"A Sad Distortion of Social Priorities"

Well, I guess I am not alone afterall in claiming that strict environmental zoning and artificial land-use restrictions are counter-productive and socially disruptive. Further, despite our claims that we are oh-so-progressive, this article claims that such land-use restrictions are in fact anti-progressive.

Land-use restrictions were started, or so it is claimed by their proponents, in order to make the Bay Area more "livable" (insert your favorite intangibles here). To no one's surprise the artificially created scarcity of land has made housing unaffordable in the Bay Area and has no doubt inflated our egos to match ("Wow! I live in a million dollar 2 br 1 ba hill shack. We must live in the best place ever!"). This pathetic situation has only been exacerbated by the run-up due to the incredibly easy access to credit, exotic "toxic" loans, etc. all of which add up to the housing bubble mess that we are currently living in. But like this article says, "how livable is a place if you can't afford to live there?"

It was well known in the 70's (as attested to by my boomer parents and their friends who still live here) that these restrictions would primarily preserve if not increase land values and that was a big part of it. Property values clearly took precedence over building a healthy community, kids' education and development, social mobility, diversity, business, etc.

That was the choice made by the previous generation. But we don't have to sit idly by.

Marin County's (and others') land-use restriction policies are best summed up by the article as "a sad distortion of social priorities". As much as I like pasture land and trees, I couldn't agree more. It is at best an experiment that has gone awry. Flame away if you must, but someone has to ask the hard questions in public and it might as well be me and besides, what better medium than a blog?

The sooner that we acknowledge that a problem exists the sooner we can address it. I don't think more of the same can be tolerated. I'm afraid that if things do continue on as they have been then there may be no businesses left or the only way to make sufficient money to live here will be more frequent and more extreme boom-bust cycles, more get-rich-quick schemes (e.g., options), more who-knows-what.

Some choice quotes (emphases mine):

Most people know that the San Francisco Bay Area has one of the most expensive housing markets in the nation. However, not everyone realizes that, as recently as 1970, Bay Area housing was as affordable as housing in many other parts of the country.

Data from the 1970 census shows that a median-income Bay Area family could dedicate a quarter of their income to housing and pay off their mortgage on a median-priced home in just 13 years. By 1980, a family had to spend 40 percent of their income to pay off a home mortgage in 30 years; today, it requires 50 percent.

What happened in the 1970s to make Bay Area housing so unaffordable? In a nutshell: land-use planning. During the 1970s, Bay Area cities and counties imposed a variety of land-use restrictions intended to make the region more livable.

These restrictions included urban-growth boundaries, purchases of regional parks and open spaces and various limits on building permits. These regulations created artificial land shortages that drove housing prices to extreme levels. Today, residents of Houston, Texas, can buy a brand-new four-bedroom, two-and-one-half bath home on a quarter-acre lot for less than $160,000. That same house would cost you more than five times as much in Marin or Contra Costa counties, seven times as much in Alameda County, and eight to nine times as much in Santa Clara, San Mateo, or San Francisco counties.

In fact, planning-induced housing shortages added $30 billion to the cost of homes that Bay Area homebuyers purchased in 2005. This dwarfs any benefits from land-use restrictions; after all, how livable is a place if you can't afford to live there?

The benefits of protecting open space are particularly questionable. The 2000 census found that nearly 95 percent of Californians live in cities and towns that occupy just 5 percent of its land. Many San Francisco Bay Area counties have permanently protected more acres as open space than they have made available for urban development. When such actions make it impossible for middle-class families, much less low-income families, to afford their own homes, they represent a sad distortion of social priorities.

Moreover, as in the 1980s, California's fast-rising home prices have attracted speculators who have created huge bubbles in the state's housing markets. Bay Area prices fell by 10 percent in the early 1980s, 20 percent in the early 1990s, and are likely to fall even more as the bubble deflates in the next few years.

The impacts of high housing prices are also reverberating throughout the region's economy. First, economic growth has slowed as businesses look elsewhere to locate offices and factories. High housing costs have also increased prices for food and other consumer goods; retailers now pay $1 million per acre or more for store locations. Far from reducing driving as planners desire, high housing prices force many commuters to live farther away from their jobs, forcing more cars onto the roads. Ironically, an obsessive focus on protecting Bay Area "farmlands" (in fact, mostly marginal pasturelands) forces people to move inland and more rapidly develop the highly productive croplands in California's not-yet-so-unaffordable Central Valley.

The people most enthused about all these planning rules like to call themselves ''progressive.'' But the effects of planning on home prices are entirely regressive. Planning-induced housing shortages place enormous burdens on low-income families but create windfall profits for wealthy homeowners. Does this steal-from-the-poor, give-to-the-rich policy reflect the Bay Area's true attitudes?

Homeownership is more than just a dream, it is a vital part of America's economic mobility. Most small businesses get their original financing from a loan secured by the business owner's home. Children in low-income families who own their own homes do better on educational tests than those who live in rental housing. Barriers to home ownership reduce this mobility and help keep low-income people poor.

Predictably, planners' solutions to the housing affordability problem often make the problem worse. Planners typically require that homebuilders sell or rent 15 percent of their homes at below-market rates to low-income families. The homebuilders simply pass that cost on to the buyers of the other 85 percent of the homes they sell. Existing homeowners, seeing that new homes suddenly cost more, raise the price of their homes when they sell. The result: A few people benefit and everyone else pays more.

