http://www.investorvillage.com/smbd.asp?mb=4245&mn=236670&pt=msg&mid=4426370&ref=patrick.net
California is getting slaughtered…When the bubble pops its always painful…
Gee,
I remember last year having a rather heated debate with an investor from California who swore up and down that THINGS WERE GREAT out there!!!
He said that EVEN CARPENTERS made $50/hr there and with that kind of money housing would never BLOW UP…
Yea…well when all those carpenters no longer have houses to build (or live in) I guess that’s the end result…
Wonder how all those “INVESTORS” in COMPTON and WATTS are liking their new reality???
By the end of the year we may be cash flowing rentals. Won’t that be a trip.
Although I bet Marin county went up 2%.
I really hate it when we start reporting large area figures. Figures can always be manipulated to a very varying degree depending on WHAT you are trying to accomplish. At least this article points to that fact, abet, a one line sentence at the bottom.
For example, this article uses the “median” home value instead of the “average” home value. These numbers can be vastly different. Second, CA as a state, may be falling, but what is EACH market doing. I know that there are several markets that haven’t fallen off anywhere near that much, and some have even reported gains, however minor.
Point is to know more detailed info is much better. Which market suffered the most? Is it only a few markets that are dropping that number that drastic or is it across the board (answer: It’s not)?
Example: What would be the difference of that 8% median National price drop IF California was NOT included?
Raj
Let’s put it another way that may be even easier to understand.
I’ve got $7.50 and you’ve got $2.50. Now, if the value of your money doubles, now you’re at $5 or a total increase of 20% of the original $10.
Then your money’s value drops to $4. Now, we’ve suffered an 8% drop in value.
Those are massive swings in value for the whole amount, yet in both cases, 3/4 of the money NEVER changed in value.
Also on that note, a market that has a 25% drop after climbing at least 150% in value within the last 5 years are so still at that bad.
Raj
“So half of the houses in the neighborhood have been foreclosured on and abandoned??? Look at the bright side…NO MORE PESKY NEIGHBORS!!!”
AAHHH… The eternal optimism of our Nations REALTORS!!! (Roger’s a realtor!)
When FORECLOSURES are running EQUAL to SALES, I have a hard time finding the silver lining for price stability in that area. We all know what WONDERS having a foreclosed home on your street does for the property values.
Oh…and the 25% drop theory NOT being that bad??? Sorry, this BOOM happened because RECORD numbers of people PURCHASED HOMES DURING THE MANIA!!! If you purchased during the years 2004 to 2006 (and that’s when a LOT of people did) I guarantee that 25% IS a VERY BIG DEAL to those people!!!
The BEST part??? It ain’t even CLOSE to over yet!!! Maybe it’ll be bad when it returns to the mean.
Looks like a bust , sounds like a bust. people acting like it’s a bust…
Okay, Pete.
First, I was an investor long before I ever became a Realtor. Not that it is a bad thing, but don’t throw it up in my face, either.
Second, as I knew you would if I added a little “optimism” in my post, have proven my point all too well.
You, like many others, have no problem at all believing the negative, speaking out as if they are gospel, without even exploring who is reporting them, where the data came from or if it’s even valid. Yet, when given numbers to the contrary, they are routinely dismissed, with the upmost predjustice, again without ever learning, or comparing the facts. Why is that?
I gave an example of what is happening. I know, fdjake, that you don’t believe it, but if you want, please feel free to look up the data yourself. Since percentages and numbers work so well, here is another for you.
Only 7% of the markets in the “National” housing market during the period of 2002-2006 had want could be considered a Boom period. During that same time, fully one half of those markets only had a total appreciation of 9%. Hardly a boom at all. Yet, during that period, (use the graph you provided), the “National” market soared, what was it 100%? 200%?
Is there a problem in the housing industry? Heck yeah! Is there a problem with the economy? Heck yeah!
No, I don’t think that everything is all rosy realtor. All I’m saying is LOOK at the data with a grain of salt UNTIL you determine what it’s really getting at. And that’s ALL data, good and bad.
Raj
Roger,
I agree with you!!
I’m not kidding either!! Not every place had insane runups in pricing.
You’ve been telling us for over a year that YOUR State never experienced a boom…
I’m reading some recent data a few weeks ago and one of the ONLY places in the U.S. that actually HAD an INCREASE in housing prices last year was North Carolina (Rogers state) So your are (and were) 100% right!!
But…Roger…C A L I F O R N I A???
I want to agree with you, but did you HAVE to pick CALIFORNIA???
My brother has been investing out there for 20 years. It’s a BLOOD BATH.
Roger…now I’m not kidding when I say this…I plan on retiring in a few years…One of the places I have been looking into is North Carolina. I would feel 100% comfortable using YOU as my realtor!! No Joke…
We can have our debates…it’s enjoyable…but in the end YOU do know your Market!!!
Hey, the 25% not that bad comment was only for your personal enjoyment anyway!
Well, that and to try to prove the point that numbers stated out of context don’t really mean squat.
Heck, take the report listing NC as a housing increase. Know what? It actually increased MORE than even that report shows, just not every market. The coastal market here is getting slammed, too, yet the state overall reports an increase in value. How much do other markets in an area have to increase to offset just ONE hyper-over-inflated, now super-deflating market?
Raj
[quote author=Roger J link=topic=35585.msg169608#msg169608 date=1206844301]
Hey, the 25% not that bad comment was only for your personal enjoyment anyway!
Now I KNOW you’ll be my realtor :biggrin
California has definitely come down,even L.A County where I live. But interestingly it seems that the more expensive areas , (West Los Angeles, Beverly Hills, Santa Monica) haven’t fallen as much as places in the San Fernando Valley for example. This does make sense though as the more expensive places would have “more established” owners. Basically these people probably have the funds to “weather the storm” and there are no where near the amount of REOs found in the San Fernando Valley. Less of the 0% down ARM mortgages.
