Monday, January 08, 2007

National Media: Housing Slump Almost Over

Sheesh. There are so many news stories claiming the worst is behind us in the housing market I don't know where to begin. Then when I turned on Bloomberg TV this morning, I got nauseated at the site of David Lereah, chief economist of NAR, saying the market has pretty much bottomed. This clown talks out of two sides of his mouth. Out of one side he claims there is no national housing market, so there can't be any national housing bubble, but out out of the other side of his mouth he makes generalizations about a slump being over. He is due out with a book about how all property markets are local. Yeah, right. As this slump deepens and engulfs ever more "local" markets, I expect he'll be changing his tune to, "it's a property-specific issue!"

You can search the Google News to find a ton of news stories of realtors and industry analysts proclaiming the housing slump is over. But we are Angelenos, so let's see what the locals are saying about our local market.

Daniel Miller and David Nusbaum did a full year review in "Meltdown was more of a mixed bag", this January 8, 2007 Los Angeles Business Journal story (login/subscription required). They say that although "many affordable areas enjoyed a banner year", "many of the expensive areas got rocked."

Affordable areas enjoying a boom included Inglewood, where the median house price is now $585,000. (I disagree when they call that reasonably affordable.) For 2006, the price increased 15% and sales volume increased by 55%. Carson is another boom area, with prices increasing over 9% and sales voluming increasing 28%.

For L.A County overall, home sales declined 6.6%, while the median price from December to December increased 4.8% to $550,000. Now, who hit the skids?

The pricey areas - Malibu, Beverly Hills. Malibu sales declined 45%, and prices fell 15%. A composite of three Beverly Hills zip codes saw sales drop 35% and prices drop 38%.

Regular blog readers here know a lot of this already. The South Bay beach cities can join the list of "pricey" areas that have been in a slump.

What else is this article saying? One realtor is quoted as saying, "every particular marketplace has its own distinction", which is just another way of saying "it's all local." Ralphael Bostic at USC Lusk Center for Real Estate notes that "discretionary sales" (AKA speculation) "have been taken off the market", which has hit the high-end market.

The 30 Los Angeles County zip codes with the greatest price appreciation were populated with affordable homes. (You know what that means!) The median price in this group was $500,000, below the $550,000 for the county overall, and prices were up 11% from a year earlier. Number of sales in this group was up to 68,124 units, up 20% YOY.

On the other hand, the 30 zip codes that have been getting clobbered are the more expensive areas, where median price is $770,000, with price up only up about 3% from last year. Number of sales in this group was down to 24,276 units, down 38% YOY.

The experts are saying the market has weathered the brunt of the storm, with the hits taken mostly last year. By a dictionary definition, "brunt" is the principal foce, shock, or stress (eg., from an attack). They go on to say the county market will not experience anything like the price collapse of the early 1990's, and they resurrect that tired argument about how unemployment is low, blah blah blah. "We might see a little more price erosion and decline in sales, but ... the fundamentals are good...because so few people moved last year, there has to be pent-up demand..." blah blah blah. The public is happy and comforted that the bottom didn't fall out.

Overall, this is just the same Polyanna talk we were reading all last year. Take a look at some of the highlights of 2006, while you look at this chart of the median price for the beach cities through November 2006:

January:

Southern California coastal areas would increase from 6% to 12% over the next 12
months - Leslie Appleton-Young, CAR

"Economic fundamentals of recent years will remain mostly intact in 2006, giving rise 
to a cautiously optimistic outlook for the year to come.  All in all, sales in 2006
are expected to decline by 2% to 622,300 units.  More and more households will need
to stretch their purchasing power with innovative forms of financing in order to buy
a home in 2006." - CAR

December Sales "take a holiday."  - Shorewood

February:  
NAHB reports that the Housing Opportunity Index for the LA-Long Beach-Glendale area
has fallen to 2.3 (compared to Q1 1994, when it was 45.2).

Real Estate Wealth Expo advertised for April.
 
March:  

South bay home sales hit a 12 month low - Shorewood

April:  

Los Angeles (housing market) not down and out yet - L.A. Times

Dataquick calls the real estate market a "normal real estate cycle."

May:  

Foreclosure activity hits 2 year high.

June:  

Sellers' New Math (L.A. Times) - "the market is normalizing", which is "quite 
refreshing."  

Slowdown could settle in for a stay (L.A. Times) - market is "more normalized."