The solution to the Bay Area's housing affordability crisis is not a few units of affordable housing, but widespread land-use deregulation that will make housing more affordable for everyone.

Housing Bubble Bloggers Under Attack?

I received this email today, quoted below.

Despite all of the insults that we bubble bloggers are just stupid and wrong, don't get it, just bitter renters, jealous, doom-and-gloomers, etc. ad nauseam..., if we were just your typical It's-The-End-Of-The-World freaks talking to themselves like you can find on most any corner of downtown, then no one would bother attacking us or paying any attention to us.

Instead, because we bloggers have loosened their (the Real Estate "Cartel", the Real Estate "Complex") precious grip on information, they have to resort to unethical tactics which are all too familiar to them. Do you remember how "an army of cyber geeks" tried to find out my identity during that exchange with the Marin IJ? Same deal IMO.

Boycott housing.

I've been made aware that three housing bubble blogs, hosted
on blogger (blogspot) have been attacked and taken down today:

http://overvalued.blogspot.com
http://thereisnohousingbubble.blogspot.com
http://crash2006.blogspot.com

These sites are now redirected to spam sites. There may be others, and the attack may be ongoing.

I've changed my password on blogger, am logged in to avoid a logout, and backed up my code, however, the real risk may be the archives. I'd hate to lose those.

Yes, we are going up against some big forces and big $$$ - the NAR, millions of soon to be unemployed realtors, the entire corrupt Real Estate Industrial Complex. I'm surprised it's taken this long to attack us."

Marin Contractor of 35 Years Shares His Thoughts

I was contacted by a reader who mentioned that her father, a Marin resident and a contractor here for 35 years, is bearish on Marin real estate for at least the next couple of years due to the local housing bubble. Here's what she told me (reprinted with her permission):

Also, FYI, my dad, who is a contractor in Marin... told me today that he sees prices dropping 10-15% at least. He remembers the last housing bust here, and thinks it could actually happen again. He recommended that I sock my down payment away and wait it out for 2-3 more years, even with interest rates rising.

I asked if her father would be willing to share his thoughts in more detail on this blog and he agreed.

Here is the context of his response:

We were talking about the state of the market in Marin. I asked him for his comments on the current state of the market and whether it was a good time to buy or not. He answered in terms of the next 2 years.

And here is his response:

Look at the sum of the information:

• Recent significant property value/price run ups

• Increasing interest rates

• Increasing commodity prices

• Huge tax/budget deficits which must drive up interest rates and taxes even more. Higher rates will be needed to attrack buyers for our bonds which will drive the other rates. Fed is holding on to limit rate changes for political reasons.

• Bank of Japan and other overseas money supplies are tightening.

• Stock market is skittish and looking to go bear. Money moving to commodities and to overseas markets. Even good companies with good prospects will have a harder time attracting capital and maintaining stock value.

• Individuals income is increasing in only a very small segment of the scale. The top 1-2%. Most everyone elses income is stagnant.

• Recent upward shifts in number of properties listed with fewer sales and a greater number of reduced prices being considered by the sellers.

• A large percentage of real estate purchases have/are being closed with extreme conditions: i.e. no money down, short term variable rate notes to squeeze in the deal leaving ittle or no equity at closing. Leaving many owners with with little incentive to avoid default and foreclosure when rates in the note increase o refinancing is required and no appreciation has occurred.

All this squeezes cash flow available for payments and hurts peoples confidence in their ability to make these payments. Long term loans are extremely sensitive to interest rate changes. i.e if you have $3,500.00/mo for a mortgage:

• The most mortage you can carry is 600K at 5.5% or 550K at 6.5% or 500K at 7.5%

As a buyer at 7.5% your best offer will be 500K not 600K. Ability to pay a mortgate drives prices in the lower to mid range areas of the markets.

I think fewer lenders can continue to offer the variable loans given the lack of short term property appreciation expectation. The lack of expected appreciation will tighten the mortgage resale market for the notes that come out of these loans. Too much risk.

You have noticed the trends. This is systemic with little chance of a momentum shift away from this any time soon. Keep your eyes open. At some point the momentum will ease and it will be time to act.

In addition I see them in what I do. As an estimator/contract administrator for a residential construction co. working in the 1.2 m to 3.5 m range. I am noticing:

• it is much more difficult to fit a budget and tons of increasingly costly products and commodities into a deal.

• construction loan LTV's are tightening with lower appraisals requiring more capital up front for the lenders to give the OK. Clients are telling me the construction loan roll overs deals with permanent financing included are getting more difficult to complete.

• clients can get less for their money that they expected and are not moving ahead with these construction projects. Even those with cash are being more careful.

• greater client concern over property values vs. the cost of property and construction. Every recent tear down and new custom home deal I have seen costs out more than the reasonable property value at the end of construction. This has disuaded many clients and makes it very difficult to negotiate and maintain profit margins.

It's nice to occasionally have an insider's point of view or at least that of someone who makes it his profession to be knowledgeable about the Marin market.

The California Economy -- Housing Boom or Bubble?

This video says it all. Expect to spend 50 minutes. It's well worth the investment in time IMO.

[For better viewing quality, consider downloading the video and the Goggle Video software both of which are available at that site.]

Inflation or Deflation?

