Friday, May 30, 2008

Ghost Towns

The decline of home prices seems set to accelerate as the number of vacant homes across the United States has increased by 1 million over the past year, up to a record setting 18.6 million, according to recently released government data.

Below is a quote from the Market Watch article which reported the news:

The vacancy rate for homes usually occupied by the owners rose to a record 2.3 million homes from 2.2 million in the fourth quarter, and was at about 1 million more than was typical before the housing bubble burst.

Analysts say the housing market won't recover until the glut of vacant homes on the market can be worked down. "There is clearly still substantial excess housing supply that will take time to work off," wrote economists for Goldman Sachs. "We think it unlikely that prices begin to stabilize until vacancy rates start declining."
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For all owner-occupied buildings with two to four housing units, 9.4% were vacant, up from 8.1% last quarter. In all owner-occupied buildings with five to nine housing units, the vacancy rate was 15.2%, up from 12.2% last quarter and double the rate of two years earlier.
Vacancy rates in larger condo buildings have fallen from 8.7% a year ago to 6.3%.
My Thoughts

I've read that entire subdivisions in parts of California (Stockton was among the cities mentioned) are literally ghost towns; where no one lives there. It's funny, I've frequently been called a doom sayer for some of my thoughts on this blog. One friend even went so far as to nick name me Dr. Doom; however, the more news like this that comes out, the less I think those comments will be made.

Wednesday, May 28, 2008

The Knows knows

Monday I posted the article “Relief at the pump”, where I discussed the oil market bubble, and the part speculators are playing.

Tuesday CNBC spent a good part of the day talking about oil (see their related article here), the speculators, and the bubble that oil appears to be in, as well as the possible correction in the oil market.

If I didn’t know better, I would have thought that CNBC read The Knows on Monday, because they talked about everything that I wrote in that post.

Since CNBC agrees that there is a bubble in the oil market, and they also agree that speculators are pushing up the price of oil, now let's see how soon the correction in the oil market takes place.

The Knows knows!!!

Housing Market Watch #9

This is the nineth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is located in the city of Camarillo (Ventura County) , and is part 2 of a two part series called Something Old and Something New. Since this home was built in 2006, it should be obvious that it's the Something New. Additionally, if you've been following this series, you'll notice the new layout beginning with this episode.

The Specs:
Type: SFR
Status: Active
MLS#: 80005721
Sq. Ft.: 1,858
Lot Size: 6,621 sqft
Year Built: 2006
Beds: 3
Baths: 3.5
Stories: 2
On RedFin: 69 days
Description
Beautiful Plan II 3 Story townehome in Village at the park. One of the best locations just a few yards from entrance to the new proposed 55 acre park! This is an end unit in a 3-plex, which means lots of light and space around you! Granite countertops, high ceilings, recessed lighting, all bedrooms wired for overhead lights, jacuzzi tub, walk-in closet, fiber optic high speed internet, and lots more!Walking distance to new elementary school and YMCA. Show cold-- It's immaculate.

Sales History
Date Sold Price $/SqFt Gross Gain Change ($) Change (%)
02/23/06 $557,000 299.78 N/A N/A N/A
05/27/08 $442,000 237.89 -$115,000 -115,000 20.65


Pricing History
Date List Price $/SqFt Gross Gain Change ($) Change (%)
03/20/08 $489,000 263 -$68,000 -$68,000 12.21%
04/18/08 $429,900 231 -$127,100 -$59,100 12.09%

Today's home is currently listed for $127,000 (22.82%) lower than it sold for in February of 2005; thus, it seems the seller has been made very aware that the market is a much different place than the one they bought in. Unfortunately, looking at what's available on the MLS, that home is still priced to sit as opposed to priced to sell.

UPDATE 05/27: This property has been sold for $442,000

Monday, May 26, 2008

Relief at the pump

Brokerage firm Goldman Sachs recently predicted that oil would go to $141.00 per barrel.

Billionaire oil investor T-Bone Pickens priced oil at $150.00 per barrel short term and $200.00 per barrel within 18 months.

Week after week oil prices have been reaching new highs, hitting a new all time high of over $135.00 per barrel last week.

The high cost of oil has resulted in record high gas prices and the sense that everything we buy is effected by the cost to transport it to market; our money is buying less goods and services.