July:

Hold off on that panic attack (L.A. Times) "Relax" (to paraphrase Charles Schwab) - 
inventories are falsely inflated from frivolous homesellers fishing for top dollar.

August:

Mortgage default notices up.

Homesellers being targeted in latest Nigerian scam (L.A. Times).

Buyers Biding Time (Los Angeles Business Journal) - sales volume over the last 
several years has been "healthy".

Pricey L.A. Housing Crimps Recruitment (Los Angeles Business Journal) - "as soon as 
we mention that the position is in L.A., they hang up the phone".

September:

Anxiety Complex - "it's hard to accept that prices are going down" (L.A. Times)

Buyers play wait and see - staying on the housing market sidelines can make or break 
you (L.A. Times).  Translated, buyers who wait are losers.  Gamblers in the market 
win.

California residents decide Golden State is tarnishing - "Our amenities are being 
outweighed by some of the perceived costs (Daily Breeze).

Enrollment slide pinches Hawthorne schools - also true for many districts, such as 
Santa Barbara, Los Angeles Unified, etc, posting years of consecutive losses, due to 
people leaving because of high housing costs (Daily Breeze)

October:

More Homeowners Going into Default - "We have a lot of people who got mortgages when 
they really shouldn't have qualified" (L.A. Times).  But "I don't think it's time to 
panic...this is a natural turning of the business cycle..."

More homeowners turn to St. Joseph.

Capitol Hill looks to tighten homeownership writeoffs.

November:

Home Sellers saw big profits in October (L.A. Times), but where did the windfalls 
go???

"It's going pretty good - I love California."  L.A. Times quoting a homeowner whose 
house has tripled in value since 1997.

December:

Optimism is rising on housing market (L.A. Times)

Maybe it's locution, locution, locution (L.A. Times) - How the words that describe a 
property can affect how easily it sells.  In the prior year market this wasn't even a 
concern.

A loan that'll get ugly fast - "I am rather screwed" (L.A. Times)

Construction industry recovers from slump (L.A. Times) - the fact was, more real 
estate and construction workers were hired in November than let go.  Does that equate 
to a slump being over?  In a Polyanna psychological environment, yes!

A year in realty time (L.A. TImes) - a cooling trend takes hold, becoming a chill in 
expensive and mid-range markets.  Home equity loans are out, second mortgages are in. 
McMansionization stirring up complaints in many neighborhoods.  Foreclosures leap 
upward.

Overall, they're only talking about putting the brunt of the storm behind us. They aren't saying a word about the possibility that we could just be entering the eye of the hurricane.

2 Comments:

Blogger Mike said...

i still believe that this all hinges on what happens in the mortgage market. as long as lenders are willing to throw huge sums of money at anyone w/ a pulse the prices will stay up there. but w/ all of the news lately about various sub-prime lenders going under i think that very soon they will have to increase their risk premiums significantly, which will take a large number of buyers out of the socal market. it will be interesting to watch.

i still don't get how anyone can call a bottom to this down cycle so early in the game, after we've had the biggest RE bull market in modern history. you would think it would take more than a few months of lower sales to work itself out. i know they're desperately clinging to the idea of a pain free correction, but when's the last time that happened. first in a row.

6:18 AM, January 09, 2007  
Blogger bearmaster said...

Hi Mike,

I think it's going to hinge on what mood market participants are in above all else. We've already seen a bit of a deflationary mindset take hold last year with the increase in housing inventory, since buyers were no longer in such a hurry to buy. There were also media articles in 2006 about backlashes in Mcmansionization, how downsizing is getting trendy, how tiny houses are getting cool, etc. (Cutting back and conserving point to a more deflationary mindset.)

And as Japan has shown, interest rates can go to zero to stimulate buying but an economy can nevertheless remain in a deflationary downturn for years.

i still don't get how anyone can call a bottom to this down cycle so early in the game

"Every day in every way the real estate market is getting better and better". :) David Lereah and the bottom callers are using Dr. Coue's formula and trying autosuggestion to heal the housing market! They figure if they repeat it enough times everybody will believe it. It was tried in 1929, 1930, and 1931 and it didn't work. I have my doubts it will work this time. Personally I hope the NAR bankrupts itself blowing money on full page newspaper ads trying to convince everybody how wonderful things are.

7:43 AM, January 09, 2007  

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