So which is it going to be, inflation or deflation? Scylla or Charybdis? Tweedle-Dee or Tweedle-Dum? I dunno. People profiting from the housing bubble are certainly hoping for inflation. This respected blogger argues for deflation. If so, cash will be king and your outrageous mortgage debt will be crushing. So place your bets.

Fannie Lereah

Yep, that's what he (David Lereah, chief economist for the National Association of Realtors) said. Check it out over at the Bubble Meter blog, or the Sonoma Housing Bubble blog, or the Housing Panic blog,...

And be sure not to miss the blistering report (overview here; warning: both are PDFs; kudos to the Bubble Meter blog for these links) by the Office of Federal Housing Enterprise on Fannie Mae where it is said:

...an arrogant and unethical corporate culture where Fannie Mae employees manipulated accounting and earnings to trigger bonuses for senior executives from 1998 to 2004...

...a company whose prestigious image was phony...

The image of Fannie Mae as one of the lowest-risk and 'best in class' ’ institutions was a facade...

...an environment where the ends justified the means. Senior management manipulated accounting; reaped maximum, undeserved bonuses; and prevented the rest of the world from knowing...

Welcome to what may be the largest scandal in our life time; Enron's got nothing on Fannie Mae.

Wall Street Says 'Duh'

Well, it seems Wall Street finally 'gets it'. It's fun-duh-mental they say. There is a housing bubble, it was caused by irresponsibly lax lending practices (I won't even use the word "standards"), and it can only end badly.

What happens to the housing market when no one can squeeze into a mortgage at these ridiculously high house prices when they can no longer get a no money down, no doc, adjustable rate aka "toxic" loan (which comprised about 80% of the loans issued in the Bay Area last year)? What happens when house appreciation falls below the rate of inflation and people can no longer use their houses like an ATM? What happens as all those ARMs reset? What happens as foreclosures continue to rise?

Unless the entire US financial system is at risk of collapse, there sure as hell better not be a bailout of the lenders or the borrowers IMO. There is no way that I want my tax dollars bailing out those damn fools who took out these insane loans and are now finding out that they could not really afford their overpriced POS afterall and that, surprise, surprise, they are actually responsible for their debt. And why should we bail out the idiots who made those loans in the first place to people who they knew full well were not suitable for them?

I hate Mondays.

Some choice quotes:

Lo and behold, housing is a concern on Wall Street. Even the stock market’s cheerleaders have had to acquiesce. The fact is, any economist worth his salt has been concerned for 15 months. That’s how long new-home inventories have been hitting record highs.

Maybe what we should be asking is how inventories, of both new and existing homes, grew to their current records. The answer gets to the root cause of the housing bubble, the credit binge.

Consider that only one of the 53 banks surveyed by the Federal Reserve through the three months ended in April said it had tightened lending standards. About 10 percent had the gumption to loosen standards further. With no lending standards to speak of, it’s been almost impossible to corral the speculation that drove sales and home prices to their bubbly heights.

At issue are nontraditional mortgages that carry adjustable rates or allow the balances to grow with time. (Hint to lenders: Loans are actually supposed to be paid down.) The fact that such nontraditional terms now account for one in five mortgages outstanding suggests someone’s let the fox into the chicken house.

It's Payback Time

It's time for buyers to start playing hardball again. It's payback time. Drive those prices down; you buyers have the power now, exploit it.

Talk of the end of the real estate boom is on everyone's lips along with advice that buyers should start playing hardball again. That means more than making a low offer in a declining market.

Experts are telling home buyers they can and should ask sellers for extras, such as a year of mortgage payments or picking up all closing costs. And Realtors, who saw their ranks swell with rookies during the last few years, may also be willing to take a much smaller cut of the deal.

But not so fast, says Rhonda Duffy of Duffy Realty in Atlanta, a flat-fee brokerage. She takes a contrarian view on how home buyers should handle what could be a pause or a serious housing downturn.

While some overheated residential markets -- Southern California, Florida -- may see prices drop significantly, elsewhere homes are simply sitting on the market longer. Even in Atlanta, where home prices haven't swelled as much and so a bursting bubble is less likely, there are still four homes on the market for every one buyer. So instead of it taking a weekend to sell, now it takes a month, or two or six.

That's partly due to the Internet, which allows prospective buyers to look at hundreds of listings online and view maps of sales and estimated values in a neighborhood, according to Duffy, who says the glut of information has slowed the process down.

Instead of muddying up the contract with requests for extras, she counsels, buyers would do well to focus on the bottom line. Too many caveats can frustrate a seller, for whom the deal is as much an emotional decision as it is a rational business transaction. That's the opposite of what some others are saying, she admits.

And don't expect your lowball offer to be snapped up by anxious sellers. People are already gearing up for longer waits on the market. In fact, says Duffy, agents will do much of the hard work for you in bargaining the price down. In a flat market, they're more anxious to get the commission on a sale than to get a high price.

Only in Caliphony

If you are still holding on to that cherished belief that house prices in California are somehow justified and have not surpassed the point of absurdity, or if you are infected with the 'I've got mine so I don't give a damn' indifference, then this is for you:

The scent of baking scones wafts through the house as children’s feet pound the floors. ‘Dad’ rushes to get things ready as ‘Mom’ lounges on the couch. It’s a birthday party for Camille Chen. ‘Husband’ Jason Simmons has a surprise: He and the kids remodeled the den into a game room and won’t Mom, a notorious poker fiend, be pleased.