Oil is in a bubble right now and like the dot-com and housing bubbles it will burst, there is a thing called the law of supply and demand, which sets the market price of everything.

The fundamentals of supply and demand are not the only thing moving this market, sure the greedy oil companies, Opec and the president share a lot of the blame for the high price of gas, but the big reason prices have moved up so fast in the last few months is because billions of dollars in speculative money have been poured into the oil sector.

As prices continue to rise, people are starting to use less, resulting in larger inventories of gas. That's where supply and demand comes in to play, the less we use the more inventories will increase resulting in falling prices.

In the end consumer markets always work to bring prices in line with demand.

the Financial times, has already reported that US demand is falling more than expected and the Department of Transportation said figures from March show the steepest decrease in driving ever recorded.

How far will gas prices fall? Who knows, but rest assured of one thing this summer there will be a correction in the oil market.

Will oil eventually go to $200.00 per barrel? Yes it will if we do not get serious about developing alternative energy sources.

However, as I have said before adversity brings opportunity:

Option #1: I think this is a good time to short the oil market, there are some ETF's (exchange traded funds) called proshares ultrashort that short the oil market, when the price of oil goes down these shares go up, I expect to make about a 20% return within the next 6 to 12 weeks, not bad when you consider CD's (certificates of deposit) are only paying about 2% annually.

Option #2: just sit back and enjoy the lower price at the pump while they last.

NOTE: The statements on this blog are my personal opinion, do your own research.

Friday, May 23, 2008

Edge of the cliff...


According to this article we should be expecting to see an additional 40% decline in San Diego home prices. That's right 40%!!! Consider the following quote from the article below:
We really are a low-wage town, and our house prices are still too high. The median price needs to fall 40%. First, some facts.

Income disparity in San Diego County is growing.

About 20% of families at the bottom earn only 4% of our County's income, while the 20% of families at the top earn 25%.

Only 9% of county residents earn over $75,000 per year.
The poverty level is over 11%, ranging from 6% in Carlsbad to 15% in Vista. That means over 330,000 people in San Diego County live below the federal poverty level.

Adjusted for inflation, average income fell almost 4% last year.

This income disparity explains why the housing market is being kept afloat by the middle and higher tier of San Diego income earners.

[75%] of our wage earners make less than $ 45,000 per year. The median household income is close to $ 60,000, but it is skewed by the higher wage earners. [Added 5/14/08: One sentence refers to wage earners, the other to household income.]

Now, this is where my forecast is basic economics, but will shock many people. A household can get a mortgage for 3.5x its income. San Diego County median household income is $60,000, and 3.5x that would be $ 210,000. Now, let's assume that the buyer puts down 10% ( 210/,.9), then the median house price needs to come down from its current $ 395,000 to $ 233,000, a 40% drop.

My Thoughts

I absolutely believe that the author's prediction will come true, as I think we're still no where near the bottom of The Great Housing Crisis. That being said, I think many other markets in Southern California and around the country will share the same fate. The bottom line is this, if you're currently considering purchasing real estate, think long and hard before you make that move.

Wednesday, May 21, 2008

Housing Market Watch #8

This is the eigth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is located in the city of Camarillo (Ventura County) , and is part 1 of a two part series called Something Old and Something New. Since this home was built in 1964, it should be obvious that it's the Something Old. Let's get started ...

Type: SFR
Status: Active
MLS#: 80009684

Sq. Ft.: 1,792
Lot Size: 6,621 sqft
Year Built: 1964

Beds: 4
Baths: 3
Stories: 2
On RedFin: 6 days


Description
Look at all the potential here! Great floor plan, central Camarillo location, nice location in neighborhood, nice size back yard, this home needs a kitchen and some updating. Bring your ideas and see what can be done here! This home already has some tile & laminate wood flooring down stairs. Most windows have been replaced with dual pane windows.


Sales History
Date Sold Price Gross Gain Change ($) Change (%)
06/02/94 $189,500 N/A N/A N/A
11/11/05 $740,000 +$550,000 +$550,000 290.50%
06/26/08 $427,000 +$237,500 -$313,000  42.30%

I continue to be amazed at the prices will go up forever mentality that people had during the Great Housing Bubble, and today's home is living proof of that flawed logic.


