North Bay Exodus in the Works?

According to this Marin IJ article (and this), Marin's so-called 'intangibles' are not enough to keep people from wanting to leave -- 53% of North Bay residents have given serious thought to leaving because the quality of life here has so eroded due to such things as egregious housing prices, horrendous traffic, etc. Maybe that explains the recent rapid increase in Marin's housing inventory.

Some choice quotes:

Fifty-three percent of those polled in Marin, Sonoma, Napa and Solano counties said clogged freeways and sky-high home prices have them thinking about the color of the grass on the other side of the East Bay hills, according to the survey conducted by the Bay Area Council.

The "epidemic" of high-cost homes has spread like wildfire across the Golden State, north to south, west to east. And a healthy percentage of those with itchy feet point to local government as being the source of their discontent. "Many residents are ready to squarely point the finger at their own city or town," the council says. "Only 5 percent think their own city is doing an excellent job encouraging affordable housing. Whereas 67 percent give their town a grade of very poor, poor, or fair."

Dissatisfaction with local government is higher in the North Bay than elsewhere. Throughout the Bay Area, according to the survey, 35.6 percent say they feel their local governments are doing a "fair" job, whereas in the North Bay the percentage is 37.8 percent. Bay Area-wide, 9.9 percent said they feel the job done is "very poor," compared to 12.1 percent in the North Bay.

Peter Richmond, of Pacific Union Real Estate Group in Mill Valley, said he had heard of people moving out of Marin because they no longer wanted to cope with traffic and housing cost. "The housing crisis has continued, without pause, through economic upturns and downturns," he said. "If we are to affect it, it will require major legislation in Sacramento."

Marin's October to February YoY Percent Change in Inventory

Here is the year-over-year percent change in total available listings (i.e., inventory) in Marin for the last few months. All data comes from this realtor's site (I won't mix and match data from various sites so as to get a larger data set since I don't want to introduce errors that stem from differing data gathering methodologies). So far February, 2006 inventory is up +70% as compared to February, 2005.


If anyone has Marin inventory numbers going further back and that all comes from a single source and wants it plotted, then please send me the info.

Bubble Track

I just want to let everyone know there is a new blog on the block called "Bubble Track" that is worth checking out IMO. You can also find the link to that blog in the right margin of this blog.

Mopping is Preferable to Popping

The Fed sure does spend a lot of time talking about current asset bubbles even though they also claim that an asset bubble cannot be identified as such until after it busts. Anyway, this article indicates that Bernanke has no intention of deliberately popping the real estate bubble. Instead, he is going to 'protect the financial system' which means the banks; the little guy be damned.

My $0.02: That will probably mean low rates for banks and high borrowing rates for consumers. So I guess what Bernanke is saying is when real estate tanks those of you who find yourself 'under water' will have to fend for yourself. Thanks Ben! Maybe what the Fed has been thinking is that the speculative element of recent years vis-à-vis real estate has been so patently obvious and they (the Fed) have telegraphed their warnings long enough now that anyone who still plays this speculative game will have to pay the price when their bets go bad.

And then, as the pendulum of public and private opinion regarding debt finally swings the other way the situation will only get significantly worse. You tell me, is now a good time to be buying real estate? When the fire sales begin, cash will be king.

Some choice quotes:

Federal Reserve Chairman Ben S. Bernanke, like his predecessor Alan Greenspan, doesn't plan to get in the way of surging home or stock prices.

Bernanke, staking out a key policy in his first month on the job, said yesterday at Princeton University that the central bank "doesn't really have good instruments for addressing asset price bubbles should they exist, particularly if they are in one particular segment or another.''

"To use interest rates to try to puncture the housing bubble would be a disastrously bad idea, and Bernanke obviously agrees, because he's not going to come close to doing that,'' said Alan Blinder, a former Fed vice chairman...

Blinder said the Greenspan-Bernanke approach to bubbles is "basically, you do nothing, and then the corollary to that is that you mop up after they burst to keep the financial system from taking a big fall.'

"Bernanke is not inheriting the best of situations,'' Volcker said in an interview after Bernanke's speech. "How would you like to be responsible for an economy that's dependent upon $700 billion of foreign money every year? I don't know what I would do about it, but he's going to have to do something about it sooner or later.''

Debt Subtracts from Net Worth?

Just say it ain't so. 'Lackluster wage growth'? 'Rocky economic times'? Wages are actually down? But I thought we have a strong, vibrant, flexible, knowledge-based economy? I feel wealthy. You mean I'm not? I have to factor in my debt load? But that's not fair.

Well, it's about time someone came right out and said it...

Americans may feel much richer because of soaring home prices, but they're not.

U.S. families' wealth stagnated during the economy's recession and recovery from 2001 through 2004, as lackluster wage growth, sagging stock prices and rising debt levels offset the gains from higher home values, the Federal Reserve reported Thursday in its latest Survey of Consumer Finances.

But wealth, or net worth, measures the value of a household's assets minus its debts - such as mortgages, car loans, student loans and credit card balances. And debt climbed steadily during the survey period, as the Fed slashed interest rates to stimulate borrowing and spending in rocky economic times.

After totaling up both sides of the ledger, the median net worth of American households rose just 1.5 percent...

Well, when worse comes to worse, I guess they can always give these people a try.

Second Annual Golden Turd Award

It looks like folks are finished voting for that one Marin POS that best represents how insanely overpriced Marin has become. And the Golden Turd Award goes to... Just Shoot Me Now with 43% of the votes; a clear winner. Congratulations! You deserve it.

Second place goes to Dude, Where's the Car? with 21% of the votes. Third place comes in with Not for the Faint of Heart with 11% of the votes.

Thanks for voting.

NAHB Housing Opportunity Index

Here is the National Association of Home Builders (NAHB) Housing Opportunity Index (HOI) for the San Francisco, Oakland, and Santa Rosa regions.

Enjoy.

Price Reductions in Marin as of February, 22 2006

Following the lead of Athena over at the Sonoma Housing Bubble blog (I ask you, how can I go wrong following in the footsteps of a goddess?), here is the price reduction history and Days on Market (DOM) statistics for all of Marin County (search range is from $0 to $10 million) as of today care of ZipRealty:

Total units showing reduced prices: 62 (or 17% of the searched market)

Average DOM: 115
Max DOM: 337

Average percent price reduction: -4.93%
Max percent price reduction: -17.1%

You can view the full listing by address over at the Marin Address Pricing History thread.

Get Out the Vote!

A new poll has been fashioned over at the Marin POS blog. Go vote for that one Marin POS that best represents how overpriced Marin real estate has become. The winner of the Golden Turd Award will be decided in a couple of weeks or so. Here you can find the winner announcement for the last poll.

Vacancy Rates in the West

Below you will find a graph of the rental and housing vacancy rates for the Western Region of the U.S. for the years ranging between 1956 and 2005. I compiled the data from that published by the U.S. Census Bureau. For each yearly data point I plotted the average of that year's Q1 to Q4 vacancy rates. Bigger numbers mean increased vacancy whereas smaller numbers mean less vacancy (or greater occupancy if you prefer).

(Click on the graph for a larger view.)

The rental vacancy rate series increased during the housing bubble years. It is unlikely that people were leaving rentals for rented housing since if that were the case then you would expect to see a corresponding decline in housing vacancy rates during those years; instead, the data suggest that people were buying houses to live in.

Of more interest -- it seems to me that both the housing vacancy rate series and the rental vacancy rate series argue against the theory that there has been high demand for housing during the recent housing boom (by "demand" I mean the housing bulls' argument that the population has been increasing due to mass immigration/migration to the region and not "demand" due to speculation). If there had been high demand for housing then you would expect vacancy rates (both housing and rental) to decline from roughly the year 2000 to the present. Instead, what you see is that rental vacancies actually increased during that time and housing vacancy rates remained unchanged. Additionally, if housing demand had been increasing you would expect the cost of renting to increase but it has in fact been decreasing, at least in Marin.

