Sunday, September 20, 2009

No Real Estate Recovery on The Westside

Well, the spinmeisters are out in full force, calling yet another bottom in real estate. Where that may be true, in the Inland Empire & Antelope Valley, the Westside has a long time, before we see any appreciation. The numbers being touted in the MSM are for Southern California, encompassing a huge area, from Indio to Lancaster. With most of the foreclosures in outlying areas now snapped up and the banks still holding their cards (Foreclosures), sales will begin to dry up unless, mid to high end areas start cutting their prices substantially. I would venture to say that 2/3 of the active listings on the Westside are now Zombies. In other words, they can't sell at the market price, because they are upside down and sinking fast.
But, the real story is unemployment in California. Hitting 12.2% last month and estimated to be as high as 23% when you include those working part-time instead of full-time and people who have given up looking for work. Those are Depression numbers, I'm afraid. Moody's even came out recently and said California may not recover until 2030!
If you have any lingering doubts about California's economy getting worse, I highly recommend reading Dr. Housing Bubble's Sept 19th post "California's Financial Depression" You will find the link in my Favorite RE/ECONOMIC Blogs section, on the right.

32 comments:

QTR said...

So true that 2/3 of listings these days are zombie sellers. It's patently ridiculous seeing decent sized westside/coastal real estate bought during the bubble, now for sale. They are languishing 100s of days on the market without lowering their inflated bubble-prices hardly a bit. I'd love to see how many of these are option-ARMs waiting for other shoe to drop, and how many are HELOC'd to their ears and can't get out at a lower price. Unfortunately, the only way houses can clear in the current market is through foreclosure, which the banks seem to be doing everything to forestall these days. My next door neighbor was foreclosed on in June, and the property is still empty, still does not show up on any website I can find (i.e. not redfin/zillow or realtytrac). It is a zombie foreclosure now. Who'd have thunk that "night of the living dead" would become the theme movie for CA middle/high end real estate. More dead than alive...

Dan said...

Oh absolutely. The westside is going to get hammered down like a tin can under the force of an 80-ton hydraulic press.

Anyone who's lived here the last 10 years & seen the up up up ride, and now the start of the down, knows that there are **tons of people in homes they can't afford**.

This fact alone means that the supply is & will continue increase, driving prices down to more realistic levels.

Everything from unemployment to tighter credit to higher taxes and job relocations means that this state, and this area in particular, is gonna get pounded.

Buckle up. I've already seen plenty of people who bought in the 2002-2005 timeframe close up & move back to where they came from because of payments on properties that were no longer viable.

Anonymous said...

"Well, the spinmeisters are out in full force, calling yet another bottom in real estate. Where that may be true, in the Inland Empire & Antelope Valley, the Westside has a long time, before we see any appreciation."

Looks like you are confusing the "bottom" (where prices quit going down) versus the "recovery" (where we see appreciation).

I agree we wont see appreciation for a long time. The real question is when the westside falls 40% as you predicted oh so long ago.

BTW - with the atumnal equinox upon us, isnt it about time you change your name, yet again, to "Latesummer2010"

latesummer2009 said...

If we drag along the bottom, there is no recovery. Let's not split hairs here.

I suggest you look at what is selling on the Westside right now and at what prices. We are are down 25-30% and declines don't seem to be slowing down. I first predicted a 40% drop in 2007 when the market was raging. Your either a burned homedebtor or a realtor having a hard time accepting these facts. The truth is, if you were a smart buyer, with a clean strong offer, you could find a 40% discount from a truly motivated (non-zombie) seller.

James T. said...

LS - lets not kid ourselves here. Neither you nor I thought home prices in the desirable hoods would hold up as well as they have here in late 2009.

Like you I sat back and made wild predictions 50-60% off peak prices, blood in the streets, all matter of armageddon. And we werent thinking a few outliers here and there - we were thinking market wide in ALL prime areas - i.e. its not "different" anywhere.

