Flashback

One of the very first posts that I did on the blog took a look at the current prices versus the traditional average prices. I thought I would take a look back for the benefit of our newer readers and see how close we are now. The data comes from the Nation Association of Realtors.



The first chart shows the median price from 1980 through 2006. As you can see the prices fluctuated a little bit. You can clearly see the early 90's bubble and the mid 90's correction. Compared to this bubble the last one was just a speed bump. I put the red line on the chart, starting in 1980 and continuing through the peak of the last bubble out to today. Using that as a trend line, median prices today would be about $240K. But that trend line is through the peak of the last bubble. A very optimistic trend line. If you were to draw that line through the trough in the mid 90's the median price would only be about $150K. That's probably on the pessimistic side so if we split the middle the median should be around $200K. At the current rate of decline we should hit that in about 6 months. Currently we are at $247k and dropping at about 5% per month.



The second chart shows the ratio of median price to median income. As you can clearly see the ratio of median income to median home price stayed primarily between 2X and 3X, even through the last bubble it just barely broke 3X. But in this bubble it peaked at something like 8X the median income. If my data is correct the median income for Riverside County is currently around $54K. Oh look, we end up at that $150k number again.

I hear a lot of people saying that prices will never fall that low. I don't know why they think that. These ratios have been the same for many many years. Much farther back that these charts show. Has anything changed in the last 10 years? Contrary to Realtor spin, we are not running out of land, you could build millions of homes in the IE on all the vacant land. It sure not the weather. It's not like we live at the beach, half the year it's hotter the hell here. There's not a great job market, the pay sucks out here, which is why 1/2 the population commutes to LA. The air quality is on par with post explosion Chernobyl most of the year. So why would anyone think prices are not going to fall back to traditional ratios. The only thing that is not factored in is the size of the homes. Maybe we should add at least 10% to the median price for the increase in the home sizes over the last few years.

Do you believe that the prices will fall back to traditional levels? If not what is your reasoning?

SB1137 is helping cut the inventory

I've received a few emails asking about the drop in inventory over the last few weeks and some people are wondering (freaking out), "what's going on". Why the big drop? It looks to me as if that new state law, SB1137 is the culprit. It does not look like increased sales are reason for the drop. It looks like there are less new listings hitting the market. Which is what should happen, until the banks contact all the delinquent borrowers. I posted a couple of weeks ago that this law was drastically cutting the foreclosures (temporarily). It may also reduce the sales, since nearly all sales now are foreclosures. With less foreclosures hitting the market there should be less sales. This might be hard to determine though as the sales naturally drop off this time of year anyway.

the weekly tumble

The weekly asking prices continue the downward spiral. The low end seems to be slowing down a bit, only dropping $5k (2.8%) in the last month. The median asking price made a much larger fall. Dropping from $248k all the way to $236K. That's a 5% drop, or 12K in the last month. The high end also lost $12k in the last month.

Trend	09/28/2008	1 month	3 month	6 month	12 month
Median Price	$235,900	-5%	-12.6%	-26.3%	-42.5%
Inventory	12,347	-10.9%	-9.7%	-12.1%	-18.8%

Historical Data

Date	Inventory	25th Percentile	50th Percentile (Median)	75th Percentile
09/28/2008	12,347	$174,900	$235,900	$332,900
09/21/2008	12,368	$175,000	$239,900	$337,655
09/14/2008	15,443	$177,900	$240,000	$339,000
09/07/2008	14,569	$179,900	$244,900	$340,000
09/01/2008	13,852	$180,000	$248,000	$345,000
08/29/2008	13,590	$180,000	$249,000	$349,000

Some of them deserved what they got

8895 Gentile Wind is one of the KB homes in The Retreat in South Corona. This home is a recent REO (like every other house in The Retreat). It sold new from the builder in 2005 for $743k. The buyers put in a little landscaping (and I do mean "a little", a 6' patio slab and a brick planter looks to be about it). The they manage to off load this thing in Nov 07 for 1.3 million??? WTF, that is months after the market imploded. In Late 07 there were already enough foreclosures in this tract to fill a cruise ship. In late 07 there were already homes on this same street listed under $700k yet this home sells for $1.3M. That sale is obviously fraudulent. It has a big red rotating sign on it that says "I screwed the lender". Gawd I wish they would hunt these people down and make them listed to Hanna Montana records nonstop for a few years. Oh wait, that might be cruel and unusual punishment. Eh, who cares.