Of course, a rival hypothesis to the above is to suppose that the supply of rental housing has increased to compensate for increased demand (either by building new units or by conversion of existing units). If true, then for rentals rental supply seems to have surpassed demand whereas for rental housing the supply has matched demand. (The current data as plotted here cannot resolve this other interpretation. If anyone has the required data or knows where to find it, then please share with me.) But my counter argument to that is if rental supply equals or exceeds demand, then the extreme increase in housing prices over the last few years is not justified by an argument based on non-speculative demand for housing.

Share your thoughts.

Enjoy.

American Dream to Become a "Roach Motel Nightmare"?

I've written about the "reset problem" before and how, if for no other reason, it does make it "different this time". Of course, other bloggers before me have also put the spotlight on this issue; the best discussion IMHO can be found at this blog where it is pointed out that the interest payment rates on about $360 billion worth of "exotic" loans will reset in 2006 and in 2007 it is roughly a staggering $1.2 trillion (that's $1,200,000,000,000!). This article says it's $330 billion in 2006 and just $1 trillion in 2007. And this one says it's $2.5 trillion that will be resetting. What ever the exact amount turns out to be, if these 2007 figures are even close to being accurate, then I think it is going to be a complete "show stopper" if a way to lesson the shock of the reset is not found. And it has been pointed out before that going to 40 or 50 year mortgages will not have a significant effect on monthly mortgage payments as such terms only decrease the monthly payment by about $100 or so.

And remember, house sale prices are "set at the margin". So all house owners who think they might want to sell within the next 10 or 15 years or so will feel the fallout of this reset problem.

This fun, made-up site isn't too far from the truth.

Anyway, here is another article ('Coming Home to Roost' By Jonathan R. Laing, February 13, 2006, Barron’s) that discusses the problem. Thanks to the reader who sent this in.

Some choice quotes:

THE RED-HOT U.S. HOUSING MARKET MAY be fast approaching its date with destiny. Indeed, inside the mortgage trade, much anxiety is being focused on a looming "reset problem." Over the next two years, monthly payments on an estimated $600 billion of mortgages to borrowers with checkered or no credit histories -- the "sub-prime" market -- may zoom as much as 50% higher, as the two-year teaser rates on hybrid adjustable-rate loans expire and interest payments hit their fully indexed levels.

In the past, such resets caused little disruption. For one thing, the sub-prime market was strikingly smaller. Only $97 billion of such mortgages were originated in 1996, compared with a mammoth $628 billion last year and $540 billion in 2004, according to the trade publication Inside B&C Lending. Sub-prime loans outstanding now account for more than 10% of the total U.S. mortgage debt of $8.4 trillion. Moreover, the reset triggers on sub-prime mortgages have dramatically shortened, with the loosening in underwriting standards.

Surging property values in much of the country in the past four years helped bail out many sub-prime borrowers, letting them refinance their loans as painful resets loomed. Many borrowers not only refinanced old debt at attractive teaser rates, but also sucked additional equity out of their homes with cash-out refinancings, to pay off higher-rate credit-card debt. Meanwhile, delinquency rates and credit losses remained artificially low. A tapped-out borrower always could sell his home into a soaring real-estate market to pay off his mortgage debt and regroup.

But now the refi window may be closing for the sub-prime crowd. The Fed's hikes in short-term interest rates have pushed up fully indexed ARM rates. At the same time, evidence is mounting that home-price appreciation is slowing or, in a few areas, reversing. And the secondary market in mortgage-backed securities, which provides some 90% of the liquidity in the sub-prime market, is starting to balk at the easy lending practices in this sector.

"The implication of all this is that many sub-prime borrowers who took out loans in recent years may not be able to refinance unless their income increases or interest rates drop significantly," he [Xu] observes dryly. In other words, the American Dream of home ownership could turn into a Roach Motel nightmare.

Richard DeKaser, senior vice president and chief economist of Cleveland-based National City (ticker: NCC), has more than an academic interest in what's happening in housing. National City is not only a top-10 originator and servicer of prime mortgages, but it also owns a major sub-prime lending concern, First Franklin. These days, his attention is riveted on National City's quarterly survey "Home Prices in America." As of 2005's third quarter, the latest period for which data are available, it showed 38% of the U.S. housing market at an "extreme" overvaluation level of 30% or higher. The champ, or chump: Naples, Fla., where National City believes homes are 84% overvalued.

Experience in the 299 metropolitan areas covered in the survey shows that such levels of overvaluation are typically followed by price declines of about 15% that take an average of three years to unfold. If systemic and not merely localized, he asserts, any correction this time around could have nasty side-effects: "Individuals will suffer a wealth decline and spend less freely. Lenders will suffer elevated loans losses and credit conditions will tighten. Mortgage-backed securities will lose value and consumer confidence and home building will decline."... "Thus, loss severities in key, overheated markets like California and New York could skyrocket by eight-to-10 fold even if home prices growth just moderates markedly rather goes negative."

The Bottom Line

Cause or effect? Sub-prime mortgages have helped to push up home prices, which in turn have boosted sub-prime lending. This virtuous circle may be about to turn vicious.

Update on Marin's January, 2006 RE Median Sales Price Results

Hmm, let's see... the Marin IJ said this today about Marin's January, 2006 real estate results:

The median price was $867,000 last month, down from $900,000 in December but up from $850,000 in January 2005, according to DataQuick Information Systems of La Jolla.

This is what I see over at DataQuick for January, 2006 data:

And this from DataQuick for the December, 2005 data:


And let's not forget what West Bay RE said:

The median price of single-family homes in Marin County also took a nose-dive in January, falling 8.6% from December to $877,500, and, gasp, down 5.7% from January 2005. This is the first year-over-year drop since June 2003. Also, it's the first time the median price has been below $900,000 since December 2004.

The Marin Assessor's Office has January, 2005's median price at $785,233.

So let's compare all of this:


So there you have it -- Marin's year-over-year real estate median price appreciated either a paltry 0.1% or 2% (either way a loss after taking inflation into account [real or otherwise]) or declined -5.7% depending on whose data you want to use and whether or not you want to throw condos into the mix (the Marin Assessor's figure combines both SFRs and condos and I am guessing that the one for DataQuick also combines the two whereas the IJ and West Bay RE figures are presumably just SFHs). We will have to wait until who-knows-when for the data from the Marin Assessor's Office.

It is interesting that the Marin IJ's figures and those of West Bay RE's, both of which presumably do not include condos, show such disparate results; the IJ's is positive whereas the realtor's is negative and the difference is nearly eight percentage points. I won't speculate on what that might mean.

I will say this however, it sure would be nice if property sales data were made publicly available by a disinterested third party so that these analyses would not only be more straightforward to do, but could be done more easily and by anyone. As it is, the industry covets the data and only shares bits and pieces. The truth is out there and sooner or later we will know what it is.

I hope you found this useful.

Update: It is good to keep this in mind when thinking about where prices are ultimately headed:

"At some point we have to come to grips with the basic affordability question. This is not an affordable market," said Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto. "I think prices could drop, and once these things start, they have a snowball effect."

Levy, who estimates prices could drop by as much as 20 percent in the next couple of years, said rising interest rates are quashing the segment of buyers who can only get into the market using riskier, adjustable loans, such as interest-only mortgages. Such products are attractive because they usually carry lower initial monthly payments than traditional mortgages. But when principal payments come due, those payments jump -- even more so if interest rates have risen.

"People chose to bet on future appreciation by choosing loans where they knew payments would go up by a lot -- but they got in cheap," Levy said. "There are no cheap loans now."

Holding Our Breath

This Barron's article caught my attention because it is the first one that I have seen recently that actually mentions the Kubler-Ross Sequence of Emotions as applied to the housing bubble. In any event, people are holding their breath and waiting to see what the Spring brings.

Some choice quotes:

[R]ealtors are already thinking of spring. That, as everyone knows, is prime home-buying season, which starts in about six weeks. Because the spring home-buying season could be a good barometer of how residential real estate -- a pillar of the current economic recovery -- performs for some time to come.