Except Chen and Simmons aren’t married, the kids aren’t theirs, they don’t really live in the house and they’re all Centex Homes marketing director Amanda Larson’s employees.

Welcome to the new reality of real estate. They’ve been hired [paid actors] to lounge around a model home, read magazines and occasionally pretend like they’re having breakfast.

Centex has 166 homes to sell in its Milestone development, starting at $507,500 and heading into the $600,000 range, and figured it needed just a little something extra to entice people to come check things out. Centex built four model homes, filled them with furniture, then took things one bizarre step further. The company hired four actors to play the role of a family, in a role that’s half improv, half sales demo.

‘Where does the reality end and the..good God, reality begin?’

Again, it is now time to remove the profit incentive from real estate once and for all. This cannot be allowed to continue or repeat in the future.

"Where Will Our Children Live?"

I found this article in the Sacramento Bee (login required) today entitled "Scraping by on Mortgages". We should all know by now that because of the utterly insane run-up in the prices of houses in California the typical Californian commits well over half of his monthly income to paying the mortgage (as opposed to the traditional roughly 30% or less). You would think, like the SacBee, that would indicate that California is the most financially stressed state in the Union. But somehow, almost miraculously, month after month as far back as I can remember, DataQuick concludes (always the last paragraph) that "indicators of market distress are still largely absent".

Some choice quotes:

Last year there was no place where people stretched their pay harder to buy one than California. A new analysis [by Moody's] of housing and financial data portrays the state’s homeowners as the nation’s most financially stressed.

Moody’s survey shows the growing financial pressures on California households by ranking 10 more Golden State areas in the nation’s top 11. All are places where housing prices have skyrocketed ahead of wages since 2000. The findings have implications in a state where nearly three-fourths of recent homebuyers have adjustable-rate mortgages that are scheduled to take even bigger chunks of their monthly pay.

In all, 28 of the first 50 slots on Moody's list are in California.

"My house payment is a little over half of my income," said Jason Thompson, a heavy equipment operator who feels both proud and stressed to be a 21-year-old California homeowner...he said his financial stretch is "not very nice, especially when gas is $3.30 a gallon."

Salinas Mayor Pro Tem Jyl Lutes said being squeezed at home makes people less public spirited and more likely to reject bond issues for schools and infrastructure. A cruel natural selection of rising home prices also is pushing people out of hometowns and farther from lifelong associations and jobs. "We lost 900 kids this year in the Salinas school district," Lutes said. "Where I teach, a small district, we lost 30. It has that ripple effect. It hurts everything."

Earlier this year, a San Francisco-area business association, the Bay Area Council, released a poll showing that 40 percent of Bay Area residents have seriously considered leaving. The reason: housing's big bite from their salaries.

"A poor family in Louisiana is actually doing a lot better than a poor family in California," said Deborah Reed, research fellow with the Public Policy Institute of California.

None of this is new in a state where both gushing happily and fuming over rising home prices have become part of the psyche. ‘We had a campaign 25 years ago called, ‘Where will our children live?’ said Leslie Appleton Young, chief economist of the California Association of Realtors.

Where will our children live? Why do we not even care, really? Does profit take precedence over our kids? I think this is more than enough reason to completely remove the profit incentive from real estate. It's about time; things have gotten too out of hand.

If nothing else works, boycott housing.

Sacramento RE Statistics Blog

There is a new blog focusing on Sacramento real estate called "Sacramento Real Estate Statistics". He's got some nice metrics estimating the number of "flippers" in their area, how much these flippers are willing to reduce prices and by how much, etc. Nice work and I look forward to his future posts. Since it is more than likely that a lot of Marin residents have been speculating in the central valley this new blog should be of interest.

DataQuick Results for April

For what it's worth, DataQuick's April, 2006 data can be found here. The plot of Marin's data looks like a superball bouncing inside of an ever shrinking room. Or maybe a schizophrenic who cannot make up his mind.

‘These are strange times for forecasters and analysts. Are we heading into a market lull? Or are we seeing the beginning of a significant downturn? Many of the fundamentals for housing are at a crossroads: Inflation, interest rates, demand, household incomes, prices, and whether homes are a good investment compared to other investments. Summer is going to be interesting to say the least,’ said Marshall Prentice, DataQuick president.

YOY percent sales down over 33%. Ouch! And according to ZipRealty 31.4% of all SFRs currently on the market in Marin are showing "price reduced". Hey sellers: keep those price reductions coming or "be priced out of the market forever". Heh!

FB Zombies

How many FB zombies are living among us (if you don't know what an FB is, click here)?

Some choice quotes from this post:

If someone is on the hook for a huge mortgage, and mortgage rates go up, he cannot readily sell his home at the price he paid. He is in an "upside-down" position: What he owes is worth more than the sale value of the asset.

This is normal in the new car market. Drive off the lot, and you can’t sell the car you now own for what you owe. Americans have learned to live with this with their cars. But they don’t expect this with their homes. That is why they sign on the dotted line for homes that they cannot really afford. Then property taxes rise, and maintenance costs rise, and – if the have an ARM – monthly repayment costs rise. Yet they can’t get out.