Obviously the bank got screwed and this house is now listed for $430k. That makes this the cheapest house in The Retreat currently. Not my much mind you, there are several in the mid $400s. This house has fallen 43% from what it sold for new in 2005. Or if you want to go for the shocking (but obviously fraudulent) number, it has fallen 67% from the previous sale for a loss of $870K.

At the current price this house seems like a good deal. But once you factor in the HOA and the taxes this place becomes quite a bit more expensive. Still at this price, I think this will go pretty quick. Assuming there are any buyers left after this week.

Who's going to buy now?

Unless you live under a rock you probably heard about the market meltdown today. Our gubment was unable to push through the 700 Billion bailout despite pleas from Bushy and the financial geniuses at the Fed and the Treasury. I was even a little shocked that it didn't pass. As soon as the news hit the wires the markets went off a cliff (and they are still diving, the Nikkei is down over 500). Our financial Ebola has found it's way to Europe and now their banks and brokerages are failing.

With all this hitting the news every night I have to wonder, who is still looking to buy a house? I was planning on seriously looking in early 09. Prices in my target areas are starting to hit the "magic number" that I had set 2 years ago. But now I have more to think about. If this continues, are our jobs safe? My wife is in healthcare so she is relatively immune to economic fluctuations. My job however is directly connected to defense spending. If the gubment runs out of money they might decide they don't need the new fangled time machine I'm designing. They might decide to cancel Deathstar that our sister division is building. And what will we do with the clone army? Those guys have to eat and that's not cheap. Especially at government rates where a hamburger costs $500.

Undoubtedly this will make a lot of buyers think twice before buying a home. The other question, and the one the government is worried about is, will there be any banks around lending money to buy homes. Will the government step in and start giving out low interest loans? Personally I think that would be the quickest way to get the market moving. A gov sponsored disaster type loan program could keep the real estate market moving. Although I would only favor this if they screened the applicants and ensured they could afford it.

That's all for now, I have to head off to Costco to buy as much rice and bullets as my car will hold....

Flipping, alive and well

Here's a flip attempt in Corona.

3231 Huntfield St was taken back by the bank for $401K. The previous owner had paid $930K in Dec 2006 for it. It sold in early Sept for $370K. That is a loss of 60.3% from the Dec 09 price or if you prefer your loss in dollars, that's a loss of $560K. This one was picked up by an investor hoping for a quick profit. It's already back on the market priced at $499K. Not bad if he can get it that's a quick profit of $130K less sales costs. The flipper looks to be an agent or broker.

Listings like this have to make you wonder if these agents aren't taking advantage of their positions to snag deals before the public gets a chance. This house at $370k was a steal (unless it was trashed). There's no way that it would have sold that low had it been on the open market. Homes in this area, this size are still selling for well over $400k and some are still getting over $500k. The listing says it is completely rehabed. But the house was only 3 years old and it's only been 3 weeks since it sold so they could not have done much more than paint and carpet. Now this house could have been trashed and everything could be legit, but it does make you wonder....

Foreclosure Alley

Thanks to David for the heads up on this piece. This is a great news piece on the foreclosure wave hitting the IE. Be sure to watch the video!

http://kcet.org/socal/2008/09/foreclosure-alley.html

Interesting Video

I try to keep politics out of the blog but this video has some interesting tidbits of information on some of the decisions and policies that helped inflate the bubble. So keep your political views to yourself when making any comments.

JP Morgan sees a 58% decline in California

JP Morgan has put out this little diddy on their predictions on the housing market. The are offering 3 scenarios, and basing price declines on those. Their current estimate for peak to bottom price declines for California is 44%. We are already at 44.2% (according to DataQuick) so that forecast is pretty well out the window at this point. We have winter approaching, the mother of all financial meltdowns underway and a backlog of foreclosures taller than the Petronas Towers. Their next set of numbers is based on a deeper recession. That guestimate is a decline of 48%. Again, at this point you don't have to be a brain surgeon to conclude that we will probably hit that by the end of the year. Currently prices are losing about 5% per month. The last prognostication is based on a severe recession. It predicts a 58% decline. That is probably closer to what we will actually see.

