Prediction: California Real Estate

[Sam]

Interesting forecasting, boldfaced.  Let's revisit a year from now.  I bet the forecast is wrong.


SAN FRANCISCO, Sept 28 (Reuters) - The slowdown of California's housing market has become a drag on the state's economy as home building and financing payrolls thin, but the most populous U.S. state will avoid recession through 2008, according to a UCLA Anderson Forecast report.

The report, released on Thursday, projected California will through 2008 post overall payroll growth of around 1 percent, a rate similar to that in the first half of this year.

"The housing market has continued to soften and real estate-related employment has moved from a major engine of growth in 2005 to a drag on growth in 2006," the report said.

"Looking forward, the forecast calls for a similar picture," the report said. "Real estate sectors will continue to decline, but without significant declines in another sector, the net result will be a slowdown, not a recession."



Building permits in California will continue to decline, hitting bottom in 2008, the report noted.

A separate report by the economic forecasting group predicted that while home sales in California fall, home prices will not.

The report said California's homes market is "very far from a Great Comeuppance in which the extraordinary appreciation of the last five years is taken away."

"Here in California, though sales rates have plummeted, prices overall continue to push upward, though at a much slower rate, while some cities have experienced modest price declines," the report said.

Without severe job losses forcing home owners to sell houses, home prices in California in five years will be about the same as today, the report added.

 

[brewer12345]

Without severe job losses forcing home owners to sell houses, home prices in California in five years will be about the same as today, the report added.

So they think all those no money down, no income verification, option ARM borrowers who have been paying the minimum (which doesn't even cover interest) will be just ducky? That's a good one.

 

[cube_rat]

Let's just say I'm glad I pulled out. I believe folks are still delusional here in California. Call me pessimistic...

 

[brewer12345]

Let's just say I'm glad I pulled out.  I believe folks are still delusional here in California.  Call me pessimistic...

Ah, but remmember, as the banker said to the young man: If you pull out before the end, she loses interest...

 

[youbet]

So they think all those no money down, no income verification, option ARM borrowers who have been paying the minimum (which doesn't even cover interest) will be just ducky?  That's a good one.

Brewer,

Is you position that there will be enough homes put on the market due to inability to meet financing obligations to force prices down significantly?

 

[cube_rat]

Brewer,

Is you position that there will be enough homes put on the market due to inability to meet financing obligations to force prices down significantly?

As a Californian (SF Area) who just sold a piece of property, I can tell you there are pockets right now where prices are in free fall and inventory is staying on the market longer.  Other areas are still experiencing crack pipe real estate-like multiple offers, which are pushing the prices upwards.  I just viewed a 1100sq Ft,  $700,000 townhouse on a street called El Camino (Oh, but it's near Hillsborough!!)  and laughed all the way to my fully paid for luxury car.  I don't think so....

 

[brewer12345]

Brewer,

Is you position that there will be enough homes put on the market due to inability to meet financing obligations to force prices down significantly?

Right now we have seen prices stall to slightly down even while inventory has ballooned and sales pace has crashed.  Many people who currently have their homes on the market don't *have* to sell, so most of them haven't been willing to cut their prices (yet).  

What happens next will depend on exactly how shaky al those marginal borrowers really were.  If the no money down, no income verification, minimum payment-making Option ARM borrowers arren't really that strapped, maybe they will be able to refi into something that won't blow them up.  This is at least vaguely plausible since rates have come down modestly.

But if these borrowers really can't cover the fully loaded payments on their mortgages when they reset/recast, then there are going to be a LOT of desparate people who can't afford to carry their loans and need to sell their homes before they get foreclosed on.  If that happens, they will cut their price, to the extent they can afford to do so.  Since some of them won't be able to sell at a price that pays off the loans, there will also be foreclosures.  You can bet your bippy that any bank wth a lot of REO will price those units to move.  So suddenly we could have a lot of people and institutions who own condos and SFRs who have to sell.  That means that they will cut prices, and anyone else wanting to sell will have to take a haircut, too.

How likely are either of these outcomes?  You'll have to decide for yourself.  I am pretty convinced that the bubbliest markets where Option ARMs were the most popular (mostly in the West, plus Boston, Florida, etc.) will get hit pretty bad in the next couple of years.  What i am not so sure about is what effect that will have on the economy as a whole.

 

[lets-retire]

I think house prices in California will go up.

