Housing Bubble Bursting?

[Terrel L. Shields]

We took my bro. to Jim Bob's for his birthday. Joplin ain't bad place to eat either..

 

[murray stroupe]

Some did move

St. Louis looks pretty cheap Steve, time for people in California to sell out and move to where you are.

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Have seen more than several business people in CA mention moving out;
and that way [1] less gov regulation,[2] less taxes

 

[Steve Owen]

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Have seen more than several business people in CA mention moving out;
and that way [1] less gov regulation,[2] less taxes

Maybe so. A couple of years ago someone at a MAAC meeting brought up the effect of the internet on rural Missouri properties. The basic idea being that now a lot of people can do their job from any location... and they might choose a location that is cheaper to live.

Still, I don't expect to see Missouri become the new Seattle (Californians moving in and driving up prices) anytime soon.

 

[Terrel L. Shields]

California was a nice agricultural state in the 30's. It turned into an over-regulated, over-built, over-priced hell hole that average people could not afford. The affluent developers, seeing little opportunity to milk more cash from the cow, have moved on to other places where they will develop at the expense of the state. So places the California developers are now are seeing prices for property skyrocket, local builders go bankrupt (kinda like Poker, the guy with the most chips is going to outlast those with few chips usually), the taxes skyrocket, crime goes up, the quality of life goes down, so over-regulation is sure to follow....

 

[Randolph Kinney]

California was a nice agricultural state in the 30's. It turned into an over-regulated, over-built, over-priced hell hole that average people could not afford. The affluent developers, seeing little opportunity to milk more cash from the cow, have moved on to other places where they will develop at the expense of the state. So places the California developers are now are seeing prices for property skyrocket, local builders go bankrupt (kinda like Poker, the guy with the most chips is going to outlast those with few chips usually), the taxes skyrocket, crime goes up, the quality of life goes down, so over-regulation is sure to follow....

You have captured the California success story!

My brother, who lives in Reno, complains about all the people from California that moved there to escape taxes, over regulation, congestion, etc. He says the very first thing they do is complain that they don't have all the "free" government services they had in California.

 

[Randolph Kinney]

Maybe so. A couple of years ago someone at a MAAC meeting brought up the effect of the internet on rural Missouri properties. The basic idea being that now a lot of people can do their job from any location... and they might choose a location that is cheaper to live.

Still, I don't expect to see Missouri become the new Seattle (Californians moving in and driving up prices) anytime soon.

My brother says that the Californians that moved to Reno either do their business over the Internet or consult from there. I suspect telecommuting is having its impact. However, some small manufacturers have moved facilities and employees to Reno.

It will be after the next recession when government in this state will see the result of the losses.

 

[Steve Owen]

Not necessarily a bad thing...

Most of the posters on this thread have discussed the decline in house values, or bubble-burst, if you will, as a tragic occurence. It is not necessarily a bad thing.

http://www.nytimes.com/2006/10/03/n...=th&adxnnlx=1159877039-z/xXM4AzqdqQBVEQ4u6CXA

As I've said several times, housing is primarily an expense rather than an investment. The thing about the Joplin economy is that housing cost is really low, often the lowest or near the lowest of any MSA in the nation. But, along with that, typical wages are also low. The question is how big of a slice housing takes out of a HO's budget. As the article points out... prices went up, but wages remained stagnant... that can only have one conclusion. Eventually, as more and more people get priced out of the housing market, the market has to cool.

 

[Randolph Kinney]

Very interesting article Steve. Especially noted was, "In Southern California, Temecula and Hemet had the highest percentages of renters paying at least 30 percent, with 74 and 73 percent of renters at that level."

It really says that rents can not rise much more unless the wages increase. I suspect there will be either rising wage inflation or movement of population from high cost areas to low cost areas, or both. Either way, it is going to cap the housing market.

 

[George Hatch]

I recall last year we had a lot of discussion about the need to define an asset bubble before we could quantify it's demise. At the time, I think the participants of that discussion were expressing different opinions on how much froth was too much, with the majority coming down somewhere between 25% - 35% above the long term pricing trendline.

So if someone considered a market to be at risk when it surpassed the 30% mark above the long term trendline, that market would fit their definition of being acutely overextended.

Just as a reminder, San Diego's local market peaked at about 60% above the long term price trendline, which is why I and others have long considered it to be one of these overextended markets that would be subject to big price corrections. Obviously, our more optomistic participants were talking first about the New Paradigm (pricing won't fall at all), later ammended to the Soft Landing and Plateau scenarios where pricing would decline by maybe 10% and then plateau for the few years it would take for the wage/population trendlines to catch up. At the time they were thinking it would level off for 2 or 3 years, whereas at the current wage/populations rates it would take more like 10 or 15, but I digress.

I think it's now safe to say that both the New Paradigm and the Soft Landing scenarios have proven themselves to be completely unfounded in this market, and we are conclusively proving the collapse of this local asset bubble. We now have local subdivisions in the $700k range that have reduced their pricing by 20% off their peaks, that rate of change having occurred within the last 9 months. The Spring Bounce didn't bounce, and the Summer selling season basically got rained out.

By year's end those prices will probably be even lower. Bear in mind that the number and pricing of the units from these subdivisions contributed heavily to propping up the local medians, which is why our median pricing hadn't declined that much even though our overall volumes had dropped off. With even these new homes having joined the rest of the market in pricing declines our medians are henceforth be more reflective of the current local market.

We now have literally thousands of homeowners locally whose equity losses are well into the 6 figures. Some as a result of purchasing during the last year and others as a result of maxing their refinancing. A few of them have booked those losses through sale or foreclosure, but most have not. Those who can hang in there through the remainder of this cycle and into the next upswing (whenever that will be) will be able to forego the loss. Those who can't - which may include a good percentage of the ARM resets - will eventually fuel further price declines by contributing to the foreclosure rate. As always, the 3% who will sell or get foreclosed on will establish the pricing for the other 97% who don't - all the action occurs on the margins.

Think about the impact of a 6-figure loss on someone's life. If that someone is a wage earner it's not the type of loss they can afford.

If a 20% price decline (and counting) in a single year isn't indicative of the collapse of a local bubble then I'd like to hear what new metric the softlanders are now using to define their market optimism.

 

[Randolph Kinney]

George, I have been tracking total listing for attached and detached homes for San Diego county. As of today, there are 21,985 active listings of detached and attached homes with the average price of $747,000.

I am also tracking foreclosures and pre-foreclosures for the county of attached and detached home from www.foreclosure.com and as of today, they show 752 foreclosures and 4,620 pre-foreclosures listings.

I don't know what normal is or has been normal for distressed sales listings in the county but 24.4% of the homes listed for sale are either a foreclosure listing or a pre-foreclosure listing (aka short sale), which suggests to me that prices are going to go down.

Do you have any data or information as to how bad this is compared to history?

Also, I understand lenders are not lending 100% LTV in certain neighborhoods like they once did. That has knocked out a large portion of the buyer pool. That is causing prices to decline even further in those neighborhoods.