Despite Thursday's report of stronger-than-expected 2.276 million housing starts in January, we've seen clear signs of weakness after an unprecedented, nearly decadelong boom. Last week, The Wall Street Journal reported sharp increases in inventories of unsold homes in many cities (see "Finding a House Gets Easier," Feb. 8). Luxury home builder Toll Brothers disclosed a 29% drop in orders for new homes in the first quarter, while another big builder, KB Home, also reported declining orders, amid signs of what it called "softening" demand. Toll Brothers' stock price is now about half of what it was at its all-time peak last summer.

So, everybody's asking whether real estate's glory days are over, and if so, what's next?

But I must admit I'm worried that we might see more than just corrections (10% or so) in some areas. And so are several experts and real-estate professionals with whom I've spoken this week. And we may get some sense of how deep a correction we'll have sooner than we think. "This is a watershed moment," says Jonathan Miller, president and chief executive officer of Miller Samuel, a large New York real-estate appraisal firm. "If we're going to see trouble, it's going to be over the next 12 to 18 months."

In fact, the spring home-buying season may well be a harbinger of things to come.

Bear markets, be they in stocks, housing or commodities, go through certain identifiable phases, like Elizabeth Kubler-Ross's famed five stages of dealing with dying -- denial, anger, bargaining, depression and finally acceptance.

We've already passed stage one, characterized by "a falloff in new sales and orders," says Rosen, and are just entering stage two, in which unsold inventories build up. That may be where the crunch begins. "If inventories keep rising, the pressure on sellers to cut prices will be intense," says Zandi.

At some point they [speculators] can no longer carry a money-losing investment, so they may throw in the towel and unload their once-promising albatross. That's stage three, says Rosen, and it usually finishes about three years from the beginning of the downturn.

The final phase is when we see massive defaults or delinquencies on mortgage loans. That's several years away, he says, and this time the damage could be worse because of the large number of exotic loans giddy lenders extended to desperate home buyers (see Barron's, "Coming Home to Roost," Feb. 13).

I See You

I thought this was pretty cool. I was looking over all the records of unique visits to this blog... domains, ISPs, referring URLs, search key words, search engines used, OSs, browsers, etc. People come in from all parts of the world -- mostly from the Bay Area of course but some from as far afield as Australia, Japan, New Zealand, various places in the EU, the East Coast, South Africa. Here is a partial list (naturally, any personally identifiable information has been removed not that there was much). Nice to see a local mortgage company tops the list (they must be really annoyed with me):

Green Point Mortgage, Novato
Morrison & Foerster
Wells Fargo
FIREMANS FUND INSURANCE COMPANY
Social Security Administration
Department of Interior
Bay Area Air Quality Management District
Pacific Gas and Electric Company
Financial Data Solutions
The Chase Manhattan Bank, N.A
Stanford Linear Accelerator Center
Lawrence Livermore Laboratory
Wachtell, Lipton, Rosen & Katz
USDA Office of Operations
CHARTER COMMUNICATIONS
Albuquerque Technical-Vocational Institute
National Aeronautics and Space Association
Portsmouth Group
BristolParkMedicalGroup
The Gap
Kaiser Permanente Medical Care Program
Wind River Systems
Salesforce.com
University of Denver
Swarthmore College
Walt Disney Corporation
Microsoft Corp
General Electiric Corporate
Client Logic Corporation
SYMANTEC
NEKTAR THERAPEUTICS
United Airlines
East Bay MUD
Sara Lee Corporation
University of British Columbia
Werner Enterprises
Microstrategy
VISA INTERNATIONAL
Intergraph Corporation
Occidental Petroleum Corporation
Toshiba America Electronic Components
University of California
APPLIED MATERIALS
MEKESSON
North Carolina State University
C.E. Unterberg, Towbin
Lappeenranta University of Technology, Finland
Stanford University
Visual Concepts
THE COLUMBIA BANK
Syncro Vac
Air Force Flight Test Center
Newfields
Performance Systems International
Iowa State University
IntelliSpace, Inc./MicroTek -San Jose
GENENTECH
ANALOG DEVICES
BECHTEL GROUP
Pacesetter Systems Incorporated
Computing Devices International
Stentor National Integrated Communications Network
Acme Packet
University of California, Berkeley
GLOBAL SOLUTION K.K.
Yahoo!
University of California San Francisco
Central Data Pty Ltd
Telefonos del Noroeste S.A. de C.V.
Electric Lightwave
Johnson & Johnson

Ok. Back to our regularly scheduled program (I promise).

I Concede and Must Eat Crow

I have an admission to make. It is very difficult for me to say this, I am so ashamed: I was wrong. We (bubbleheads, bubble bloggers, 'bitter renters', housing bears, etc.) were all horribly mistaken -- there is no housing bubble and there never was one; certainly not in the Bay Area. It's true, it is different this time. Most of us bubble bloggers are now being forced to make posts like the one you are now reading.

It all started when a group of very respected, very knowledgeable bubble bloggers admitted that there is no housing bubble. Please check it out for yourself (it is a great essay).

I have no choice now but to rename this blog to "Marin Real Estate: Or Why God's Country Will Appreciate at 20% Per Year Forever and Is Guaranteed to Make You a Gazillionaire or Why at the Very Least In Marin You Can Wear Your Shorts in January" blog.

I am calling my realtor right now and making an overbid on this home using a no-doc, neg am I/O loan; in 10 years time it will make me a multi-billionaire. Guaranteed.

Some choice quotes:

The housing bubble blogosphere today was reeling from a shocking announcement made by an obscure but popular Bay Area Housing bubble blog, Patrick.net. The blog’s overall tone is as bearish as any on the web (”SF Bay Area Housing Crash Continues” staunchly declares the site’s link page).

Evidently, the site’s main contributors have completely reversed course and now claim there is no housing bubble. “After so many months of denying the obvious, we had no choice but to call it quits and Face Reality,” says Peter P, one of the blog’s earliest threadmasters. “Agreed,” says HARM, “it’s painfully clear that we were dead wrong and housing is going to keep appreciating 15% a year forever, just like Gary Watts says it will.”

This essay has also convinced me that I was dreadfully wrong and that my reasoning was previously ass-backwards.

'Falling Faster Than I Expected'

Lereah is at it again:

Home prices in 72 metropolitan areas showed double-digit increases in the fourth quarter last year, a record that was probably the peak in this real estate cycle, the National Association of Realtors said Wednesday.

‘I don’t want to say this is the last hoorah, but it certainly reflects the peak of the boom in terms of price appreciation,’ said David Lereah, the NAR’s chief economist.

But he cautioned that the market is cooling fast. Sales of existing home are falling faster than he expected. Home-price appreciation could drop to single digits this quarter, and will only be 5% for the year, down from 13% in 2005, he predicts.

‘You got to think that this thing is going to end, eventually, one way or another,’ said Christopher Thornberg, an economist with UCLA. ‘Prices have gotten to the point that, even with all the crazy financing out there, people still can’t get into the market. It’s just that over the top. We’ve never seen this size of a housing bubble before, so in a sense we’re in kind of a strange place right now,’ Thornberg said.

"We've never seen this size of a housing bubble before". And the size of the resulting bust will probably never be seen again by us (I hope we never have to see another one that is).

Update on Sonoma County from a Reader

I have been asked on numerous occasions to cover Sonoma and Napa counties. If I had a lot more free time and if I knew those counties well enough then I would. But as it is, I cannot.

One gracious reader from Sonoma, who goes by the moniker "Athena", asked me whether I would post her observations on the Sonoma real estate market. I agreed (but please be advised that I am not going to make a habit of posting other people's stuff). Here it is with only minor editing for a few spelling mistakes and grammatical snafus. I find her observations near the end of this post to be insightful:

I am curious about the insulation of Sonoma from not only not accepting the unreality of their real estate bubble, but from not having a bright spotlight shining directly on it. There are various statistics out there about the amount of speculation buying that has been done in the last several years, and there are also staggering stats regarding the number of Interest Only ARM loans that have been used to purchase properties. It seems there is no neat and clean way to gather data on the real state of real estate in Sonoma but here is what I have found.