Turns out, we were wrong. Ive accepted that. Ive eaten my crow. It looks like the realtard anon is looking for you to do the same. I understand your desire to keep up the good fight and all, but I see no way high end westside falls down the cataclysm we were expecting - especially this late in the game. Ive made peace with the fact Ive been priced out of my first choice market forever. I think the sooner we all realize this, the sooner we can get on with life...

So thats it for me, a long time lurker on your blog, signing off. Good luck to the rest of you in your purchases. Last one here, be sure to turn the lights off please...

Anonymous said...

Actually, you predicted a 50% drop as late as this summer when by your own admission, Westside, was "just starting" to get hit.

Latesummer2009 said..."The area is grossly overpriced and will decreasd 50 percent. The correction has barely started on the Westside. Serious signs of stress appear at the emd of summer.

July 1, 2009 11:13 AM "

So, now that summer is over, what were those serious signs of stress that appeared at the end of summer? And please dont rehash things that have been affecting the market for years now - what were those "serious signs" that you ominously predicted?

Also, how long you going to keep your name before you change it, yet again to latesummer2010?

Anonymous said...

This run up in the stock market has gotten some folks all fired up!!!

Bulls? Bears?

Jon H said...

Hi Everyone,

I too am loosing some faith in our theory.

I have reviewed the data (on this website, DrHousingBubble, etc.) and it is compelling. I was a believer, and I thought that NODs, treacherous mortgages resetting, underwater owners, unemployment, etc, would force a more rapid correction in housing prices for the Westside and promote (a healthy) deflation of the housing market; however, these predictions have only been partially fulfilled. The bottom didn't drop that much.

We have a realter, and he sends us listings for Mar Vista and Culver City. The prices are lower than in 2006, but they are still well above 600K for decent, good neighborhood, 2+1 starter homes. (and NO, the homes next to the freeway do not count as "decent neighborhood"). We are starting to face the facts, and it appears that west of the 405 homes will never reach the El Dorado 2002/2003 price levels that some had predicted based on all of the aforementioned data.

My realturd has pulled comps and I can't explain it: decent starter homes west of the 405, south of Venice, East of MDR (etc.) are selling close to listing price when the price is around 600-650K. And they are selling within 30 days or so. For the most part, these are LA homes, and the schools suck, etc. Note: there were a couple that were almost tear-downs that sold in the 500Kish range, but these would have required at least 100K worth of work.

Sure there are some grossly over priced houses sitting for a long time, and sure there were a few REO's (i.e. Short x Stewart, or Greene x McConnel) that people lucked into at 540Kish prices, but, for the most part, the homes are selling for asking price that is not at all close to 50 or even 40% off peak.

So, I am still holding out some hope that home prices in these areas will be pushed down by a second wave of mortgage defaults, and that the financial data (i.e. NODs, Alt-A and Option resets) isn't just a mirage for all of us thirsty home buyers.

But each week the hope begins to diminish further, and I am psychologically preparing to pay in the 650Kish range for my Westside/Mar Vista starter home.

Anonymous said...

Prices will continue to slowly drop, especially at the higher end.

No one should expect 2001 levels, but 2003/2004 already happened on the lower end and we will continue to trend that way on the higher (>1.0M) part of the market.

No one (RE bubble deniers/bulls or the doom and gloomers) shoud be surprised by the sales. Sales will continue every month.

How many shares traded on the Nasdaq as the market fell from 5000 in 2000 to the current level around 2200? There were billions of shares traded as the market fell and fell. Just cause someone buys a house this month, next month, etc. doesn't mean the drop is over. Jeez.

Of course there are still sales of homes, just like the dummies who bought QQQs during the drop thinking 10% off, then 20%, etc. were bargains. It's about supply and demand. Hello (!). All the inventory, shadow inventory, etc. will result in lower prices, esp. when rates eventually rise.

Personally, who cares if its late summer 2009 or 2010 or 2011. Either way, buying at today's prices vs. renting is stupid. Fighting about exact timing is silly. The conclusion is the same. Smart people will not buy.

