Wednesday, November 08, 2006

L.A. Times: Home sellers saw big profits in October

You'll be hearing the housing bulls trumpeting this so it's best you are warned in advance. According to this November 8, 2006 L.A. Times story by Annette Haddad, southland home sellers saw huge gains in October, sparking hopes that the housing slump (and ensuing economic slump) won't be so bad.

Here is a table of the median profit earned, by county. Since most home sellers held their homes at least three years, the values of their homes in Los Angeles, Orange, and San Bernadino counties typically more than doubled. In San Diego and Riverside counties, the value gains were less than 100% - 91% in San Diego, and 80% in Riverside.

County          Profit
Los Angeles     $266,000
Orange          $331,000
Riverside       $178,000
San Bernadino   $203,500
San Diego       $243,000

What else does the article say? Oh, that some sellers had losses but since it was such a small percentage of sellers (less than 6.5%) it won't break the economy. They have been saying the same thing about mortgage default rates - "the numbers are small." Hmm, we're they talking about sellers losing money a year ago?

One thing this article does not discuss is what these home sellers did with their windfalls once they had monetized their gains. Did they leap back into the fray and put the cash back at risk? Plow it into the stock market, an equally risky casino? Flee California and plow the money into a different local housing market, thus contributing to its bubble? Did they have any home equity debt that had to be paid off, thus taking some of that wind out of the windfall? Who will be left sitting on the chair with a pile of cash when the music stops?

8 Comments:

Blogger bearmaster said...

I have made some progress in starting the construction of a sales database for Redondo Beach.

I have much work to do

1) populating it with records
2) hand-editing many of the records to improve accuracy - I am doing an initial population for now by partially automated record loading.

Some of the sales data I see is just plain bad. Sometimes square footage is wrong because an old house was torn down, bubbleminiums built, and a new bubbleminium sale still shows the square footage of the old house. Sometimes the square footage is not recorded at all. Sometimes the numbers of bedrooms are not recorded at all. I'm trying to catch all that, so that we can do some calculations of valuations based on those parameters.

I have to use all three websites - Domania, Zillow, and the L.A. County Tax Assessor - to figure things out.

9:13 AM, November 08, 2006  
Blogger minkenny said...

Hello, Bearmaster.
I'm so naive about real estate and willing to learn as much as possible. Recent grad and planning to move somewhere close to my work (90278) but seems impossible for under 300,000. I grabbed couple books about starters but numbers won't match up with high prices in this area. Feed me!
Love your blog!

11:51 AM, November 08, 2006  
Blogger wannabuy said...

Bearmaster,

Love the information. But judging how much homes have shot up, I'm actually suprised at how low the profits are... I guess not that many long term home owners selling?

And where is the money going? You asked that question and we'd all like to know the answer.

This is just starting.

I'm not liking the latest rumor at work (note: only a rumor). Home prices have gone too far beyound what we can hire at (that's a fact). They've gone from discussing moving departments out of state to moving a whole division out of state (this is the rumor)! My division! :( Not to mention they see $$$ for the land. I'm not allowed to say who I work for on the web, but this could get interesting. We've already sold off a few of our warehouses. Yikes! While I knew these prices would drive jobs out of state... I didn't want it to be mine. :(

Neil

1:08 PM, November 08, 2006  
Blogger bearmaster said...

Neil,

The median profits struck me as sort of low too. This is supposed to be a survey of people who have owned their homes at least 3 years. So maybe the bulk of them bought their homes around 3 years ago. If so, I would not expect a high mega-monstro profit.

A friend and former coworker (who is sort of going through very stressful decisions right now about job and habitat for his young family) is probably going to end up "driven" out of state. He's looking at Portland Oregon I think. But he knows he can't buy anything around here and I think the turning point for him was trying to rent a just-so-slightly bigger house for his family. In parts of the westside, rents have shot up. It probably pissed him off, and I don't blame him.

This is what I am seeing, skilled, higher wage earners being driven out of state. So you and your coworkers are not the only one facing this predicament Neil.

I think this article was just another one of the rationalizations we see to deny that there could be anything more than a hiccup coming out of this bubble. I really hope to get my database up quickly (by New Year's) because I really want to calculate what people are netting on their sales.

1:22 PM, November 08, 2006  
Blogger bearmaster said...

MinKenny,

I have no idea what your personal situation is, where you are from, what you studied, what your career is in, or what your available income for housing is.

But what struck me about your post is why the automatic assumption you are "supposed" to buy real estate, when just fresh out of school? Anything wrong with renting?

You might want to look at the housing bubble blogs map page, which has tons of links to online articles about the housing bubble written over the last few years as well as links to blogs nationwide. Also check out the housing bubble books page. I have reviews of some of the books. The links are in the sidebar.

When we moved to Redondo Beach in 1995 we thought things were a little pricey then and we never once felt the urge to jump in and buy. We are happy in our tiny apartment - although I won't kid anybody, I'd love to have our own place so we can have a few animals. But there isn't anything around here in RB that I'd really like anyway.

I think we could easily see 10 years knocked off prices, and if we really collapse and overshoot to the down side, many more years will get knocked off. This bubble has been built on credit, credit, and credit, and especially in the late stages add fraud to the mix.

There are too many eager beavers out there wanting to "buy the dip" and this is not a market in which you want to buy too soon. At least when stocks collapse they can get liquidated pretty easily, but a bad long-term bear market in real estate will grind homeowners down, even the resolute ones who thought they'd just stick it out and hold for the long term.

1:37 PM, November 08, 2006  
Blogger wannabuy said...


This is what I am seeing, skilled, higher wage earners being driven out of state. So you and your coworkers are not the only one facing this predicament Neil.


Thank you for your words. I do realize most of LA/OC/Ventura/San Digeo is currently probably in this delima right now. Sadly, the only solution is a quick drop in real estate prices to below 50% of today's prices. If not...

Like your friend, there will be an exodus.

Neil

7:20 AM, November 09, 2006  
Blogger minkenny said...

Thanks,
More and more I looked at renting some place close to RB, it's really depressed... makes me think to move some place in Idaho!(jk) I'm planning to be newly wed and don't know if having a rent and save money for later or buying cheapo condo now could save money.
Making about 100,000 now and designer as career and studying real estate...

11:09 AM, November 09, 2006  
Blogger bearmaster said...

minkenny,

I guess I am just totally unable to relate.

I am not here to try to talk people out of buying if that's what they want to do. But psychologically, I know I could not handle being a slave to a cumbersome mortgage payment and losing whatever equity I had while values continue to go down. Nor would I want to risk my savings going into the down payment disappearing into an equity black hole, nor do I want my credit worthiness in jeopardy.

I guess the one consolation to people who still insist on buying
is that if this market continues down the path it is going, and these homeowners find themselves upside down or otherwise in a bad position, then they will have lots of company.

11:49 AM, November 09, 2006  

Post a Comment

<< Home

Dogmation