Just doing some snooping on foreclosure.com (saw on another blog) and checked my area - Sonoma (95476)
247 properties listed
2 in full foreclosure
46 in preforeclosure
26 in bankruptcy
2 FSBO
171 tax lien

On the GMAC real estate site it shows 200+ properties listed for sale, and wonders of all wonders - many of these properties correspond to the listings for sale. Hmmm…. given that Sonoma (95476) has an Average Household Income of a whopping $46,149 and median value of homes in 95476 according to zillow is: $686,585 I wonder how many of these are folks who jumped into the deep end of the Housing McDebt Party Pool?

Of 174 single family homes listed on the GMAC MLS there are 45 price reductions:

Price Reduced: 02/10/06 — $2,275,000 to $1,975,000
Days on Market: 24
193 GUADALUPE DR, Sonoma, CA 95476**

Price Reduced: 02/07/06 — $629,000 to $619,000
Days on Market: 36
435 JACEY ST, Sonoma, CA 95476**

Price Reduced: 01/26/06 — $599,950 to $589,950
Days on Market: 38
111 W MACARTHUR ST, Sonoma, CA 95476**

Price Reduced: 01/18/06 — $450,000 to $430,000
Price Reduced: 02/13/06 — $430,000 to $410,000
Days on Market: 40
18817 RAILROAD AVE, Sonoma, CA 95476**

Price Reduced: 01/19/06 — $649,000 to $644,500
Price Reduced: 02/01/06 — $644,500 to $639,500
731 5TH ST E, Sonoma, CA 95476**

Price Reduced: 01/03/06 — $875,000 to $849,950
Price Reduced: 01/09/06 — $849,950 to $849,444
Price Reduced: 02/01/06 — $849,444 to $799,444
Days on Market: 49
Days on Market: 41
609 ROSS CT, Sonoma, CA 95476**

Price Reduced: 01/06/06 — $849,950 to $829,950
Price Reduced: 01/17/06 — $829,950 to $799,950
Days on Market: 62
17660 17662 MIDDLEFIELD RD, Sonoma, CA 95476**

Price Reduced: 02/02/06 — $1,140,000 to $1,095,000
Days on Market: 62
304 DECHENE AVE, Sonoma, CA 95476**

Price Reduced: 01/26/06 — $659,000 to $639,000
Days on Market: 69
18585 MANZANITA RD, Sonoma, CA 95476**

Price Reduced: 12/20/05 — $740,000 to $729,000
Price Reduced: 02/07/06 — $729,000 to $699,000
18677 MELODY LN, Sonoma, CA 95476**
Price Reduced: 02/06/06 — $649,000 to $629,000
1385 BAINBRIDGE LN, Sonoma, CA 95476**

Price Reduced: 12/13/05 — $710,000 to $675,000
Price Reduced: 01/03/06 — $675,000 to $670,000
Price Reduced: 02/09/06 — $670,000 to $669,000
Days on Market: 84
1343 E NAPA ST, Sonoma, CA 95476**

Price Reduced: 01/17/06 — $1,368,000 to $1,295,000
Price Reduced: 02/13/06 — $1,295,000 to $1,268,000
Days on Market: 87
18015 HARVARD CT, Sonoma, CA 95476**

Days on Market: 75
Price Reduced: 02/04/06 — $775,000 to $750,000
Days on Market: 88
970 GLENWOOD DR, Sonoma, CA 95476**

Price Reduced: 01/10/06 — $679,000 to $665,000
Days on Market: 89
Days on Market: 72
535 MITCHELL WAY, Sonoma, CA 95476**

Price Reduced: 01/16/06 — $799,000 to $775,000
Price Reduced: 01/26/06 — $775,000 to $750,000
Days on Market: 89
919 1ST ST W, Sonoma, CA 95476**

Price Reduced: 02/01/06 — $415,000 to $405,000
Days on Market: 93
910 ARGUELLO CT, Sonoma, CA 95476**

Price Reduced: 01/06/06 — $649,500 to $629,500
Days on Market: 96
920 5TH ST #M, Sonoma, CA 95476**

Price Reduced: 11/16/05 — $425,000 to $389,000
Price Reduced: 01/16/06 — $389,000 to $373,000
Days on Market: 104
215 DEPOT RD, Sonoma, CA 95476**

Price Reduced: 01/10/06 — $565,000 to $525,000
Days on Market: 105
16880 ESTRELLA DR, Sonoma, CA 95476**

Price Reduced: 02/02/06 — $997,000 to $950,000
Days on Market: 110
17930 SPRING ST, Sonoma, CA 95476**

Price Reduced: 12/08/05 — $499,000 to $484,000
Days on Market: 117
16737 SONOMA, Sonoma, CA 95476**

Price Reduced: 11/29/05 — $635,000 to $599,000
Days on Market: 117
832 2ND ST W, Sonoma, CA 95476**

Price Reduced: 11/15/05 — $545,000 to $525,000
Price Reduced: 01/13/06 — $525,000 to $510,000
Days on Market: 117
600 OMAN SPRINGS CIR, Sonoma, CA 95476**

Price Reduced: 11/08/05 — $669,000 to $654,000
Price Reduced: 11/16/05 — $654,000 to $639,000
Price Reduced: 01/09/06 — $639,000 to $619,000
Days on Market: 119
846 848 3RD ST, Sonoma, CA 95476**

Price Reduced: 11/18/05 — $897,000 to $875,000
Price Reduced: 01/17/06 — $875,000 to $850,000
Days on Market: 119
19177 ARNOLD DR, Sonoma, CA 95476**

Price Reduced: 12/05/05 — $625,000 to $599,999
Days on Market: 121
17313 PARK AVE, Sonoma, CA 95476**

Price Reduced: 01/31/06 — $599,999 to $589,999
Days on Market: 124
162 W AGUA CALIENTE RD, Sonoma, CA 95476**

Price Reduced: 01/09/06 — $368,000 to $364,900
Days on Market: 129
842 W 2ND ST, Sonoma, CA 95476**

Price Reduced: 12/06/05 — $549,000 to $539,000
Days on Market: 132
49 S TEMELEC CIR, Sonoma, CA 95476**

Price Reduced: 01/19/06 — $589,000 to $569,000
Price Reduced: 02/08/06 — $569,000 to $549,000
Days on Market: 138
399 DAHLIA DR, Sonoma, CA 95476**

Price Reduced: 01/31/06 — $545,000 to $539,000
Days on Market: 139
17178 SONOMA HWY, Sonoma, CA 95476**

Price Reduced: 12/02/05 — $385,000 to $375,000
Price Reduced: 01/06/06 — $375,000 to $329,000
Days on Market: 147
980 RACHAEL RD, Sonoma, CA 95476**

Price Reduced: 11/22/05 — $2,495,000 to $2,375,000
Price Reduced: 01/16/06 — $2,375,000 to $2,345,000
Days on Market: 152
140 ENCINAS LN, Sonoma, CA 95476**

Price Reduced: 11/30/05 — $510,000 to $500,000
Price Reduced: 01/30/06 — $500,000 to $495,000
Days on Market: 153
511 BAINES AVE, Sonoma, CA 95476**

Price Reduced: 11/11/05 — $535,000 to $510,000
Price Reduced: 11/30/05 — $510,000 to $495,000
Price Reduced: 01/12/06 — $495,000 to $479,500
Days on Market: 156
17023 SUMMER MEADOW LN, Sonoma, CA 95476**

Price Reduced: 11/14/05 — $1,249,000 to $1,149,000
Days on Market: 158
12 WOODWORTH LN, Sonoma, CA 95476**

Price Reduced: 02/10/06 — $399,000 to $379,000
Days on Market: 159
107 PINE AVE, Sonoma, CA 95476**

Price Reduced: 02/06/06 — $479,000 to $469,000
Days on Market: 181
715 BOYES BLVD, Sonoma, CA 95476**