Oil at $140 / bbl, Nasdaq at 5000, Westside RE at $1,000 / sqft. When something is unsustainable, it's unsustainable. It's never "different this time."

Everyone (on both sides) should quit worrying about exact timing. It will happen when it happens. But believe me; it will happen.

High end immune (?) Wrong.

http://www.firstrepublic.com/lend/residential/prestigeindex/losangeles.html

Anonymous said...

"Personally, who cares if its late summer 2009 or 2010 or 2011"

Who cares? WHO CARES??? I for one fuc*ing care!!!

Sorry but you remind me of those "wise voices" who told me not to buy in 2003 because "its a bubble, 2002-2001 prices are coming soon".

To my horror, prices rose in 2004, 2005 and 2006, and I was told, wait, it will happen.

Then in 07 and 08 "it" happened, but a funny thing happened. Shitty places are at 2001 levels, areas like I am looking at are at 2004-2005 levels.

So now, after 6 years of waiting, I am told, who cares, it will happen when it happens. How ridiculously flippant.

So lets say through the grace of god in 2011 I see the same prices I PASSED ON in 2003. Tell me, is someone going to give me back the last wasted near decade of my life?

Sorry to lash out at you, but you seem just like the people who told everyone to wait cuz it will happen - eventually. Sorry, but that doesnt cut it. Time matters, and in my case it matters one hell of a lot!

Anonymous said...

I continue to wait on the sidelines in my modest (and paid for) condo with $920K cash in the bank and willing to borrow 350-400K more. My patience will be rewarded.

Anonymous said...

"Tell me, is someone going to give me back the last wasted near decade of my life?"

Uh, if it's wasted, that's no one's fault but your own. People need to learn that renting and/or owning has nothing to do with "living."

I'm so glad I didn't borrow $1.0M only to have zero (or negative equity). I waste a little money every day: lunches at restaurants; $25 dollar wines at dinner vs. $6, etc.

Live your lifew; buy or rent based on financial prudence.

Ownership isn't ownership with no equity. If you can rent the same house at half the cost, just do it.

7:41PM seems bitter, and just foolish. You don't need to "buy" a house to live in one. Rent when it makes sense. Buy when it makes sense. But always live well. If you choose not to, it's only your fault.

Anonymous said...

"High end immune (?) Wrong."

Im curious...has anyone in the history of all bubbledom really claimed that such and such area is "immune"? And by that I mean in all seriousness has someone actually uttered that word immune and applied it to real estate?

More typical conversation seems to go like this:

Bull - I think XYZ wont get hit as hard as ABC

Bear - You think XYZ is IMMUNE!!!!

Bull - No, I think XYZ wont get hit as hard...

So why is that "immune" concept brought up, time and time again???

Anonymous said...

"You don't need to "buy" a house to live in one."

True, but a rented home is probably not as nice as a home you would buy, at least not after your renovations and personal touches.

I am not a broker and I do not own real estate currently (sold a townhome in 2008 and am renting and looking to buy) but I can understand why someone is bitter at waiting 10 years to buy a home of their own. He/she may have been 28-32 back then and could be in their early 40s at this point.

Who do you blame? Probably yourself. But you can be bitter though right?

Anonymous said...

I think you are forgetting about getting married and having children.

Many couples won't get married and have children until they can plan to buy a house. As a result, when prices are high, young people either move to the valley and have kids or they stay in Santa Monica and don't have kids.

Very often when people tell you they "put their life on hold" to wait to buy what they are really referring to is this.

Spend some time in Santa Monica and you will notice a huge number of renters who put off having kids due to renter status. Is it rational? Hell no. But there it is.

also google "affordable family formation" this topic has been discussed many times

Anonymous said...

Why does unemployment have any bearing on high end home sales?

Jon H said...

Interesting comments, and it is apparent that some people think that renting a house is equal to the quality of life as owning a home. It isn't.

