ft! This house is down in the newer end of town near Diamond Valley lake.



Think that listing is a fluke? Nope, here's another one even cheaper. 1819 Overland court is in the same area as the first house. This one is a 5 bedroom 4.5 bath home with 3511 sq/ft. This one also built new in 2005 sold for $485k. It's a bank owned and it's listed for $189,900. That's $54 a sq/ft for a newish home with tile floor in the kitchen and granite counters. It even has a landscaped back yard and a small patio. FIFTY FOUR bucks a square!

Here's another, 204 Kirby St, San Jacinto $55 sq/ft


378 Overleaf, San Jacinto (REO) $51 sq/ft


1242 Enchanted, San Jacinto, (REO) $53 sq/ft

Sales by zip code

Here are the sales numbers by zip code. Riverside County is down to $113 sq/ft and San Berdu is at $124 sq/ft. However the median price in San Berdu is less indicating the average home sold is smaller. Lots of zip codes well under $100 sq/ft now in both Riverside and San Berdu. Unfortunately those are still in the zips most of us would rather avoid. The price per sq/ft dropped from $120 to $113 in the last month (in Riverside). That's a decline of 5.9%, that's even more than the 4.1% drop in the median price.

RIVERSIDE COUNTY		SFR	Price	% chg	$/Sq Ft
Countywide		3,597	$225	-39.20%	$113
Banning	92220	53	$133	-49.70%	$104
Beaumont	92223	75	$230	-22.30%	$107
Blythe	92225	7	$195	-13.30%	$127
Cabazon	92230	7	$125	-56.90%	$78
Calimesa	92320	4	$217	-15.20%	$146
Canyon Lake	92587	27	$244	-45.60%	$130
Cathedral City	92234	62	$203	-31.40%	$122
Coachella	92236	45	$170	-51.30%	$99
Corona	92879	49	$284	-29.10%	$145
Corona	92880	107	$365	-26.60%	$128
Corona	92881	50	$375	-30.60%	$165
Corona	92882	86	$305	-37.20%	$165
Corona	92883	88	$330	-23.40%	$133
Dsrt Hot Springs	92240	93	$120	-35.10%	$76
Dsrt Hot Springs	92241	8	$173	n/a	$138
Hemet	92543	49	$95	-53.90%	$82
Hemet	92544	66	$137	-42.90%	$89
Hemet	92545	95	$172	-40.60%	$91
Idyllwild	92549	13	$241	-1.40%	$177
Indian Wells	92210	5	$645	-38.50%	$247
Indio	92201	103	$180	-50.30%	$109
Indio	92203	59	$255	-26.20%	$104
La Quinta	92253	73	$272	-36.10%	$145
Lake Elsinore	92530	106	$200	-41.20%	$110
Lake Elsinore	92532	58	$250	-44.60%	$95
Menifee	92584	114	$232	-28.20%	$100
Mira Loma	91752	46	$345	-30.40%	$143
Moreno Valley	92551	86	$158	-49.00%	$101
Moreno Valley	92553	130	$139	-52.60%	$98
Moreno Valley	92555	104	$240	-26.20%	$97
Moreno Valley	92557	104	$175	-44.40%	$111
Murrieta	92562	125	$290	-25.40%	$109
Murrieta	92563	147	$279	-34.90%	$102
Norco	92860	22	$362	-41.10%	$166
Palm Desert	92211	29	$367	-6.00%	$202
Palm Desert	92260	21	$275	-36.80%	$153
Palm Springs	92262	48	$317	-29.40%	$165
Palm Springs	92264	17	$455	-15.00%	$243
Perris	92570	44	$185	-43.00%	$104
Perris	92571	159	$165	-37.30%	$92
Rancho Mirage	92270	22	$500	-30.60%	$221
Riverside	92501	25	$195	-39.60%	$134
Riverside	92503	105	$231	-37.60%	$132
Riverside	92504	58	$194	-49.10%	$141
Riverside	92505	41	$234	-25.70%	$147
Riverside	92506	56	$236	-35.30%	$176
Riverside	92507	36	$230	-39.00%	$151
Riverside	92508	59	$330	-27.60%	$132
Riverside	92509	94	$220	-41.20%	$136
San Jacinto	92582	42	$200	-42.90%	$81
San Jacinto	92583	73	$147	-41.80%	$88
Sun City	92585	44	$207	-16.80%	$106
Sun City	92586	38	$153	-38.30%	$109
Temecula	92591	59	$273	-27.80%	$137
Temecula	92592	135	$292	-27.10%	$128
Thousand Palms	92276	5	$174	-24.20%	$100
Wildomar	92595	48	$270	-23.80%	$104
Winchester	92596	54	$253	-29.70%	$106
SAN BERNARDINO COUNTY