Price Reduced: 11/14/05 — $879,000 to $849,000
Price Reduced: 02/08/06 — $849,000 to $799,000
Days on Market: 181
18395 BARRETT AVE, Sonoma, CA 95476**

Price Reduced: 01/30/06 — $579,000 to $569,900
Days on Market: 190
17135 SONOMA HWY, Sonoma, CA 95476**

Price Reduced: 01/05/06 — $629,000 to $600,000
Days on Market: 201
290 SERRES DR, Sonoma, CA 95476**

Price Reduced: 01/03/06 — $1,650,000 to $1,595,000
Days on Market: 257
1901 FREMONT DR, Sonoma, CA 95476**

Price Reduced: 02/02/06 — $2,950,000 to $2,650,000
Days on Market: 264
16743 SONOMA HWY, Sonoma, CA 95476**

Price Reduced: 11/29/05 — $635,000 to $599,000
Days on Market: 482


Other interesting facts:
Homes sold first 7 weeks of 2006 = 56
Homes sold first 7 weeks of 2005 =67

According to zillow.com home prices in the 95476 zip code have gone up:
2% in the last 30 days
43% in the last year
138% in the last 5 years
275% in the last 10 years


County facts:
According to Dataquick- Sonoma has the lowest affordability of all Bay Area counties - 7%

PRESS DEMOCRAT: Bank regulators describe a boom area as one where home prices rise more than 30 percent after inflation for three years. In Sonoma County, inflation-adjusted prices in the past three years are up 55 percent. Regulators claim far more U.S. regions are booming simultaneously today than at any time in the past 30 years. What’s the potential downside of the housing boom?

There seems to be some roundabout denial there in Sonoma. I was having a conversation with my finance major fireman friend about the denial - where the person who owns a sh**box in Boyes Springs 800sq ft. of nothingness with virtually no space between the walkway and the fence thinks it is worth half a million dollars!!! LOL… he said that Sonoma is the new Sausalito. I did laugh out loud there. Gave him a comparison of the demographics and he still didn't believe me. It seems many in Sonoma really aren't going to notice the tide is changing until it sweeps them out to sea.

Sonoma is a small town. The GMAC MLS with condos, SFH, land and MFH shows 200+ listings for sale, SFH alone there are 174. 45 price reductions…. sounds like some are catching on - but those only taking their prices down by 10k just are never going to get it.

Probably one reason they are capable of cognitive dissonance and can ignore the for sale signs all over the place, not to mention the for rent signs literally parked on lawns and propped on sidewalks is that they have a sense of entitlement now…. these things are not a sign of a weakening market… these things are reassurance that those entitled to their profits are seeking them… hence the sale signs. ;-) Good luck to them. Part of their insulation I think is that there is no media spotlight shining on them - and few of them are seeing these numbers in real time… the Index Tribune certainly isn't going to be printing these things…. hmmm…. maybe it is time for a Sonoma housing Bubble blog?

I think right now they are still drinking their kool-aid; the real estate folks and the wannabes alike are still saying: “get in now before you are priced out forever. Properties are only going up. Look at the whole east side, nothing below 800k, better get into this rat hole in the alleyways of Boyes Springs at 500-700k before they go up too…”

My friend bought one of the only tolerable places in the alleyways for $379k a year and a half ago - and now is proud that it has been appraised at $511k (as he found out when he refinanced for improvements). To his credit he did do some nice improvements, however, lets think this over now… what do you have to make to qualify for a traditional loan? Put down 20% so put down 100k and then have a mortgage for 30 years? You would still need a six figure income… and if you have a six figure income do you WANT to live in the rat hole alleyways of Boyes Springs?

Oh right… nobody bothers with those pesky traditional loans anymore… it is all about I/O ARMs…. LOL… ok so according to some of the statistics I have seen that since 2001 anywhere from 61%-82% of the properties bought in Sonoma are these exotic loans… meaning likely that these properties were bought by people who couldn't afford the price of the home any other way.

Originally, in the late 90’s to early 2002 with the telecom/tech companies moving into the area folks were selling peninsula, SF and Silicon Valley homes and finding the housing prices too “affordable” meaning they made too much money on their greater Bay Area house and couldn't buy enough house in Sonoma. (What a nice problem to have) ;-) Anyway, this was not an uncommon problem which lead to a bit of speculation - estimates I have heard but not validated is that since 2001 30% of properties were speculator/investor purchases… which lead to the price increases and the social psychology of those service industry workers and blue collars to fear never owning their own home, so selling their souls to the mortgage industry and voila… a bubble was born.

For the last couple years what I have noticed is owners who bought and sold in a year or two and moved their family to a bigger home and felt that the equity they “earned” was worth it - so there were a lot of trade ups. The tech industry hit bottom in 2002 in the Sonoma area - and there were fewer and fewer people moving there as there are few jobs not service industry, retail, mortgage, construction industry related. There are not a plethora of six figure jobs available in the area. It is not an easy commute from there to anywhere, not even in the same county. The prices in Sonoma are now fairly comparable to all other greater Bay Area locations, so no longer is there a middle class who can sell their house and not find enough house to buy in Sonoma.

The people who have sold their soul to the I/O should start showing themselves soon and when they can't afford the payments on their houses will likely start flooding the market with their listings. I suspect by the number of for rent signs all over the place the speculators are trying to stop bleeding cash…. rents are not really that high in the area. You can rent a 3br. 2ba house for under 2000. Though there is one house for rent that they are asking $2500 (LOL) - good luck trying to get a nice bottling line production worker to pick up that tab. :-)

With the restrictions in lending that I see coming, fewer and fewer people will be able to act on their urge to follow the herd… I think it will be a while yet until the sellers catch on that their house ISN’T really worth what they are asking for it - and they don't really have a viable and predictable market for their homes. I think they have used up most of the demand and it will take having their houses sit and sit before they realize something is wrong.

But then again… Like I said - for some reason even though Sonoma is the least affordable place with only 7% able to afford to buy a house - it is not being talked about, and the talk of the town is still buy buy buy before you are priced out….

I think a little exposure to the numbers will dry up their kool-aid supply. ;-)

"Own" vs. Rent Disparity

This web site asks the question "How much more does it cost to own than to rent?" Maybe you will find it interesting. San Francisco is fourth from the top where the disparity is $1,308/month higher to own than to rent the same property. I think this is important to know as monthly rental rates are an indication of what people can actually afford each month as they cannot offload the present expense to the future like they can with a mortgage.

Some choice quotes:

A house price "bubble" is said to exist where the cost of buying a home is unduly high compared to the cost of renting the same property. A new reference book, The Data Almanac 2006, has published a list of cities with the largest disparities between owning and renting. It is based on the American Housing Survey - a database compiled by the US Department of Housing and Urban Development that includes 71 thousand households. The top nine cities in the list are all in California or the New York City commuter area (see below).

(Click on the chart for a larger view.)

You Would Think This is News Worthy

Given that West Bay RE made statements such as:

"sales were off 28% from December and 24% from January 2005. This is the third lowest number of sales in any one month since we've been keeping records: January 1998"

and

"The median price of single-family homes in Marin County also took a nose-dive in January, falling 8.6% from December to $877,500, and, gasp, down 5.7% from January 2005. This is the first year-over-year drop since June 2003. Also, it's the first time the median price has been below $900,000 since December 2004"

you would think that this would be front page news over at the Marin IJ. Yet, as far as I have seen there has been no mention of these facts. Granted, I don't subscribe to the IJ and rely on what I can find on their web site. And to be fair, December to February tends to be a chaotic time for the RE market so maybe the IJ thinks that's all it is and so not news worthy. Does anyone know if the IJ has reported on these market results? Or are they going to pretend that they never happened?

January, 2006 Charts for Marin County

Data galore! Here are the charts for January, 2006 as promised. All charts are derived from the data published by West Bay RE.

The first chart shows median and mean sales prices for all months between January, 2004 and January, 2006, inclusive:

(Click on the image for a larger view.)

The next chart shows the number sold for all months between January, 2004 and January, 2006, inclusive:

(Click on the image for a larger view.)