My wife enjoys working in her gardens, small interior decorating projects, and our small family needs room to grow. We also like to live well, eat out often and take trips as much as possible (including a lot of travel to the East Coast). In other words, we enjoy using our money for things other than a house, but our own house that we can work on and customize is a central feature in our lives and the lives of our children.

This argument that you rent indefinitely, and move to another rental if needed for "upgrading" or "better digs" isn't practical for families. Furthermore it ignores the value of having a house that you can customize to meet your needs.

In our case, we have rented for almost four years now, having sold our home in 2006. During that time I have personally read and tried to understand the Westside market data and predictions about home prices.

For all the reasons above I have come to realize that the "Westside will be at 2002 prices- everyone should rent until then..(etc.)" folks are really looking at houses only as an investment. Of course, NO ONE wants to pay more than something is worth but, for all those parents who need stability, who want a house that they can landscape, upgrade, etc., the investment aspect is equal or smaller than the essential-for-quality-of-life aspect.

You cannot say that owning a home is the same as renting when you have "nesting" needs.

Anonymous said...

Renting indeed does not satisfy the nesting instinct. Without satisfaction of the nesting instinct some people will delay children. What percentage of renters decide to have children? What percentage of home owners decide to have children?

Anonymous said...

I find the whole nesting instinct justification to buy as quite odd.

Of course, in a different era (and when it made financial sense), I could understand. That is, my mother still lives in the same home my parents bought in 1971.

Perhaps, I'm the exception, but I know very few people (at many age/career levels) in SoCal who have lived in their current bought house for more then 10 years.

I can see a house as a home/nest when a couple actually plans to live there for a long time and amortize (or heaven forbid, actually pay off) the mortgage principal.

Renting a nice house, not risking negative equity, and saving a ton of money isn't so bad for you or your kids. Also, given the spread in rent cost vs. buying, a renter can rent a much nicer home, in a much better school district.

So we can't customize the kitchen, but my nestees are happier in a good home (kitchen doesn't need renovation), in a good neighborhood in good schools.

I'll buy a nest sometime too, but the nest you buy today for the same cost as a rented nest comes with serious, serious compromises.

Agree that a bought house offers a better life than a rented house. However, this is only true when we are talking equivalent houses and valuation vs. rents are more at parity. Today, the compromises made in renting vs. owning are way more than offset compared to the quality one can achieve at the same cost IMO.

Jon H said...

Anon @ September 24, 2009 1:51 PM,

You raise good points from the house-as-investment model. For many of us "market capitulators" (myself, I'm sort of a pre-capitulator, lol), we have children who need their own room, I want to use a part of the garage to make my son's science lab, my wife wants to landscape for garden parties, etc..

Bottom line, for those of us who have waited several years for the Westside home prices to deflate and, most importantly, have sufficient funds to make a purchase today, I believe we will capitulate to our family needs as well as the market prices.

I'm not really even lamenting the fact that I might be "underwater" over the short-term. Sadly, after the last 12 months of hearing about impending, radical, price drops, all I have seen are houses we like being sold on the Westside :( Therefore I am just as suspect now of the related predictions about "zombies" and second waves. It is a tough decision for sure.

For those DINKs, or others with the money but no social/family pressures to own, I'd say hold off as long as possible.

Jon

Anonymous said...

Jon H -- I am praying you are not in the $2mm price point, otherwise, I have to wait until you buy before looking. So go buy already so prices can fall!

Jon H said...

Lol- not even close. We were hoping for btw 550K-600K, but we are now looking at 650K and up to 750K. Sadly, it looks like the homes on the low end of that range (in Mar Vista and CC) are in need of a lot of upgrades.

In other words, 650K buys you a wall heater, two small bedrooms and one old bathroom, with very drafty (old) windows.

Still, it is very nice biking to the beach. I'm thinking that for west of the 405 everyone has to pay a luxury tax of about 400K ;p

Jon

Anonymous said...