Countywide		2,456	$194	-38.40%	$124
Adelanto	92301	59	$126	-45.70%	$74
Apple Valley	92307	46	$161	-42.40%	$93
Apple Valley	92308	60	$142	-46.40%	$93
Barstow	92311	31	$103	-37.10%	$88
Big Bear City	92314	43	$190	-24.00%	$178
Big Bear Lake	92315	35	$270	-26.50%	$225
Bloomington	92316	32	$185	-50.60%	$126
Chino	91710	41	$325	-29.30%	$206
Chino Hills	91709	51	$440	-21.40%	$223
Colton	92324	45	$159	-51.50%	$120
Crestline	92325	20	$147	-38.80%	$173
Fawnskin	92333	5	$205	-59.20%	$288
Fontana	92335	84	$175	-44.40%	$136
Fontana	92336	184	$300	-29.00%	$138
Fontana	92337	87	$225	-38.50%	$145
Grand Terrace	92313	9	$230	-32.80%	$154
Helendale	92342	12	$180	-39.90%	$98
Hesperia	92344	53	$187	-54.40%	$82
Hesperia	92345	128	$154	-42.10%	$94
Highlands	92346	55	$207	-41.00%	$132
Joshua Tree	92252	21	$119	-30.00%	$86
Lake Arrowhead	92352	40	$370	-14.50%	$254
Loma Linda	92354	16	$325	-28.60%	$158
Lucerne Valley	92356	6	$75	-55.90%	$63
Mentone	92359	6	$265	-24.30%	$143
Montclair	91763	33	$262	-38.70%	$178
Ontario	91761	33	$276	-32.70%	$173
Ontario	91762	39	$260	-36.70%	$180
Ontario	91764	44	$222	-43.90%	$178
Phelan	92371	19	$190	-41.60%	$101
Pinon Hills	92372	6	$260	6.80%	$142
R Cucamonga	91701	36	$368	-21.80%	$207
R Cucamonga	91730	34	$300	-25.00%	$205
R Cucamonga	91737	18	$380	-52.50%	$192
R Cucamonga	91739	41	$460	-6.80%	$171
Redlands	92373	25	$354	-24.50%	$222
Redlands	92374	26	$216	-38.40%	$138
Rialto	92376	102	$180	-43.00%	$126
Rialto	92377	44	$233	-38.70%	$135
Running Springs	92382	8	$201	-9.70%	$135
San Bernardino	92404	88	$133	-48.80%	$101
San Bernardino	92405	49	$110	-56.00%	$94
San Bernardino	92407	74	$181	-44.20%	$124
San Bernardino	92408	8	$123	-60.10%	$113
San Bernardino	92410	47	$99	-65.30%	$86
San Bernardino	92411	16	$95	-55.50%	$82
Sugarloaf	92386	13	$155	-16.20%	$159
Twentynine Palms	92277	24	$119	-3.80%	$89
Upland	91784	24	$510	-11.80%	$192
Upland	91786	28	$320	-27.00%	$215
Victorville	92392	129	$155	-47.30%	$80
Victorville	92394	80	$144	-46.30%	$81
Victorville	92395	75	$151	-40.70%	$96
Wrightwood	92397	5	$285	-1.70%	$259
Yucaipa	92399	45	$273	-8.40%	$138
Yucca Valley	92284	43	$172	-7.00%	$105

Sept numbers, the spin doctors are hard at work.

The Sept numbers are out and they are fabulous. Well, compared to the worst year in history they are fabulous. If you remember, last August is when the subprime market really went into full crash dive mode. The sales numbers crashed down to the lowest recorded levels. Even the difference from August to Sept was shocking in 2007. The sales went down something like 22% in just that one month period. Consequently the sales numbers for the next 6 months or so are going to look absolutely stellar.

Looking at the numbers and doing some math here's what you need to remember from this report. Disregard the fluff, Remember these key points.

1) Sales numbers are the 2nd worst since they started keeping records.
2) 70% of the sales in Riverside are foreclosures.
3) Prices are STILL dropping. The median drop from August 2008 to Sept 2008 is -4.1% in Riverside and -4.7% in San Bernardino!



So here we go with DataQuicks Sept report.

Southern California home sales shot up by an unprecedented 65 percent last month from the dismal, record lows of a year ago, when a credit crunch slammed the brakes on home financing. September sales also posted a rare gain over August as price cuts lured more buyers. Foreclosure resales rose to half of all transactions.

A total of 20,497 new and resale houses and condos closed escrow in the six-county Southland in September, up 5.8 percent from 19,366 in August and up 64.6 percent from 12,455 in September 2007, according to San Diego-based MDA DataQuick, a real estate information service.

Last month's sales were the highest for any month since December 2006 and the year-over-year gain was the highest for any month in DataQuick's statistics, which go back to 1988. However, last month's sales were still the second-lowest for any September since 1996 and were 17 percent below the 20-year sales average for that month.

This September's huge annual sales increase stems from the extraordinarily weak activity in September 2007, when sales were at a record low for that month. The year-ago sales plunged after the credit crunch that struck in August 2007 made "jumbo" mortgages for higher-end homes more expensive and harder to obtain. Sales were already hurting from the subprime mortgage industry meltdown earlier in 2007, which undermined demand for entry-level homes.

"The pitifully low September 2007 sales numbers weren't tough to beat. More impressive was that this September's sales volume bucked the seasonal norm and rose above August. Steep price declines, especially inland, have improved housing affordability quite a bit and may keep sales levels well above the record lows we saw late last year and early this year. It will depend on the severity of this economic downturn," said John Walsh, MDA DataQuick president.

"You have to view last month's sales in the proper context," he cautioned. "They represent escrow closings, which reflect purchase decisions made in mid-to-late summer. That was before the dramatic worsening of the nation's economic crisis in recent weeks. Over the next few weeks our sales data will begin to show how the meltdown in financial markets this fall has impacted housing demand."

I am impressed that they even mentioned the reason for the great "looking" numbers and I'm even more impressed by the candor in that last paragraph.

Bargain shopping continued to fuel the Southland market last month, with sales typically rising the most in areas where prices have dived and foreclosures have soared.

Fifty percent of all existing homes that closed escrow in September had been foreclosed on at some point in the prior year. That's up from 45.5 percent in August and 12.6 percent in September last year.

At the county level, such foreclosure resales ranged from 36.8 percent of September resales in Orange County to 68.9 percent in Riverside County. In Los Angeles County foreclosure resales were 39.1 percent of all resales; in San Diego 47.3 percent; San Bernardino 63.1 percent and in Ventura County 44.0 percent.

The high level of foreclosure resales helped push the Southland's median sale price down to $308,500 in September, the lowest since it was $305,000 in May 2003. Last month's median was 6.5 percent lower than $330,000 in August and 33.2 percent lower than $462,000 in September 2007. The September median stood 38.9 percent below the peak $505,000 median reached in spring and summer of last year.

What are you seeing lately?

It's been a while since I went out looking at open houses. I had some free time this weekend since my wife got stuck working so I took a drive around looking at a few open houses. And I do mean a few. There were not many this weekend. But when I did stop it was like deja vu. It looked just like in did last October; DEAD! There was no one looking. That's very different from a couple of months ago.

It was nice to hear that some thing's haven't changed though. Here's a few of the gems I heard, "it's a great time to buy", "these deals won't last forever", "investors are snapping them up", "sales are way up, we bottomed out late last year" and the very best comment I heard all day was "The stock market is just killing the real estate market". It seems like some things nver change.

How'de that stimulus package work out?

Obviously not so good, but hey this is funny.

Real estate markets don't bounce, they splat

Here's a good interview with economist Chris Thornberg.

Take a listen to economist Chris Thornberg as he is interviewed on the housing market. Here's a few gems,

Prices in California have basically come down halfway to where they're going to end up.

In general, we would have to see about a 40-45% decline in home prices in CA just to get us back to normal levels relative to income.

If you want to sell and you need to sell, you're going to have to price it realistically.

We hear this all the time - people can't get loans, that's not actually the circumstance. If you do qualify, that is, you have the cash to put down, and your income is in line with what you're trying to borrow, and guess what, you can verify the income, you can still get a loan.

The problem is here in CA even with the drop we've seen in home prices, prices are still high relative to incomes. If you can't qualify today, it's probably good for you.

Housing markets don't bounce, they splat. They hit bottom and they stay there. You'll have a long opportunity to capitalize on those low prices once we find that bottom."

Whe asked what will it take to unfreeze this market.

It's not frozen. Quite the contrary, it's moving very rapidly, just not in the direction we like to think about. Prices will fall to the point that will eventually draw buyers back in. And then things get moving.

It's not the news people want to hear. It's certainly not the news real estate agents want to hear, because you can make a lot more money on a 500k house than a 200k house. But if the house is only worth 200k, all the wishing in the world doesn't make home prices go up again. But guess what - the value was never there in the first place.