Looking at asking prices now and sale prices from 2004-2006 , I do feel bad for those that bought at that time. . People were in a frenzy buying with easy credit and the fear that housing would become even more expensive. But people only should have bought if they knew they could afford the home long term.
It would be nice to see properties that actually cash flow in Southern California as MikeinCali stated.
But you must admit there is no where else that you can find the California lifestyle!!
You only realize the loss when you sell.
Yes…luckily! Who would want it? The state is a broken down trainwreck!
Keith
The question is: are credit derivatives markets going to destroy the world economy or not? Frankly, I doubt it.
I have tried to research this matter as carefully as possible. Apparently, single family building permits are down 60% from last year in California, but multifamily building permits are up 36%. Overall building permit activity fell 36% from one year ago, and they are calling this the lowest level since 1991. Meanwhile, the population is expected to increase at a fairly steady rate of 500,000 to 1,000,000 per year in the state of California. This number is variable based mostly upon amnesty and movement of native population.
This information bodes well for appreciation because while the workforce loses its members who are skilled in building homes, demand will clearly increase. Combine this with the fact that developing countries are driving up prices on building materials, and we have a formula for continued appreciation. (Please, God, just one more bubble!) It’s a joke, People!
Median price of a single family home in California
These are the numbers, adjusted for inflation in 2000 dollars:
2000
$211,500
1990
$249,800
1980
$167,300
1970
$88,700
1960
$74,400
1950
$57,900
1940
$36,700
These are the unadjusted values:
2000
$211,500
1990
$195,500
1980
$84,500
1970
$23,100
1960
$15,100
1950
$9,564
1940
$3,527
As you can see, adjusting for inflation is a fool’s errand, because if the country is in a recession or an inflationary period, it skews the data. This is why no one should put too much credence in the Case-Schiller index.
So, if you paid cash for a home in 1940, your annual return on the money would be just over 7%. Extrapolating from this data, the median price of a single family home in the state of California should be about $420,000 in 2010, and the current median price of a single family home should be $365,000.
The current median price of a single family home in California is $409,240 or about 12% higher than it should be, if it continues to follow the trends of the preceding 60 years.
These are my projections for the median price of a single family home in California:
2015
$590,000
2025
$1,172,250
2035
$2,327,650
This assumes that inflation, income, building costs, and population growth remain consistent, and it assumes a current median value of $365,250.
In my humble opinion, markets do not need to concede to cash flowing investment models. If wealthy people want to live in an area, they buy real estate in that area to diversify their investment portfolios and passive income potential takes precedence over return on investment. Even during the post 1987 real estate tax law changes, the gross rent multipliers in Los Angeles offered no opportunity to small investors looking to cash flow.
Why didn’t you include the years 2001 -2005???
Those years created everything that is going wrong in the markets.
If your numbers are correct then in 2000 a single family home in Cali cost (non-inflation adjusted) $211,500…
That same house just 5 YEARS later at the 2005 peak was $459,900!!!
I’m adding the 26% drop housing there has already had (see thread headline) to your 2008 $365,000 median price, which is just about right in the boom areas.
So in reality, the median numbers for the most important years of the run up were approx…
2001…$250,000
2002…$300,000
2003…$350,000
2004…$400,000
2005…$460,000
2006 to 2007 were the bust years, 2008 is gonna be the BLOW OUT year!
That’s OVER 13 years of appreciation in just 5. That’s a bubble.
The reason multi family or COMMERCIAL permits are still climbing in those markets is money has already been commited to projects. They have been approved, and developers have spent BIG MONEY on Land acquisition, site engineering, architectural fees’s. These projects MUST get built. The permiting process in commercial is a lagging indicator NOT a future indication of a trend. Cities WILL NOT issue permits for a project until every hoop has been jumped through. That means…The City has signed off on the building design, the traffic studies, the infrastructure, parking, the sewage system design, drainage, ect, ect. These take YEARS to complete and by the time they are, the developer is “into” the project for millions. Banks have already spent PILES of money getting the project to the “build out”.
It is now widely accepted that comercial property, which until now has gone virtually unscathed by this correction will very soon start feeling the effects of a slowing economy.
Sam Zell made BILLIONS of dollars over a lifetime of COMMERCIAL real estate
investment. Last year ZELL sold virtually all his commercial real estate to…THE BLACKSTONE GROUP…Private Equity!!!
In Feb. of 2007 Blackstone paid Zell $23 BILLION dollars for his properties and assumed another $13 billion in debt…
A few months later Blackstone became a publically traded company with a stock price of $35/ share.
As of today’s close Blackstone stock trades at $17.
Hey, look at the bright side…at least California Real Estate has ONLY dropped 26%…This DOG is down 50%!!!
Sam Zell’s nick name is “THE GRAVE DANCER” … It was given to him for his uncanny ability to GET IN when prices were cheap, and GET OUT when prices were TOO high.
My money’s on Sam!!!
I do agree with you on a lot of your points. I certainly think that we’ll see a HUGE OVER-REACTION to real estate which will create tremendous bargains for investors.
You also mentioned carpenters and trades people leaving that business. This is a great point. It happens in every bust. then fuels the next leg up.
I haven’t heard anyone mentioned Sam Zells name in a while. I wonder if he is still in the game or not? Last I heard of him was his newspaper deals.
It’s too bad he can’t write a few books.
You’re right…Immediately after selling to Black Stone, Sam purchased the Tribune Group (newpapers… LA, Chicago, Florida, ect.)
The headline somehow doesn’t apply to San Diego County. I’ve been looking to buy in Carlsbad for the last 6 years and the prices are STILL crazy!