 

[lets-retire]

Eventually.

 

[Brat]

Bay area is not one market. The south Bay is impacted by options, aka Google employees and their ilk.

 

[honobob]

As a Californian (SF Area) who just sold a piece of property, I can tell you there are pockets right now where prices are in free fall and inventory is staying on the market longer.

Are you saying sales prices or asking prices? There is a big difference! I keep track of SF and East Bay prices and have not seen any reduction in sales prices. I am looking to possibly exchange my home to something that will be easier to manage from long distance when I retire so if you have any leads to properties that are selling substantially below any sales price in the last 5 years I would appreciate the tip.

Are you leaving California? If not, I'm curious as to your thoughts on giving up a Prop 13 Base value. If I sell I will only buy where I can take the low base with me. I'm sure I will cash out of CA at some point but with an average of 10% increase in market value every year for the last 20 I'm reluctant to give that up until needed.

 

[mb]

I've been in the South Bay/Silicon Valley for 14 years and lived in the East Bay/Oakland for 10 years and have bought two homes in the East Bay and one in the South Bay.

I've always been surprised at the resiliency of Bay Area real estate. It definitely does go down but it never seems to go down as much as I think that it should. The last time I was wrong was during the dot com bust. The Valley lost 180,000 jobs and the market barely burped.

I last bought at the bottom of the last real estate drop in the early nineties and I can tell you that from my perspective it didn't feel like a buyers market then. A real estate agent told me that a lot of people simply took their house off the market when they realized what was happening because they didn't have to sell.

I discussed another factor that I think is important in another thread. I think that prices have been so high for so long here that there are a lot of people that want a larger house or a better school district and when the market starts to dip they jump in. I don't think that most other parts of the country necessarily have this situation. In our area we have a lot of dual income professional couples making $150-250k/year living in a 1200 sq foot, 50 year old house in a crappy school district. Well if the price goes down 10% on say a 2000 sq ft house in Cupertino (good school district) they start jumping into the market and that mitigates the price drop.

Now it may be different this time because of the high risk loans many people may be forced to sell and that could overwhelm demand in a way that hasn't happened previously. My WAG is that we will see a drop of about 20% but I would not be surprised if I was wrong again on the high side again.

Either way I don't really care. I don't have a mortgage and plan to stay where I'm at for at least 5 years

MB

 

[wabmester]

Here's a site that maintains economic stats on the bay area. For example:

Santa Clara

 

[cube_rat]

Are you saying sales prices or asking prices? There is a big difference! I keep track of SF and East Bay prices and have not seen any reduction in sales prices. I am looking to possibly exchange my home to something that will be easier to manage from long distance when I retire so if you have any leads to properties that are selling substantially below any sales price in the last 5 years I would appreciate the tip.

Are you leaving California? If not, I'm curious as to your thoughts on giving up a Prop 13 Base value. If I sell I will only buy where I can take the low base with me. I'm sure I will cash out of CA at some point but with an average of 10% increase in market value every year for the last 20 I'm reluctant to give that up until needed.

Trust me, asking prices are being reduced in some areas and inventory is staying on the market longer. NOT all. The market is softening a bit and you may find some deals (well *deals* are matter of perception in crack pipe real estate land ) in the SF area within year.

The days of multiple offers/feeding frenzy are over in some areas, however NOT all yet.

Stay tuned

 

[cube_rat]

Either way I don't really care. I don't have a mortgage and plan to stay where I'm at for at least 5 years

MB

Yep. If you're staying for a while, you're just fine. I hated my location, layout of my house and the fact I had a fat a$$ mortgage. No one should live in a place they hate. Disliking my place was the main driver to sell. I figured that we should do it now before values decline (even if it's 10 or 20%). I still made out a nice profit over my down payment for two years.

 

[honobob]

I hated my location, layout of my house and the fact I had a fat a$$ mortgage. No one should live in a place they hate. Disliking my place was the main driver to sell. I still made out a nice profit over my down payment for two years.

I could not agree more. Do not buy when you are on crack because you will end up with a location you do not like and a layout you will hate and you will be forced to live with a fat a$$ mortgage! (Nothing like waking up next to that fat a$$ mortgage still there) I'm curious, which one of the 12 steps brought this enlightenment? Is your "nice profit" protected or will you burn it up in higher crack property tax assessments?