Respectfully, biking is very dangerous on the West Side. Look it up - every year plenty of people on bikes are paralyzed (put in wheel chairs) by drivers talking on cell phones or otherwise not paying attention.

I love biking but the only safe way to do it is put the bikes on a rack and then drive to the Strand

Anonymous said...

wow, Jon H. I bought a house 15 years ago for that much....small 3 bed/2 bath.....

Anonymous said...

Mar Vista and Palms used to be places where janitors and McDonalds managers could afford to buy a nice house on a nice piece of land. Not anymore. Times change. Good news is that for those earning super low wages who want a four bedroom house there are places where you can buy a nice four bedroom for $100 thousand - unfortunately those places are near Phoenix and near Las Vegas

Anonymous said...

Saw this on another site and found it amusing (but true):

"Imagine it's 1982. Imagine Reagan didn't pump up the economy with military spending. Imagine no S&L boom and bust. Imagine Bush also not inflating the economy through the military. Imagine the Clinton's not repealing Glass-Steagel. Imagine no dot.bomb. Imagine no housing bubble.

Imagine what your house would be worth if none of that occurred and we just had a nice gradual, but not large real estate price increase that more or less kept up with inflation, but not always.

*That's* what your house, building, lot, stadium, or other building is worth now. Get over it."

Anonymous said...

you forget that areas near the ocean are in secular appreciation mode and have been for 40 years.

Yes, disgusting shacks are selling for 1.5 million or 2.0 million today

But don't be so sure massive cuts are coming

People have been cynical about the price of California coastal real estate for 40 years now - do a google search on the discussions of real estate in the 1970s. People were just as cynical about real estate then as they are now.

I agree that there was a bubble, but just cause there was a bubble doesn't mean ocean park west of main will go back to being "affordable"

Remember the evolution of the single family home market in ocean park West of Main. First it was affordable for janitors to buy a single family home in ocean park west of main , then the prices went up to the point where only a school teacher or fireman could afford it (janitors couldn't buy any more) then prices went up so that only people earning the income of a medical doctor in general practice could afford a single family home then the prices went up so that even the doctors in general practice couldn't afford it and it was only available to medical specialists, biglaw partners and etc. The point is, if you look at the fact that no one you personally know can afford houses in Ocean Park west of main , don't jump to the conclusion that prices have to come down a whole lot. The point is that people higher and higher up the income and wealth chain want to live in this neighborhood.

Don't assume that the people you know will be able to afford to live near the ocean in a single family house ever again

Anonymous said...

Anon 1:44- you thought this post was so important and newsworthy...you posted it twice...on 2 different blogs.

Spare us next time, huh?

Anonymous said...

Plenty of people read this blog and then re post things they find here to other blogs. It is a common thing. Read Manhattan Beach Confidential - lots of re posting there. What is the point? Living within three blocks of the beach will always carry a premium - the question is will that premium widen? Big difference between Ocean Park / Dogtown vs Manhattan Beach is that Ocean Park / Dogtown is filled with homeless smelly people and smells like urine. Manhattan Beach is prestine. What is un believable is that there is not a price gap between the two neighborhoods

Anonymous said...

Its because the south bay is impossible to get in/out of....very hard to get to makes it undesirable...plus the shittiest restaurants in L.A.

Matt Mentor said...

It is easy to agree that Jon H, James T. make sense. The prices on the westside are still overpriced and above predictions from this blog. The point is, the banks can afford to create shadow inventory. Just one of the results You as a taxpayer agreed to when you (indirectly) agreed to the bank bailouts. There is a lot a couple of extra Trillion dollars can do to a housing market. Remember, if you give banks a Trillion, they can generate multiple Trillions out of it, especially in a artificially low interest rate environment of the FED. I write about this in connection to the FED here: Shadow Housing Inventory-Another Reason to Audit and End The FED

Anonymous said...

Anon 1:44- what is a "secular appreciation mode"? Never heard of secular used in that context so wondering what is means. Thanks!