The next chart shows the average number of days on the market before being sold for the months between January, 2005 and January, 2006, inclusive:

(Click on the image for a larger view.)

The next chart shows the year-over-year percent change in the median sales price between January, 2005 and January, 2006, inclusive:

(Click on the image for a larger view.)

The next chart shows the year-over-year percent change in the number of sales for the months between January, 2004 and January, 2006, inclusive:

(Click on the image for a larger view.)

Enjoy.

I found this quote, found here, to be potentially prophetic for Marin:

“The problem in areas like Boston and Silicon Valley is that home prices shot up so high, even declining prices aren’t attractive especially as interest rates rise.”

Marin House Prices "Plunge" in January

This is West Bay RE's latest commentary on January, 2006's market performance. I'll put together some charts tomorrow evening because I am too darned tired now.

What a way to start the year. Home sales in Marin County, while not at their lowest level ever, are certainly close to it. With only 114 homes sold in January, sales were off 28% from December and 24% from January 2005. This is the third lowest number of sales in any one month since we've been keeping records: January 1998.

The median price of single-family homes in Marin County also took a nose-dive in January, falling 8.6% from December to $877,500, and, gasp, down 5.7% from January 2005. This is the first year-over-year drop since June 2003. Also, it's the first time the median price has been below $900,000 since December 2004.

The question becomes, is this an aberration, or the start of a new trend? On one hand, the depth of the plunge in January is an aberration. On the other hand, the trend is towards a buyers' market. Looking at pending sales, we see an increase of 13% for homes and 29.6% for condos this month. This portends increasing sales in the month's ahead.

Condo sales were also way down in January with 26 units sold, only one of the all-time low of 25. Interestingly, condo prices set new record highs with the median price rising 12.1% from December to $580,000 and the average price gaining 24.5% to $719,763. That's a rise of 39.1% year-over-year, another aberration.

Caveat Emptor

Since we are heading into the Spring buying season it seems like it would be prudent to remind people of the ways in which sellers and realtors can be deceptive. Of course, that's not to say that all are deceptive, but enough are that it is a common point of discussion on the blogs and elsewhere. So what things should buyers keep a watchful eye out for? Here is a partial list. Feel free to add to it:

1. Relisting a house on the MLS. A house is placed in the MLS and it doesn't sell for whatever reason. The realtor takes it off the MLS for a couple weeks (and the seller possibly reduces the asking price a little) and then relists the house. It is suspected by some that this is done so that the house now looks like a new listing and all the stigma of sitting on the market is gone. Others argue that it is normal operating proceedure when the listing expires. Either way, one shouldn't draw the wrong conclusion. To combat this practice, search for the address using various tools like Google, Domania, etc. and find out what the listing and selling history of the house is.

2. "Price reduced" signs. These are suspected by some people to be used to give the buyer the impression that they are getting a deal on a house when in fact they are not. According to some people, what often happens is that a seller sets the asking price well above what they think the house will really sell for. The seller is hoping for a sucker to come along and pay that price. If no one makes an offer at that elevated price, the seller then reduces the asking price down to closer to what he thinks the house will really sell for and advertises that fact with a "price reduced" sign.

3. It has been claimed that sometimes a seller will deliberately set the asking price for their house below the market value in the hopes that a lot of buyers will then bid the price of the house above market value. This seems like a risky tactic and works best during speculative periods.

4. Sometimes, in order to fuel a sense of buying urgency, realtors tell potentials buyers that there are other people interested in the property, when in fact there are not or these 'potential buyers' were just casual browsers. (Submitted by Bubble Meter)

5. Giving misleading market statistics or flat out lie about market conditions. (Submitted by Bubble Meter)

6. Falsely validating the asking price for a house based on comps that are not fair comps. For example, the "comp" had spectacular views of the Bay whereas the house that the buyer is interested in has no such views. (Submitted by Bubble Meter)

7. Realtor hype. Some examples (gleaned from various sources):
"There is a lot of pent up demand."
"This may be your last chance to buy because interest rates are going up."
"Renting is equivalent to flushing your money down the toilet."
"I have to reschedule your appointment because it seems there is another couple looking at the house that day."
"Well, I live in this neighborhood."
"This is a former model home."
"This floorplan has been discontinued by the builder; there will be no more like this one."
"They're not making any more land."
"The schools in this area are top-notch."
"If you buy now we will throw in the following incentives; just our way of saying 'thank you'" (where the cost of the incentives is far less than the premium you are paying for the house).

Our Local Bearish Realtor's Latest Article

The local Marin realtor who writes for the Home Owner's Economist is at it again with this article about the down-trending housing market here in Marin and abroad; there are insightful comparisons to the Japanese real estate market crash. Marin sellers are, naturally, in denial; they don't want to hear it! Like Sgt. Schultz from Hogan's Heros they are saying "I know nothzing, I hear nothzing, I see nothzing!". Well, deal with it.

Some choice quotes:

The esteemed (our mentor in political-econ-market-wit -- he doesn’t know it) Alan (no no no the Good Alan), Alan Abelson (not the Evil Alan who left the building), brought some hard evidence into the previous week’s Barron’s magazine. He wrote, “On that score, our conviction has been mightily strengthened by clear signs that the great housing boom is rolling over. Exhibit A is last month's steep drop in the sales of existing houses -- 5.7%, to be precise.

"Yes, we're well aware that the Commerce Department reported that sales of new single-family homes rose 2.9% in December. But the figures don't jibe with the rather downbeat findings of the housing industry. And as to which we find more credible -- Uncle Sam's or the builders themselves -- it's no contest.”

He seems to be saying that he’d trust the building industry (that has every reason to pump their numbers for stock purposes) more than he’d trust Official U.S. Government stats. Well so would we, and we’ll spare you our usual diatribe about phony job stats, and, worse, the thing they call Inflation. The CPI, the “Core.” Etcetera Their Inflation numbers are out of whack, don’t ring true with reality, with Real Inflation. You oughta know – you buy things – are prices up???

Anyway the Good Alan pointed to his buddy, David Rosenberg of Merrill Lynch who brought some very interesting stats to the House Party. (Which is over and we think you should literally and immediately sell-high residential property investments right now if you want to have funds to buy-low when the next party starts up after the current one is only left standing in History Books.) Fourth Quarter existing single-family homes took a deep dive, bringing in a 36% annual rate reduction. All three of us: Alan, David and we are convinced housing has moved to a bear market. Heartening to buyers. First Time Buyers? Let’s take a look.

Last year 43% of first-time buyers, had no down payment, whereas in 2004 only 28% used that creative financing option...In 2005 more than 25% of all mortgages (nationally, not just your “frothy” Coast lines) were not actually home acquisitions (oh yeah sure, the nice folks did get on Title), but, with no money down, no proof of actual employment, option ARMS, negative amortization (not even paying the entire monthly interest rate and the balance going onto the top of the loan, on the top of principal which is not being paid down at all), it’s really not much different than renting. Except, much more costly, and liable to cost those folks their credit and good reputation if … if … when.

And, here comes credit. About to get more expensive? Inevitable! Unsold inventory in the resale market jumped 26% above December '04, leaving a 5.1 months' supply, and anyway you cut it, that leads to a Buyer’s, probably a Strong Buyer’s market going forward. If that’s not enough inventory for you to make a selection from, we have the highest new home inventory level in nine years. Condos? Can you find one for sale? Oh Yeah. No Problem. Condos are showing a 6.2 month supply. Out our way in Marin County, California, total sales from December 6, 2005 through February 4, 2006 (two months) were 308 homes and condos. An amazing 211 out of 308 sales (69%), had price reductions. No typo, sixty-nine percent, had price reductions.

Ouch, and believe us the Sellers don’t want to believe it, and don’t want to hear it, because they don’t want to believe it.

Off to Greener Pastures

Thanks to this housing bubble, our insane taxes, and the residual effects of the stock bubble, people are packing up and leaving the state; not just those who are struggling but the wealthy too.