They pretend that they can hang on indefinitely. Some can; some can’t. Those who can’t lose the property in a repossession. But the debt doesn’t go away. They still owe the difference between what the house sold for after commissions and what they owed at the time of sale.

This has not yet registered psychologically with most new home owners. They have never seen a down market in housing. Now they are going to.

The ability of people to sell their heavily mortgaged homes is now dramatically reduced by the new bankruptcy law. They have traded mobility for home ownership. This is especially burdensome for young married couples, where geographical mobility is vital for upward social mobility.

In the next recession, people who lose their jobs will not be in a position to pick up and leave. They will be forced to take any kind of job just to maintain their mortgage payments. This will greatly benefit employers. They will be able to secure the services of creative people who would not normally work for such wages.

People will take any job to pay the mortgage? Any job? So what does that say about future wage growth; about Americans not wanting to do the sorts of jobs that we tacitly tolerate being done by illegal aliens? Is that why there is a crack-down on illegal immigration brewing? Is this what the "ownership society" is all about?

Inman Does Marin (a Little)

This blog, the one you are reading, was mentioned on Inman News which only goes to show that this thing has grown way past what I ever intended for it.

Anyway, they had this to say about Marin:

Like the market in Florida, California's real estate market was one of the hottest in the country. But now, according to one poster, it's a buyer's market in Marin County in northern California, "especially high-end where things are selling 75 percent on the asking dollar. Bad press, high interest rates and rising stock market (are) hurting expensive homes here."

Marin County is notorious for its high prices (and even has its own bubble blog, Marin Real Estate Bubble), but Sacramento, Placer, El Dorado and Yolo Counties, also in northern California, are not. Regardless, it's a buyer's market in those counties, one reader said, especially at the high end. "Low-end homes, entry-level tend to be neutral," the reader said.

"Days on market have increased, in some areas as much as 90 days," the reader said.

And I found this tidbit over at the Ben Jones blog (which also links to the Inman News item mentioned above):

The Wall Street Journal does a Q&A. “Question: Why is it so hard to get good data on housing-market prices, especially in major metro areas like Washington, D.C.? Are there no reliable indexes? I disagree that Realtors will help much, even for information on price cuts in your target neighborhood. Most Realtors just want to sell houses, and ‘now’ is always the best time to buy.”

“A: Wouldn’t it be great if you could get all of the information you need to buy and sell your home on one free Web site? Don’t get me wrong, there’s a lot more useful real-estate-listing information floating around in cyberspace than there was even two years ago. But much of it is controlled by Realtors, who, as you have pointed out, seemingly don’t want anything but ‘happy news’ getting out, and don’t really want consumers to be empowered.”

==> "But much of it [RE information] is controlled by Realtors, who... seemingly don’t want anything but ‘happy news’ getting out, and don’t really want consumers to be empowered." <==

Hello! Is there anybody out there? We're just now figuring this out? Gaah!

More Fed Rate Hikes

It looks like we can expect more Fed rate hikes:

And the woe continues for the housing sector:

Foreclosures Video

The rising wave of foreclosures seems to have now firmly entered the American collective consciousness as demonstrated by this ABC News video. And this is just the tip of the proverbial iceberg. Maybe now people will learn to read that fine print on those loan docs. Or maybe not. I sure hope the government doesn't come in and do something like put a moratorium on foreclosure proceedings or ask everyone else to clean up the financial mess. Everyone was all gung-ho for market forces on the way up. Well, market forces cut both ways.

How Low Will It Go?

Some choice quotes from this article found on the superb Charles Hugh Smith blog:

Let's go over the numbers. According to the Bureau of Labor Statistics, $100 in 1986 equals $178 in today's (devalued) money. To that 78% rise due to inflation we add Shiller's 1% per year appreciation in "real" terms, which adds up to a historically supported value 98% above the 1986 median price of $161,000. In other words, a reversion to the historic mean will bring Bay Area median prices down from $715,000 to around $315,000--a decline of $400,000.

This is the inescapable conclusion of Shiller's analysis and historical trends dating back to the 19th century. It cannot be denied; but you can of course retreat into denial. Sadly, that's what most investors did back in the dot-com heyday. As stocks tumbled, every brief uptick was embraced as the "bounce back" to the good old days, and every such bounce was a sucker's rally, leading only to further precipitous declines.

April Data For Marin

Here are the sales results for Marin County updated for April, 2006. I am still waiting for data from another source so another graph is on the way.

Basically, prices are more or less where they were this time last year. But sales are way down year-over-year and price reductions are way up for this year. I suspect the inventory is well above this time last year but I won't know until some other data comes in. And the Marin Heat Index says "until at least the end of June, Marin is virtually certain to continue seeing the Market HEAT Index indicate a Buyers Market".

Here is the estimated year-over-year percent change in the median sales price for all sales based on Vision RE's recent sales data:


Here is the percentage of SFRs showing 'price reduced' according to ZipRealty.com:


Here is the year-over-year percent change in total sales for Marin based on Vision RE's data:


Here is the estimated mean and median sales price for total sales in Marin County based on Vision RE's recent sales data:

Vision RE Takes Their 'Recent Sales' Data Out of the Public Domain

Hmm, Vision RE is no longer publishing their "recent sales" data (the data that I rely heavily on for many of my monthly charts) on their web site due to "MLS restrictions"; they say you have to subscribe to the newsletter to get the data (ok, fine, so I'll start subscribing if they will let me):

Due to MLS restrictions, we are unable to publish recent sales on the Internet. To view recent sales, along with list price, days on market and the sales price to list price ratio, you must be a subscriber to our newsletter.