I agree asking prices are down. But you are not being candid with the people NOT from the Bay Area. Here, asking prices are a reference point of what your offer should be. Think, X + $200-300K, now maybe X + $125-200K.

So, I asked about SALES prices. ...............

I'm staying tuned but "What's the frequency, Kenneth?"




Friends don't let friends buy real property on drugs.

Blah blah IMHO blah blah

 

[cube_rat]

I could not agree more. Do not buy when you are on crack because you will end up with a location you do not like and a layout you will hate and you will be forced to live with a fat a$$ mortgage! (Nothing like waking up next to that fat a$$ mortgage still there) I'm curious, which one of the 12 steps brought this enlightenment? Is your "nice profit" protected or will you burn it up in higher crack property tax assessments?

I agree asking prices are down. But you are not being candid with the people NOT from the Bay Area. Here, asking prices are a reference point of what your offer should be. Think, X + $200-300K, now maybe X + $125-200K.

So, I asked about SALES prices. ...............

I'm staying tuned but "What's the frequency, Kenneth?"




Friends don't let friends buy real property on drugs.

Blah blah IMHO blah blah

I'm assuming you're being funny and/or sarcastic here. If not, I will tell you that I don't partake in threads that spin into flame situations. My Motely Fool board days are way over. Sorry, it's difficult to tell and I apologize in advance if I've misunderstood your tone.

We were not on crack when we bought my house. On the contrary. We bought a major fixer-upper for a song and dance two years ago. The only reason why we were able to beat out others during the feeding frenzy, is we had actual money to put down on our place (what a concept!). The other bids that were substantially higher all had zero down. The point is the feeding frenzy has long been fueled by *creative financing* such as zero down, ARMs and people utlitzing reverse mortgage options hoping that their equity will increase forever and ever.

As far as what we do with our intial capital and profit and how well it's protected is not something I'm going to go over into detail in a internet forum. There's plenty of information for public consumption to glean off for your own use.

 

[Martha]

So Cubie, I take it that you sold your place? Congratulations! I remember some time back you were weighing renting it vs selling it. So you are shopping or renting?

 

[cube_rat]

So Cubie, I take it that you sold your place? Congratulations! I remember some time back you were weighing renting it vs selling it. So you are shopping or renting?

Yes we sold. We'll be renters for a while and will be aggressively shopping around next summer. We're betting that certain areas with the Bay Area will soften more. If not, we'll keep piling up our money and move to a low cost area when I'm ready to retire. We're absolutely fine with not holding real estate at the moment. The place we bought and sold was only for opportunity purposes not for retirement.

 

[eridanus]

If you don't want to rely on anecdotal evidence, you can use Shiller's housing price index. It's at the S&P web site or at,

http://www.cme.com/trading/prd/overview_HNG18558.html (Quick Link: Home Price Indices Historical Data).

I realize that a lot of people think "it can't happen here" but it's not at all unusual for prices to decline by 20% in some markets. We've discussed Austin/Houston and I've linked to the cnnfn.com article that mentioned other cities.



*Disclaimer: I've speculated that the national market and the LA market will decline by 5% over the next year.

 

[playaman]

I arrived in California (suburban San Diego) a bit over two months ago and chose to lease a home for the time I've committed to be here. The house I leased had been on the market for almost a year, and there are many others "for sale" in the neighborhood. So far, none of the signs have come down.

The guy who owns my house said he had "nine offers" for it, but none were "adequate."

My hunch is, as one of the other posters noted, that sellers just aren't willing to reduce their prices. Foreclosures may force them to do so. Doesn't matter to me, though. I'm heading back to the less-exciting, but oh-so-much-more-affordable South (or Texas) to retire when that time comes.

 

[cube_rat]

9 offers in a year isn't great, assuming I read your post correctly. My husband had 8 offers on his house in San Jose 3 years ago (height of frenzy) from one open house. He got 60K over asking. Crazy.

 

[mb]

Fow what it is worth Zillow gives a 1.5% decrease in the value of my house over the past month.

 

[wabmester]

As a Californian (SF Area) who just sold a piece of property....

Hey, cube_rat, it looks like you timed the top perfectly. The bay area just had it's first year-over-year price drop since the dot-com bust.

Data Quick Press Release

 

[cube_rat]

Yep, wab. Before my career change in IT 8 years ago, I worked with people who analyzed this stuff all day long. I listened, watched and listened...

pssst: the rental market will become increasingly strong. Great news for the landlords in this area