Some choice quotes:

The rebel colonists who dumped 45 tons of tea into Boston Harbor showed the power of one kind of tax revolt -- the raucous kind. Now, 233 years later, large numbers of taxpayers across America are taking an entirely different approach. Quietly, without banners or raised fists, they are packing up their families and belongings and moving from high-tax states like California and New York to lower-tax locales like Florida, Nevada and Texas.

"It's a stealth migration, and it's one of the biggest, most significant yet least recognized movements of the population in American history," says Vedder. "People are voting with their feet to say that taxes do matter."

Wealthy Americans, in particular, seem fed up with giving an ever-growing share of their riches to the state tax man. Many are upset at moves by New York, New Jersey and a number of other states to squeeze ever larger revenues from estate taxes.

The basic math of moving to a low-tax state certainly can be compelling for the wealthy. "Their savings can be so large that it makes relocation all that much more worthwhile," says Len Adler, a wealth adviser for JP Morgan in Palm Beach, Fla. He and colleagues at Morgan have seen a noticeable increase in clients who are willing to pull up stakes to save taxes.

Out west, California residents, who pay one of the highest income-tax rates in the nation -- 9.3% -- are hopping across the border to Nevada, the region's biggest tax haven, with no income or estate taxes. It's not just Las Vegas -- Californians also are settling into the likes of Reno and Carson City

In all, California suffered a 693,730 net decline in its population so far this decade, despite a burgeoning immigrant population. One of those departing was Michael Todd, 58, a real-estate developer and consultant. Fed up with the Golden State's income tax and rising property taxes, Todd and his wife, Cheryl, relocated from Orange County to Prescott, Ariz. Says he: "Our state income taxes are 30% lower, and we're paying less in property taxes even though we've got a lot more home for our money."

Not surprisingly, many states are feeling the drain of fleeing taxpayers. At a time of serious competition between states for jobs and tax revenues, "states with high taxes are losing their wealthiest and most successful taxpayers, as well as businesses, and they're not creating as many jobs," says Dan Clifton of Americans for Tax Reform.

Grim - Real Estate Prices Do Fall

Grim, over at the Northern New Jersey Real Estate Bubble blog, has written an original piece listing New York Times headlines from the 1980s real estate crash. Nicely done; good work Grim!

You can find a similar listing of news headlines more focused on California here; and there is one here for Vancouver.

Because Sometimes Humor is More Fun Than Reality

Check out this Saturday Night Live skit about American consumer debt. I found it referenced over at The Mess Greenspan Made blog. To view the video you either have to be a member or be willing to view an ad.

Here is the trasnscript:

Amy Poehler: Oh, I just can't get these numbers to add up

Steve Martin: Like we're never going to get out of this hole.

Poehler: Credit card debt, does it ever end?

Chris Parnell: Maybe I can help.

Martin: We sure could use it.

Poehler: We've tried debt consolidation companies.

Martin: We've even taken out loans to help make payments.

Parnell: Well, you're not the only one. Did you know that millions of Americans live with debt they can not control? That's why I developed this unique new program for managing your debt. [Holds up book] It's called, "Don't Buy Stuff You Cannot Afford"

Poehler: Let me see that. [Reading from book] If you don't have any money, you should not buy anything. Hmmm ... sounds interesting.

Martin: Sounds confusing.

Poehler: I don't know honey, this makes a lot of sense. There's a whole section here on how to buy expensive things using money you've "saved".

Martin: Give me that. And where do you get this "saved" money?

Parnell: I tell you where and how in Chapter 3.

Poehler: OK, what if I want something but I don't have any money?

Parnell: You don't buy it.

Martin: Let's say, I don't have enough money to buy something. Should I buy it anyway?

Parnell: No.

Martin: Now I'm really confused.

Parnell: It's a little confusing at first.

Poehler: What if you have the money, can you buy something?

Parnell: Yes.

Poehler: Now, take the money away. Same story?

Parnell: Nope. You shouldn't buy stuff when you don't have the money.

Martin: I think I've got it. I buy something I want, then hope that I can pay for it. Right?

Parnell: No. You make sure you have money, then you buy it.

Martin: Oh, then you buy it! But shouldn't you buy it before you have the money?

Parnell: No.

Poehler: Why not?

Parnell: It's in the book. It's only one page long. The advice is priceless and the book is free.

Poehler: Wow. I like the sound of that.

Martin: Yeah, we can put it on our credit card.

Announcer: So, get out of debt now. Write for your free copy of "Don't Buy Stuff You Cannot Afford". And, if you order now, you'll also receive, "Seriously, If You Don't Have the Money, Don't Buy It" along with a twelve month subscription to "Stop Buying Stuff" Magazine. Order today.

Latest Affordability Index for Marin

Well, Marin County's affordability index has slipped to 10% according to this report. Way to go Marin! Well done. Pat yourself on the back. We'll shut out the riffraff yet. We will achieve yuppie Nirvanadom if it kills us. Who needs a working class? Who needs working families with children? And maybe all the businesses that don't already cater to us will leave for greener pastures too. Hey! Maybe if we don't improve our infrastructure no one will want to move here either! Yeah, that's it. Oh, no, wait...we tried that 30 years ago and look where it got us.

I'm sure glad no one sees a problem with this; too busy counting our coins.

Some Fun at Someone's Expense [Update]

[Update: Thanks go out to a reader for the fine "refacement". Please feel free to identify yourself in the comment section if you want.]

Someone asked for it. I couldn't resist:

First David Lereah said:

Then he said:
Then it was:
Later:
And now:

The NAR Reminds Us That RE Is Cyclical

Sellers had better start stocking up on a lot more of those St. Joseph statues (but in Marin I guess it would be crystal Buddhist statues and incense sticks) -- check out this blogger's post.

First, David Lereah was saying that there is no housing bubble. Then he said the bubble was a balloon. Later it was "we are in for a 'soft landing'" and that we can "look forward" to just 5-6% appreciation. Then the bubble was a ship (and presumably slow to change course). Now he is saying real estate is cyclical and house prices can be expected to fall. What a fraud. The NAR has no credibility. How about just telling the truth you shisters?

Some choice quotes:

“‘Sometimes people lose sight of the fact that real estate is cyclical,’ the realtors’ chief economist, David Lereah, said. Construction too will tumble to levels not seen since before 2004, Lereah said. He forecast 2006 housing starts at 1.87 million units, down 9.3 percent from the 2.06 million in 2005.”

“Sales of new homes should fall as well, down 8.5 percent to 1.17 million units from a 2005 record of 1.28 million, Lereah said.”

No doubt the NAR minions will start talking a lot more about cycles rather than balloons.

And be sure not to miss the quote by Gary Shilling who says that "the current housing weakness will develop into a full-scale rout".

So will Lereah next be warning us about not getting suckered into the inevitable "dead cat bounce"? Or will he remind us that reversions to the mean trend line almost always undershoot the trend line? Will we have NAR economists calling the bottom of the bust all the way down to the real bottom?

Will the NAR become the "next Enron"?

Things are definitely getting more interesting.

Step Back and Look Around

Imagine that it is February 7, 1996. You want to invest your money so as to become a gazillionaire in 10 years time. Fortunately, you have a crystal ball and you are able to see into the future but you can only see what is in the news today (February 7, 2006). Would you still bet on a soft landing in real estate?

Imagine that a decade ago, you had had a crystal ball and could have read today’s news -- unspun and uncommented on. The first story is about Iran being at odds with the West over its nuclear programme. The president of Iran, you discover, would like to wipe Israel off the map, as would the new ruling Palestinian party, Hamas.

The next story is about growing concern in the US over the number of military casualties in Afghanistan and Iraq: two countries that neighbour Iran. As a switched-on reader, you wonder what all this is doing to the price of oil. Turning to the financial pages, you find out. Oil prices are no longer $20 a barrel, but touching $70, with expectations that they may go higher.

Staying with the business pages, you find that Alan Greenspan, the grand old man of the Federal Reserve, is about to retire. He will mark his departure by raising US short-term interest rates for the 14th consecutive meeting.