It's too bad because their raw data was by far the most valuable aspect of their web site. I guess we just have to trust what they report. No charts this month unless I get a copy of April's newsletter.

Does anyone subscribe to their newsletter and have a copy of the most recent one (April) and who would be willing to forward it on to me? I will be subscribing to their newsletter (unless I have pissed them off too much and they say I can't) and so I will be able to use my own in future months but I am missing this month's. Thanks.

Update: Vision RE emailed me a link to their recent sales data so all is good for now.

Boycott Housing

Here is a group in the Bay Area who says enough is enough with these ridiculous house prices; this has gone way beyond just making a buck on your house. So they are boycotting housing. Right on! Power to the people, baby. Power to the people. Thanks to the reader who sent this in.

And here is a group over in the UK doing the same sort of thing (I found this over at the Housing Panic blog). Here is what that blogger had to say:

What happens when housing prices soar to the point that first time buyers, or people who actually work for a living, can't buy a house?

They get pissed.

Think about a new college grad, making $35,000 a year. Think about that young family, two earners, making $80k total, 30 years old, with a kid on the way.

For a lot of folks, this bubble and financial madness has killed the dream of owning a house. Luckily for some, they smartly are still holding off. vs. buying right now, post-peak.

Well, in the UK, a non-profit has started to raise awareness for the need of affordable housing. The bubble bursting, the Ponzi scheme ending, may do the trick. But if government gets involved, as they sometimes do, to control an asset price decline (hello Ben - getting chicken about raising rates? hello congress, thinking twice about getting rid of the home interest exemption?), are they really doing the country a favor?

Sure, the baby boomers cashed in (or so they think). But future generations who got left out in the cold are gonna be pissed. And they vote. And they won't buy these houses at these stupid prices.

Really House-Poor

California, look at what your "progressive" NIMBYism has wrought:

California's high cost of housing has given the state one of the worst poverty rates in the nation, according to an independent study that was welcomed by critics who believe the government's method of counting the poor overlooks many people.

Thousands of Silicon Valley residents, for example, are living in poverty even though they earn more than the official federal standard, according to researchers at the non-profit Public Policy Institute of California, who calculated the numbers after adjusting for local housing costs.

The study confirms what social workers and the working poor have known for years:

``If you're poor here, you're really poor,'' said Candy Capograssi, deputy executive director of the Santa Clara County Housing Authority, which recently had more than 70,000 people submit applications for a housing subsidy waiting list.

Using the official federal standard, California has the 15th-highest poverty rate in the country, with 13.3 percent of its residents living below the poverty threshold.

But when Reed adjusted the formula to reflect the cost of housing, California's poverty rate rose to 16.1 percent. That gave it the third-highest ranking in the country, Reed said -- behind only Washington, D.C., and New York.

Anti-affordability

Check out this post over at the Sonoma Housing Bubble blog. Athena's comments are spot-on IMO.

Bay Areans Scared of the Housing Bubble?

The most excellent Seattle Bubble blog was apparently playing around with Google's new Google Trends functionality. That blogger searched on "housing bubble" and the top 10 cities searching on that search phrase came up like so:

1. Santa Clara, CA
2. Pleasanton, CA
3. San Jose, CA
4. Rancho Santa Margarita, CA
5. San Diego, CA
6. San Francisco, CA
7. Irvine, CA
8. Reston, VA
9. Washington, DC
10. Sacramento, CA

Apparently people in the greater San Francisco area are more worried about a housing bubble than anyone else in the country—by a pretty wide margin—and Californians in general are the by far the most worried about their precious bubble being burst.

Price Reductions Continue in Marin

House Prices in Marin Dip in April

Vision RE has this to say about the April sales results for Marin County:

Home Prices Dip in April

The median price for single-family homes in Marin County fell 1.5% in April to $985,000. Year-over-year, the median price was up 3.7%. The average price fell 4.6% to $1,268,045, up 1.7% over last April.

Percent sales for SFR for all of Marin were down -25.7% year-over-year -- ouch!


This is just more evidence that the so-called "spring rally" in Marin is more like a "spring flop".

And don't get your hopes up for May either as the Marin Heat Index is not suggesting that May will be any better. But sellers are trying to do the right thing, bless their little (greedy) hearts -- as of today 29.1% of all listings are marked as "price reduced" according to ZipRealty but those reductions are a joke; it's going to take more than a measely 5-10% price reduction.

I'll do the usual charts in a later post. But looking at the above data tables I think these reported SFR statistics may be meaningless. I mean, just look at some of the sample sizes... in 7 out of 11 Marin markets the number of units sold was less than 10, some as low as 2. Sheesh. I mean, if you exclude the two towns that look most aberrant (with only 2 sales each) -- Corte Madera and Sausalito -- then the median year-over-year sales price is down -10.5% and the average sales price is down -5.25% year-over-year in that table.

But if these results can be believed, then it makes me wonder: Is this the best that it is going to be? I mean, this is supposed to be the hot, hot, hot selling season and everyone wants to live here, right? What happens as increasing interest rates work their way further into the system? Tighter lending standards? Even the Marin IJ has turned a bit negative and is bemoaning Marin's shameful unaffordability.