So far this downturn has proved every estimate, even the most pessimistic to be overly optamistic. Everyone has missed the mark so far even the doom and gloomers. A 58% decline is probably a little too optamistic also. Back near the beginning of the crash. Global Insight estimated the IE to be 65% overvalued. I don't know whether we will see a 58% decline or a 65% decline in the median. But I'm sure it will be that range somewhere. And if the recession is really severe it could be even higher. So far most of the foreclosed homes are due to speculators that bought over their heads. A severe recession would create another wave of foreclosures due to job losses.

WaMu is toast

JPMorgan Chase & Co. Inc. came to the rescue of Washington Mutual Inc. Thursday, buying the thrift's banking assets after WaMu was seized by the Federal Deposit Insurance Corp. in the largest failure ever of a U.S. bank. This is the second time in six months that JPMorgan Chase has taken over a major financial institution crippled by bad bets in the mortgage market.

That's gotta take a load of the minds of Paulson and the boys. Getting someone to buy that turkey seems to have been quite a piece of magic. They definitely pulled a rabit from a hat. Had WaMu failed like IndyMac and the FDIC had to take it over it could very well have wiped out the FDIC's entire reserve.

Sales by city

DataQuick has just released the sales by city numbers. These include resale SFR, Condo and New homes.

Riverside County	3,903	$247,000	$395,000	-37.47%
AGUANGA	2	$237,000	$398,000	-40.45%
BANNING	45	$157,500	$269,500	-41.56%
BEAUMONT	140	$261,500	$365,000	-28.36%
BLYTHE	7	$185,000	$232,000	-20.26%
CALIMESA	7	$235,000	$355,000	-33.80%
CATHEDRAL CITY	76	$217,500	$327,500	-33.59%
COACHELLA	37	$220,000	$299,000	-26.42%
CORONA	505	$350,000	$530,500	-34.02%
DESERT HOT SPRINGS	97	$135,000	$259,500	-47.98%
HEMET	176	$174,000	$305,000	-42.95%
HOMELAND	4	$195,000	$435,000	-55.17%
IDYLLWILD	16	$307,500	$330,000	-6.82%
INDIAN WELLS	16	$675,000	$680,000	-0.74%
INDIO	171	$240,000	$350,000	-31.43%
LA QUINTA	95	$355,000	$500,000	-29.00%
LAKE ELSINORE	164	$220,000	$365,000	-39.73%
MECCA	3	$85,000	$250,000	-66.00%
MENIFEE	113	$255,000	$381,500	-33.16%
MIRA LOMA	33	$359,000	$475,500	-24.50%
MORENO VALLEY	394	$183,000	$370,000	-50.54%
MURRIETA	329	$280,000	$400,000	-30.00%
NORCO	36	$445,000	$585,000	-23.93%
NUEVO	15	$215,000	$500,000	-57.00%
PALM DESERT	97	$333,000	$390,000	-14.62%
PALM SPRINGS	116	$277,000	$401,000	-30.92%
PERRIS	189	$185,000	$340,000	-45.59%
RANCHO MIRAGE	37	$463,750	$677,500	-31.55%
RIVERSIDE	425	$242,000	$415,000	-41.69%
SAN JACINTO	91	$185,000	$325,000	-43.08%
SUN CITY	111	$215,000	$320,500	-32.92%
TEMECULA	236	$325,000	$450,000	-27.78%
THOUSAND PALMS	4	$171,750	n/a	n/a
WHITE WATER	2	$137,000	$285,000	-51.93%
WILDOMAR	60	$300,000	$413,500	-27.45%
WINCHESTER	52	$280,000	$410,000	-31.71%