Greenspan, the report says, cut interest rates to 1% in the wake of the terrorist attacks in September 2001 and cheap money has pumped up the US property market, allowing homeowners to borrow money against the rising price of their main asset. The US is now running a current-account deficit of 6% and rising, the cost of military action and clearing up an immense natural disaster blamed on climate change has been to push the budget deficit to 3,5% of the gross domestic product and the savings rate has fallen to zero. You read the figures again because you can’t believe they are true. They are.

What does this mean for the dollar? Surely, you think, it must be dropping like a stone. It isn’t, because, as you discover, central banks in Asia are buying greenbacks in huge quantities so they can keep their own currencies at artificially low levels in order to keep enjoying export-led growth. The ability of American consumers to continue living beyond their means, you find, is now dependent on the actions of the communists still in power in Beijing.

A couple of other stories catch your eye. There is concern about something called avian flu which, according to the World Economic Forum, has the potential -- small, admittedly -- to turn into the 21st-century equivalent of the Black Death. And Russia is playing hardball with its neighbours over gas supplies.

What’s your response? Yes, there’s a bit of encouraging news from Germany and reports that Japan may have, at last, turned the corner after more than a decade in the doldrums. But that’s not what leaps off the page. The world of 2006, seen from the perspective of 10 years ago, has a profoundly unbalanced economy, high energy prices and a volatile Middle East. It is threatened by climate change, terrorism and a pandemic.

Perhaps you would be sanguine about all this. Perhaps, though, you would be worried sick that any one of these risks could set off a chain reaction that would make 2006 a year to forget. One thing is for sure. You wouldn’t bet too much money on a soft landing. And rightly so.

In addition to the above, you would be seeing that the stock market seems to be realizing that the housing bubble is busting as the stocks of major house builders continue their sell off, declining interest in US treasuries by foreign central bankers, there are more tales of people selling their insanely over-priced houses at a loss, people resorting to using good luck charms to sell their houses, questions over a new Fed chief and the real state of economic affairs in our Union, etc.

Potential Buyers Should Read This Thread

Click here.

A New Trend: Distressed Buyers?

So, is what happened to this couple in Sacramento a harbinger for the (near-term) future? I hope not but I fear that it is. I really feel sorry for these folks and others like them who listened to all the "buy now before you are priced out forever; houses only go up in price" BS and who fell for the "teaser" loans.

Some choice quotes:

It took less than eight months for Dustin Suposs' "American Dream" to become a nightmare.

He and his girlfriend, both in their early 20s, got caught up in the better-buy-now mentality that fueled the Sacramento area's housing market last spring. They bought a $365,000, 1,550-square-foot home in Elk Grove with no money down. The result: A $2,300-a-month payment that was more than 2 1/2 times the rent they were paying.

By December the couple were drowning in bills and debt. Now they're two months behind on the mortgage.

Experts say the pair are part of a new trend - a growing wave of distressed borrowers just beginning to hit Sacramento and across California.

How much foreclosures will rise this year will depend on a host of hard-to-predict variables, including the extent to which global demand for oil sends energy prices rising. Higher inflation would mean higher short-term and long-term rates, which "would spell real trouble for the housing market," said Wells Fargo & Co. economist Scott Anderson.

Already, many working with distressed borrowers see ominous signs that suggest foreclosure activity is picking up fast.

"We're seeing the early indicators that it's only getting worse," said Pam Canada, executive director of the nonprofit Neighborworks Homeownership Center in Oak Park, which educates would-be homebuyers and helps existing owners stay out of foreclosure.

"We knew the rate of appreciation was unsustainable and would have to come down, and as it comes down into the single digits it might even go negative" for a few months, said John Karevoll, a longtime DataQuick analyst.

Experts have stressed for years that home prices couldn't possibly keep rising by 20 percent a year, but many borrowers didn't heed the warning.

"Everyone was anticipating getting in (a house) at any cost and then letting appreciation in the market handle it in the next year or two," said John Arvanitis, president of Sunrise Vista Mortgage Corp. in Citrus Heights.

"In theory, that's great if appreciation stays at certain levels, but it's not happening anymore."

Many in the real estate industry are worried scores of homebuyers will suffer payment shock over the next two years as their low introductory interest rates expire or their interest-only periods end.

Some won't be able to afford the higher payments and will have to refinance, if possible, or sell - or possibly lose their homes in foreclosures.

Some of today's distressed borrowers have exacerbated their predicament by blowing their credit score or by tapping what little equity they had with a cash-out refinance or a home equity loan.

"Bankruptcy Bubble" in the UK

Here's another look at the "financial distress" theme -- apparently, there is a "bankruptcy bubble" in Britain and it's not popping (thanks to the reader who sent me the article). Could it happen here? Nah, we're special. Besides, the new bankruptcy laws won't let you off the hook so easily now.

Some choice quotes:

The number of British households declaring bankruptcy because of an unmanageable burden of debt hit a record high last year, according to official figures.

Steve Treharne, head of personal insolvency at consultants KPMG, said Saturday: "The bankruptcy bubble is getting bigger, but seems unlikely to burst for some time yet."

The number of households who saw their homes repossessed because they could not meet their mortgage repayments rose by 22 percent in the second half of 2005 to 5,630.

Blogger Problems

Blogger has been having a lot of problems lately as you have probably noticed. Apparently, they are not equipped to deal with the high volume. But hey, it's owned by gimicky Google so it's all good. Nevertheless, I am looking at alternatives to Blogger.

Housing Data Site

I've posted this person's housing data before, but he now has a new site and so I thought I'd bring it to your attention. I will also link to it over in the right margin. It can be found here. The data that includes Marin County can be found here. Enjoy!

And here is a hacked version of his data showing various predictions.


According to this (thanks to the reader who sent it in), panic may have already started in some corners of the world-wide property bubble. What will be, will be...

The Beginnings of Financial Distress

Are we seeing the beginnings of financial distress (and here)? Right now the absolute numbers are small but the percentages are high. Will the absolute number of default notices increase significantly? Many ARMs and their variants are resetting this year; far more next year -- this year approximately 335 billion dollars worth of ARMs are set to adjust; in 2007 1.2 trillion dollars worth of ARMs will adjust. Add on top of that a flattening or negative appreciation and we may see more default notices.

Across the state, the number of default notices sent by lenders [in 2005] to borrowers was 14,999, up 19% from the prior quarter and up 15.6% from the fourth quarter of 2004, DataQuick Information Systems said on Thursday.

The company attributed the rise in foreclosure activity to slowing appreciation rates, which dropped from a high of 22.8% in the second quarter of 2004 to 14.5% in the last quarter of 2005 and are expected to decline further this year.

In Los Angeles, default notices are up 10.7%; in San Francisco, they are up 45.2%; in Napa, they are up a whopping 175%.

From Inman News:

All regions of the state saw an increase in foreclosure activity, ranging from 10.5 percent in the Bay Area to 19.6 percent in Southern California.

The number of notices of default dropped 48.5 percent in Stanislaus County – from 309 notices in fourth-quarter 2004 to 159 notices in fourth-quarter 2005.

In Southern California, the number of notices jumped from 1,123 to 1,607 (43.1 percent) in Riverside County; from 872 to 1,173 (34.5 percent) in San Diego; from 684 to 918 (34.2 percent) in Orange County.

In Northern California, the number of notices increases from 636 to 849 (31.4 percent) in Sacramento County and from 73 to 106 (45.2 percent) in San Francisco.

On a loan-by-loan basis, mortgages are least likely to go into default in Marin County. The likelihood is highest in the Central Valley and Inland Empire.

Is Marin's higher median income for now forestalling an increase in default notices? Is that why Napa's increase is so high...because the median income is lower there yet house prices are stratospheric?

Lereah first claimed that the housing bubble isn't a bubble, it's a balloon. Now he says it is a ship. Another blogger says that ship is the Titanic. So has the iceberg just come into view and the ship is too slow to respond to get out of the way in time? Time will tell.