Anyway, I'll put the graphs together later but frankly I don't see much point in it; this thing is coming apart.

Earthquake Risk

RESkeptic asked me to post the following on his behalf (Blogger is, as usual, making doing it himself difficult); it can be considered a companion post to this one:

Here's a very interesting map I found on USGS. I think this serves well to "burst the bubble" about the assumption that damage from big quakes are localized to a specific area. What I've written below could serve as the writeup for a new article.

When we look back to the earthquake of 1906, we tend to think of the damage and loss of life in San Francisco. However, a quake of similar magnitude (7.8) could produce far more damage today than we may realize. Consider this USGS map, which estimates shaking intensity and damage to Marin and Sonoma counties. To my surprise, areas of Sonoma county such as Santa Rosa, Sebastopol, and Bodega Bay could be heavily damaged by another San Andreas quake centered near SF. Given what could happen to these areas, are all residential and commercial structures adequately prepared for a big earthquake? That would be something to look into if you're considering buying a home in these areas.

While Marin and Sonoma counties have historically fewer quakes than the corridor from San Jose to Monterey, it's important to note how Marin's local geology could magnify earthquake damage. As documented earlier, liquefaction poses a risk in some areas. Additionally, local geology and wet weather could heighten the risk to homes in our coastal hills. If you've driven highway 1 recently into Stinson Beach, you cannot miss the sliding caused by bedrock instability helped along by strong winter rains. While we normally consider bedrock to be stable, hillsides containing serpentine can be an exception to this rule. Since serpentine is a very slick fault line rock, hillsides containing both serpentine and ground water can give way--especially in an earthquake. This is a hidden risk present around Mt. Tam, the headlands and Tiburon. I've even seen new homes in "level" tracts containing serpentine that sustained continued, expensive damage due to settling. Given the complex geology and possible hazards in Marin, I think that anyone shopping for a home should be aware of their risks, even hiring a specialist to assess these risks before purchasing. If the 1989 Loma Prieta earthquake is any indication, it can be very expensive and sometimes impossible to fix your home after an earthquake.

Here is the source page for this map, along with several others for the 1906 earthquake.

Latest Blog Listings

I just noticed this site in the list of "referring URLs" to this blog. It is a listing of the latest posts on the various bubble blogs. I don't know how complete it is or how they compile it, but I think it should be useful to some folks.

Marin in the News

I would have posted this earlier but Blogger is being funky and wouldn't allow me to post. It's a conspiracy, a conspiracy I tell you! Anyway, what caught my attention in this NY Times article were the references to Marin County; so I'm sharing it on this blog.

Some choice quotes:

Many Americans who planned on real estate as their path to wealth are beginning to find that there are limits to how high is up.

Blame market forces. As higher interest rates dampen demand in cities and suburbs that only a year ago were battlegrounds for fierce bidding wars among numerous buyers, sellers are grudgingly lowering their prices to drum up interest.

A house at 57 Marina Boulevard in San Rafael, across the bay from San Francisco, was originally listed at $1.45 million. The owner recently dropped the price to $949,000 when a competing house on the same street lowered its price to $959,000, from $989,000. In Marin County, the prices of about a quarter of all listings have been reduced [true enough, see here; as of yesterday it's up to 27%]. County records show that 57 Marina Boulevard was sold in February for $700,000, so the owner, Dan Marr, is unlikely to lose money even at the lower price, though he may not make as much as he had hoped. "I don't want to talk about it," he said.

It is getting tough out there for sellers. What is happening in Marin County is being repeated in cities and suburbs across the United States. Nearly a year after the sales of homes peaked, buyers are wresting control from sellers in many areas as inventories of unsold homes have grown, in some markets doubling.

It is a slow leak, to be sure. The most widely used statistic to measure home values, the median home price, shows that once-hot markets like San Mateo, Calif., and Mercer County, N.J., are now registering year-over-year declines.

Robin L. McCarthy, a real estate agent who works in Princeton, N.J., said homes were sitting on the market three to four months, when houses sold in as little as a few days a year ago. Houses that would have been the subject of intense bidding wars now sell for slightly less than asking price.

"It's going from a seller's market to a buyer's market," said David Lereah, the chief economist for the National Association of Realtors.

What is rather startling to me is how quickly RE is trending down despite the fact that mortgage rates aren't up all that much (on a historical basis) and the economy is supposedly strong. Some readers of this blog have commented on how great the Bay Area job market is supposed to be. Yet already we hear about price cuts for a large percentage of the houses on the market, inventory is high, price appreciation ranges from weak to flat, and foreclosures are way up. Just imagine what would happen if we were to slip into an actual recession!

The usual caveat: The spring selling season is still young; anything could happen. We'll see...

Price Reduced in Marin

Ever since ZipRealty began keeping track of properties listed as "Price reduced" I've been recording this data for Marin almost daily. I search for all Marin SFRs falling within the asking price range of $10,000 to $10,000,000.

In the graph below you can see the data that I've collected so far. From February to April, 2006 the percentage of SFRs sporting "Price Reduced" hovered around 17% and then took off. We just broke through the 26% mark -- that is, 26% of all houses currently listed in Marin are listed as being "Price Reduced".

How high will it go? If 'everyone wants to live here', and if 'Marin residents are financially savvy', then why are sellers in Marin being forced to reduce their asking prices?

