This video has Yunnie saying that the sky may not be falling, which proves that he reads here.
Larry, the next time they stick a microphone in your face, say that the problem with the record-high inventory is that the sellers are crazy about their list prices! Lower prices will fix anything!
It’s the government’s fault, for ending the tax credit. The solution is quite obvious, we simply need a bigger, better, more enticing tax credit! I propose a $50,000 credit and an ipad!
Troubled Loner,
Why stop at 50,000? Why not 100,000? And is 100,000 seems nice why not 500,000?
Wait? How does inflation work again?
“Lower prices will fix anything!”
We are in a deflationary spiral. Lower prices will lead to lower prices. At some point most buyers are going to just stay on the sidelines until prices stop dropping. Too much risk.
I believe that prices will ultimately drop until the point where nobody wants to sell anymore. How close are we to that point? On one hand we have some “forced selling” by banks who are just going to take what they can get. On the other hand, many (but not all!) retail sellers are reluctant to follow the banks down the abyss.
My personal feeling is that we are continue to grind along like this until we see some significant improvement in the economy.
I don’t think price is the entire issue here. I think there is some pent-up demand to sell through ordinary life changes (divorce, death, birth, etc.).
What the reporter says at the end doesn’t quite make sense to me:
“One argument that I would make against that though is that sales have been falling for the past three months, even with that tax credit in force. Since May we’ve seen the numbers come down…”
Didn’t the federal tax credit end April 30? (At least that was the deadline for entering a contract. We haven’t yet reached the deadline to close.) So, it sounds like she’s confused.
Or just give them away.
http://www.sacbee.com/2010/08/24/2979514/mayor-johnson-says-hes-gaining.html
What a great government, huh?
Wonder who sets the value of these homes.
Prices are still way too high over here at OC( Aliso Viejo, Laguna Niguel area).I am looking for a detached single family, 2000ft2, 4 bed, 2 bath and 2 car garage. I will not get serious until they are around low $400K or high $300K.
Some people I know just bought $800K McMansion at Ladera Ranch 6 months ago with ARM. They thought it will shoot back to $1million in afew years so they can unload.
I agree with Goupama — prices in OC are still way out of line — I had a family member just unload a ‘fixer-upper’ 1800 square feet on a postage size lot in an average neighborhood for $575K — most places in the country the same home would go for 1/3 of that — nothing in OC is that great to justify that kind of pricing. The government is fighting it, but the direction will continue downward. Existing home sales released today just confirm the overall direction will continue to be down.
Just my two cents, but other factors to consider:
(1) Folks concerned they’ll lose their jobs.
(2) Sellers delusional about their listing price (Jim nailed it!)
(3) Folks have too much debt and tight credit markets
(4) Stock market volitility
In other news, my bank was one of eight (8) banks which failed on Friday. The housing mess was the #1 reason why…
I plan on prices falling until the pricing drops to allow the average income for an area will allow the following traditional mortage underwriting:
1/3 of total gross monthly income = int + principal on a 75% LTV (30yr amtz) + tax + ins.
Based on a $100k income that is $2,750/mo….makes NCC seem a bit crazy doesn’t it.
Obviously these %’s and ratios will adjust up/down depending on various issues, but we are definately not there in the vast majority of areas with purchase mortgages.
clearfund,
Thanks for sharing your thoughts. Based on your forumula, CV might be already there. Many of CV buyers are double-income. Let’s say their gross monthly income = 15,000$. A 850K house translates to a 3200$ mortgage (30 year 75% LTV at today’s rate 4.45). That leaves enough room for tax and ins. If my calculation is correct and your “pricing” model is fine, then CV market is well at the bottom.
I thought the average salary for San Diegans was about $55,000/year. Anyone know?
net – 850k in CV for a $180k/yr house seems reasonable to me. Not too many 850k houses in CV but thats besides the point.
Now looking at that thought process, how many areas have $850k houses (down from $1.1+) combined with $180k incomes…not many.
Think carlsbad, la costa oaks/greens/bressi/etc.
CV is a bit rare on the quantity of upper incomes. the balance should be priced well below CV.
to clarify re: oaks/greens/bressi: very few have the incomes to justify the prices, hence downward pressure should continue.
lastly (promise) this formula is obviously has a high coefficient assigned to the interst rate which may, or may not, be accurate as rates move in the future. How much rates move prices is an entirely different debate and somewhat moot in this near/mid term current rate policy environment
to clarify re: oaks/greens/bressi: very few have the incomes to justify the prices, hence downward pressure should continue.
Who needs income? We have loan mods!
Seriously, if loan mods stick, it would limit the supply of short sales.
I think the rate of mods sticking will be higher in newer family areas (like those mentioned) because the modified payment will be cheaper than renting in the same neighborhood. Now that they’ve been there this long, and gone through this much, they aren’t going to want to leave.
Based on your forumula, CV might be already there.
With the obvious caveat of rock-bottom interest rates.
I thought the average salary for San Diegans was about $55,000/year. Anyone know?
The median household income is around 60K a year, but the median household income isn’t the median home buyer. They certainly are not the median home buyer in a place like CV. From looking at Jim’s stats, the people buying in CV appear to readily afford the homes with the far majority putting 20% down or more. Whether or not that will hold is a different story, but at least the people are playing with a lot of their own money.
Re: tj& the bear,
“With the obvious caveat of rock-bottom interest rates.”
I have long thought about this interest rate caveat. It is possible that US bond market experience a crash with yield shoot to moon in a short of period. But, I image that this could only happen if dollar collapses. I believe this probability is very small given “lack of alternatives”.
Without bond market crashing, interest rate will go up only when economy starts to recover/grow. In that case, most likely the house price will stay (US 70s) or maybe dripping a bit slowly (Japan 90s), because employment generally will pickup in that case.
Anyway, that’s my conjecture/2cents.
Here is some demographic info from La Costa. Things seem in line with the Ratio’s Clearfund was hoping to see, maybe even a bit higher incomes– I got from Public Records under the Real List link on the MLS:
Owner Occupied 95% Median Home Value $672,700 Median Mortgage $3,549
Absentee Owner 5 Average House Hold Income $177,884 Median Rent $1,519
Average Household Size 3.42 Median Vehicles Value Married 76%
College Graduate 2% Unmarried 24%
Without bond market crashing, interest rate will go up only when economy starts to recover/grow. In that case, most likely the house price will stay (US 70s) or maybe dripping a bit slowly (Japan 90s), because employment generally will pickup in that case.
Heads you lose, tails you *still* lose.
Higher interest rates directly translate to lower prices, but the same low interest rates signal a moribund economy and still lower prices. Japan’s decline was anything but a slow drip:
Japanese Real Estate Bubble Chart
Re: Higher interest rates directly translate to lower prices
Are you sure? The price in 70s does not drop much with interest rate shot up until earlier 80s.
“CV is a bit rare on the quantity of upper incomes. the balance should be priced well below CV.”
The high paying jobs are mainly in Sorrento Valley not CV so anything reasonably close to SV with great schools should be pretty stable.
Some high income earners from SV also choose to commute up north a bit (say Encinitas or South Carlsbad) to get more house for the buck so the best parts of those areas should do o.k. as well.
Are you sure? The price in 70s does not drop much with interest rate shot up until earlier 80s.
Not a good yardstick for numerous reasons.
Absolutely correct, tj.
Prices are too high because there is an artificial fixed floor of debt under most of these properties. Can’t lower the prices to inventory-clearing levels w/o defaulting on the debt.