San Bernardino County	2,314	$215,000	$360,000	-40.28%
ADELANTO	55	$126,000	$261,750	-51.86%
ANGELUS OAKS	2	$113,750	$77,500	46.77%
APPLE VALLEY	133	$157,000	$265,000	-40.75%
BARSTOW	19	$135,000	$181,500	-25.62%
BIG BEAR CITY	23	$207,500	$295,000	-29.66%
BIG BEAR LAKE	42	$324,000	$350,000	-7.43%
BLOOMINGTON	27	$195,000	$375,000	-48.00%
BLUE JAY	2	$312,500	$707,000	-55.80%
CEDAR GLEN	3	$125,000	$84,000	48.81%
CEDARPINES PARK	4	$111,545	$85,000	31.23%
CHINO	68	$348,000	$420,000	-17.14%
CHINO HILLS	59	$475,000	$587,500	-19.15%
COLTON	35	$151,250	$330,000	-54.17%
CRESTLINE	22	$171,250	$248,500	-31.09%
FAWNSKIN	2	$232,500	$869,500	-73.26%
FONTANA	294	$260,000	$425,000	-38.82%
GRAND TERRACE	11	$240,000	$350,000	-31.43%
HELENDALE	14	$202,250	$291,250	-30.56%
HESPERIA	168	$187,500	$310,000	-39.52%
HIGHLAND	64	$200,000	$342,500	-41.61%
HINKLEY	2	$36,500	$55,000	-33.64%
JOSHUA TREE	13	$118,000	$204,500	-42.30%
LAKE ARROWHEAD	19	$353,500	$447,000	-20.92%
LANDERS	2	$172,000	$140,500	22.42%
LOMA LINDA	30	$350,000	$425,500	-17.74%
LUCERNE VALLEY	3	$145,000	$213,000	-31.92%
MENTONE	5	$225,000	$387,750	-41.97%
MONTCLAIR	22	$264,000	$375,000	-29.60%
MORONGO VALLEY	4	$166,500	$212,500	-21.65%
NEEDLES	2	$190,000	$139,000	36.69%
ONTARIO	125	$260,000	$355,000	-26.76%
PHELAN	20	$208,000	$319,000	-34.80%
PINON HILLS	7	$199,000	$282,500	-29.56%
RANCHO CUCAMONGA	190	$380,000	$491,250	-22.65%
REDLANDS	57	$295,000	$400,000	-26.25%
RIALTO	104	$200,000	$342,500	-41.61%
RUNNING SPRINGS	16	$155,000	$235,000	-34.04%
SAN BERNARDINO	222	$133,000	$298,000	-55.37%
SUGARLOAF	8	$183,500	$258,000	-28.88%
TWENTYNINE PALMS	23	$110,500	$109,000	1.38%
TWIN PEAKS	5	$79,000	$216,000	-63.43%
UPLAND	49	$415,000	$497,500	-16.58%
VICTORVILLE	230	$170,000	$299,000	-43.14%
WRIGHTWOOD	5	$225,000	$235,000	-4.26%
YUCAIPA	51	$285,000	$379,250	-24.85%
YUCCA VALLEY	43	$124,500	$235,750	-47.19%

They just don't get it

The more and more I read about this bailout the more I am convinced our so called "leaders" haven't a clue. The latest is Bernanke's comments that the government should buy all that toxic waste at a price close to the "hold till maturity value". So instead of buying this crap at market values they are proposing to buy it basically at full price or what would have been full price had the market not imploded. There reasoning is that the prices we are currently seeing are "fire sale" prices and they don't reflect the "actual value". Are they freaking kidding me?? They really believe those 700 sq/ft shacks in Compton are worth $500k. This is beyond insane.

News Flash Mr Bernanke, the current fire sale prices are still more than most of this stuff is worth! They are attempting to keep homes unaffordable in the mistaken beleif that they really are worth that much. Even though very few people could afford them under normal underwriting standards.

They would be far better off taking that 700 billion and starting a government backed mortgage program with low, fixed 5% rates. That would thaw the real estate market in a hurry. As long as they used traditional lending standards to ensure that people could pay the loans they might actually make some profit on that 700 billion.

Besides 700 Billion is not going to go very far considering the current rate of defaults is over 50 billion per month. Plus they are proposing to buy the stuff at maturity value which would probably make that 50 Billion per month closer to 70 billion per month.

Oh yea, this just keeps getting better and better.....