It seems to me that anyone thinking of buying a house in Marin now would be far better off just waiting. The lower the selling price, the lower the property tax you have to pay year after year after year after year...

“But to every thing there is a time and a season, and that’s as true for home buying as it is for everything else,” Fletcher says. “The people who win big in the real estate game are the ones with the courage to sit out the manias as the markets reach their peaks and buy during the busts.”

-- June Fletcher, "House Poor: Pumped-Up Prices, Rising Rates, and Mortgages on Steroids"

It seems to me that price is a matter of opinion; debt is real. In this buyer's market, show no pity as sellers have shown none in the recent past.

Myth Busters

Fortune magazine has a series of interesting articles. The first is their RE bubble burst survival guide. Notable quote:

There’s no mystery about what it will take to close the affordability gap and bring the markets back to life: Prices will have to come down, and incomes will have to move up. The only question is how much of the adjustment will come from rising incomes and how much from falling prices.

Gee, I wonder which one will adjust first: incomes or house prices?

But the best one in the series IMO is their unmaking of RE myths article. Here are the myths that they debunk (just read the article to understand why they say these myths are bunk):

The sudden shift in the nation's housing markets is exploding some long-held beliefs. The first is that a scarcity of buildable land on the coasts keeps a cap on supply and prevents prices from falling.

A second myth is that today's big homebuilders learned their lesson in past downturns and now launch projects only when they have firm buyers lined up.

A third tenet holds that home values never drop in areas where employment is rising.

The current boom has spawned one new myth of its own: Hot markets will glide to a soft landing...But the housing bulls are relying on wishful thinking.

The New Road to Serfdom

Does anyone have a subscription to the article by Michael Hudson and who is willing to quote snippets from it? Anyway, I did find an old interview with Hudson here which is rather depressing.

Housing Bubble Contest

I am running a housing bubble contest. The first prize is a copy of this ebook kindly provided to this blogger by its author (here is a "review" of some of the arguments made in the ebook). There are no second or third prizes; it's winner takes all.

The task: Make an argument for why "it is different this time; there is no housing bubble".

The rules:

1. Only people who still truly believe that there is no housing bubble can participate.
2. You must have an open mind and promise to read the ebook.
3. Your answers must be submitted to me by email and your email must contain in the subject line only the word "ebook". Submissions left in the comments section will be ignored.
   
4. The judges will be myself and RESkeptic if he wants. The winner will be the person who best explains why it is different this time and there is no housing bubble.
5. The winning answer may be published on this blog (anonymously or not at the winner's discretion).
   

Marin's Golden Houses

Some people argue that the US Dollar is a "fiat currency" and not real money (the list of groups who debate this issue is endless, but you can find some good discussions here, here, and here). To these folks "real money" is gold. I don't want to get into that debate now but I did want to know how much a house in Marin would cost if money was denominated in ounces of gold and not created out of thin air.

So here's the answer. In order to make the following graph I took the mean price of a SFR in Marin and divided it by the average price of an ounce of gold for that year (so sales prices are automatically adjusted for inflation as well as the amount of fiat currency in circulation [which some would say is exactly the same thing as inflation]). The result is how many ounces of gold you would have to fork over to buy a house in Marin for the 40 years spanning 1965 to 2005 (in blue); the data for May 1, 2006 is in red.


There are at least a few interesting features of the plotted data:

1. First, notice the way house prices (in terms of ounces of gold) jumped in the mid-90's to its maximum in 2001. After the terrorist attacks in NYC the price of a house in Marin actually fell and fell hard (-20% as of 2005 and -28% as of today).
2. Furthermore, this graph is yet another demonstration of how Marin house prices and values do in fact fall in real terms; I count seven drops in value in all, five of which were significant.
3. Last and certainly not the least, the price of a Marin house, in terms of ounces of gold, was essentially flat from 2003 to 2005, inclusive. Yet, as we all know, house prices (in "fiat dollars") in Marin went ballistic during that time. I think that clearly demonstrates the effects of easy credit and the rampant printing of dollars during those years.

Here is what the average price of a house, in terms of gold, has looked like in the UK (from April, 2004 to April, 2006); like Marin, it's down:

It might prove interesting if others repeated this analysis for their real estate markets so that we could compare and contrast.

Enjoy.

Confidence in Housing Market Dips

A new Gallup poll indicates that popular confidence in housing is falling precipitously:

The volume of U.S. home sales is near the record high seen in 2005, but Americans are much less confident today than they were a year ago about the advisability of buying real estate. Just 52% of Americans say now is a good time to buy a house, down from 71% last April and 81% in 2003. Residents of the East and West are especially likely to consider it a bad time to purchase a new home.

Housing looked like a good deal in the recent past when single-family homes were experiencing back-to-back years of double-digit appreciation and, in many markets, savvy investors could flip a home in a matter of months for a hefty profit. Now that the increases appear to be slowing, and home values are leveling off at fairly high prices, prospective buyers are naturally more concerned about paying top dollar.

The recent decline in consumer optimism about the housing market is seen with all major income groups and regions of the country.

As a commentor over at the Bubble Meter blog mentioned, that first graph in the article is misleading because the last few data points are very close together in time as compared to the other data points. It misleadingly gives the impression that the decline in confidence of late has been gradual. Here is the same data but graphed appropriately: