Dataquick, the company that supplies the LA Times with housing activity statistics, released their report for December last week. The headline was “Southland home sales: New price peak, slowest December in ten years”. Now that doesn’t sound too bad until you look at the numbers in detail.
Home price appreciation was 3.3% for the 6-county, Southern California region. However, when corrected for the 2006 inflation rate of 3.24%, home price appreciation was .06%, not exactly the stuff headlines are made of. What’s more disturbing, though, is the data for San Diego County. Most economists consider San Diego to be the region’s bellwether. And the median home price there declined at an inflation-adjusted, annual rate of -9.6%. Ventura’s decline was -9.1%. Orange and San Bernardino counties just about broke even. Only LA and Riverside showed modest gains of 3.3% and 1.9% respectively. And according to the experts, we have a couple of years to go before the market begins to stabilize.
The correction has begun. Affordable housing is on the way. We don’t need government intervention or greedy downtown property owners, developers, and real estate brokers to aggravate the problem. Lower prices and a record supply of vacant, available homes are already here according to the Wall Street Journal. Thing’s are going to be bad enough without further over-development making it worse.
If you want to see what could happen, go to www.dqnews.com. Go down the left side of the home page and click on “ARCHIVED ARTICLES”. On the page that comes up, click on “1995 Releases”. Then click on the first article under “1995 Releases”, “California Homes Being Sold at a Loss”. The article, Dataquick’s first press release, says that, in May of 1995, 30.7% of the homes sold went for less than what the sellers had paid for them. That’s an improvement over April, when 32.4% were sold at a loss, or May of 1994 when the figure was 35.4%. The personal tragedies in those figures are unimaginable for those who did not go through it. It should be noted, however, that one of the cardinal rules of economics is that history repeats itself.
People will say; “It’s different this time. Back then, cutbacks in defense spending caused a recession, and Southern California lost thousands of jobs.” My answer to that is the same one Christopher Thornberg gives in the closing remarks of his video presentation. There has never been a real estate boom in history of a magnitude like the one we went through in the first half of this decade. Never! And there’s no historical precedent for the exotic financing that supercharged it.
We are in dangerous, uncharted waters. All I am suggesting is that we proceed with caution rather than “full speed ahead”, like council members Buchanan, Joffe, Mosca, and the rest of the pro-development clique are dictating. They must be insane, or else, utterly ruthless.
Tuesday, January 30, 2007
Wednesday, January 24, 2007
Selling (Out) Sierra Madre
There isn’t a housing shortage in California. Sure, according to Dr. Christopher Thornberg, former head of the UCLA Anderson Forecast, there’s a “shortage of low rent apartments, for low income households, mostly from Latin America.” But, other than that, there’s a glut. Thornberg points out that in 2005 there were 2.5 new homes built for each new household in this state. Around 10% of those 5.7 million vacant homes The Wall Street Journal reports are in California.
We are awash in empty, available homes. So why are the developers so anxious to build high-density condominiums in downtown Sierra Madre, in the slowest real estate market in a decade? The answer is simple. During the real estate boom, home prices got driven to levels far beyond what the economic fundamentals, i.e. incomes, jobs, etc., would support. Exotic financing also helped. But the phenomenon that drove the boom was psychological. People paid outrageous prices for homes because they expected them to go even higher. So now we have a bubble, and our economic salvation lies in letting the air out slowly.
The UCLA Anderson Forecast expects home prices in California to remain constant for the next 5 years, a soft landing. Their one exception is for homes in areas where there’s new construction. And their reason is, with highly inflated prices, developers can sell new homes in existing neighborhoods at deep discounts and still make obscene profits, while pulling the rug out from under current home prices.
The effect is two-fold. The developers make a fortune off the condos while crashing the market and providing a buying opportunity for speculators.
What bothers me most, though, is that certain members of our City Council and City Administration keep acting in favor of developers and speculators while placing the interests of Sierra Madre homeowners in greater and greater peril. They justify this by saying they need more revenue.
But property tax revenues went up right along with the median home price and record home sales during the boom. It’s been a revenue windfall for the government. So, what’s up? Why are some of our city officials throwing caution to the wind?
At the very minimum, there is an appearance of impropriety in their behavior. I’ll go into that further next week. In the meantime, I suggest you watch an informative and entertaining presentation by Dr. Christopher Thornberg that’s available through Google Video. Just go to video.google.com and search on the name “Christopher Thornberg”. It’s called “Economic Roundtable.”
Watch it, and you’ll get an excellent education in real estate economics. If you have trouble finding it, send an email to me at SierraHombre@verizon.net, and I’ll send you a direct link. (This is the direct link.)
We are awash in empty, available homes. So why are the developers so anxious to build high-density condominiums in downtown Sierra Madre, in the slowest real estate market in a decade? The answer is simple. During the real estate boom, home prices got driven to levels far beyond what the economic fundamentals, i.e. incomes, jobs, etc., would support. Exotic financing also helped. But the phenomenon that drove the boom was psychological. People paid outrageous prices for homes because they expected them to go even higher. So now we have a bubble, and our economic salvation lies in letting the air out slowly.
The UCLA Anderson Forecast expects home prices in California to remain constant for the next 5 years, a soft landing. Their one exception is for homes in areas where there’s new construction. And their reason is, with highly inflated prices, developers can sell new homes in existing neighborhoods at deep discounts and still make obscene profits, while pulling the rug out from under current home prices.
The effect is two-fold. The developers make a fortune off the condos while crashing the market and providing a buying opportunity for speculators.
What bothers me most, though, is that certain members of our City Council and City Administration keep acting in favor of developers and speculators while placing the interests of Sierra Madre homeowners in greater and greater peril. They justify this by saying they need more revenue.
But property tax revenues went up right along with the median home price and record home sales during the boom. It’s been a revenue windfall for the government. So, what’s up? Why are some of our city officials throwing caution to the wind?
At the very minimum, there is an appearance of impropriety in their behavior. I’ll go into that further next week. In the meantime, I suggest you watch an informative and entertaining presentation by Dr. Christopher Thornberg that’s available through Google Video. Just go to video.google.com and search on the name “Christopher Thornberg”. It’s called “Economic Roundtable.”
Watch it, and you’ll get an excellent education in real estate economics. If you have trouble finding it, send an email to me at SierraHombre@verizon.net, and I’ll send you a direct link. (This is the direct link.)
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