Pricing History
Date Asking Price Gross Gain Change ($) Change (%)
05/15/08 $424,900 -$315,100 -$315,100 42.58%

Today's home is currently listed for $424,900; a 42.58% decline from what it sold for in November of 2005; thus, it seems the seller has been made very aware that the market is a much different place than the one they bought in. Unfortunately, looking at what's available on the MLS, that home is still priced to sit as opposed to being priced to sell.

UPDATE 06/26: This property has been sold for $427,000.

Monday, May 19, 2008

You can't handle the truth

"You can't handle the truth!"  The words spoken by Colonel Jessup (Jack Nicholson) about the death of Santiago, a marine under his command, in the hit movie 'A Few Good Men' (1992), and the quote seems fitting here.  Why have I made such a bold statement?  Because I'm surprised at the number of people that continue to refuse to see the market the way it really is.  Not just consumers, but some of the analysts too!  They believe the spin (from the Wall Street Journal and other news venues) about the market having bottomed and sales are climbing.  The embedded video discusses the recently released foreclosure numbers for April (via Foreclosure Radar), as well as the implications these foreclosures will have on the market. Please take some time to view it.

Highlights:
  • Notice of Defaults (NOD = pre-foreclosures) were up 2.6% to a record high of 44,100 from 42,700 last month.
  • Notice of Trustee Sales (NTS = Foreclosure Notices) were up 7.8% to a record high of 28,892.
  • Foreclosure Sales at Auction jumped 44% for a total of approx $9.5 Billion from $6.87 Billion last month.
  • Discounts were at a record pace. 84% were discounted by 25% or more off the original note amount. 47% were discounted by a whopping 30% or more.
  • 97.75% of the homes failed to sell at auction so the banks bought the rest back.

See his article in its entirety here.

Friday, May 16, 2008

Housing Market Watch #7

This is the seventh episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in the city of San Diego in a community called Rancho Cerro.

Type: SFR
Status: Active
MLS#: 081004555

Sq. Ft.: 1,710
Lot Size: 5,000 sqft
Year Built: 1970

Beds: 3
Baths: 2
Stories: 2
On RedFin: 120 days


Description
$$$!!!HUGE PRICE REDUCTION!!!$$$ SUBMIT ALL OFFERS!!! LARGE HOME WITH MANY UPGRADES!! GRANITE IN KITCHEN AND BATHROOMS! NEWER CABINETRY!! LARGE BONUS ROOM UPSTAIRS!!! LET OUR TEAM SHOW YOU HOW EASY A SHORT SALE CAN BE!!!GREAT OPPORTUNITY TO OWN, SO BRING ALL OFFERS! ALL BEDROOMS CONVENIENTLY LOCATED DOWNSTAIRS. OPEN FLOORPLAN AND HUGE BONUS ROOM UPSTAIRS WITH BALCONY! MANY UPGRADES THROUGHOUT!


Sales History
Date Sold Price Gross Gain Change ($) Change (%)
11/16/04 $350,000 N/A N/A N/A
05/10/05 $510,000 +$160,000 +$160,000 45.71%

This home has appreciated tremendously during the Great Housing Boom. Unfortunately for it's last owner, this is like a game of hot potato, and they got stuck with it.


Pricing History
Date Asking Price Gross Gain Change ($) Change (%)
01/17/08 $410,000 -$100,000 -$100,000 19.61%
02/19/08 $340,000 -$170,000 -$70,000 17.07%
04/02/08 $180,000 -$330,000 -$160,000 47.06%

The median home price has declined by 19.4% in San Diego County (when comparing the numbers from March 2007 to March 2008); however, this episode's home has declined in value by 64.71%, a mind blowing $330,000, since its last sale in May 2005.

As I've demonstrated in previous episodes of the Housing Market Watch, if an uninformed buyer were to have purchased this home before April 2nd, that buyer would have lost $160,000 of real money. To put those savings into perspective, the savings would almost allow you to buy two of these homes!

My Thoughts

If you're one of those people who think, the property values in my city can't fall by much more because the prices are already down to what I paid for my home... think again!!! Home prices are going to continue to fall, and denial won't change it's affects. The only thing you can do now is to prepare yourself, and make sure your not in a position to become another unfortunate victim of the Great Housing Crisis.

UPDATE 01/08/09: This property was sold for $275,000.

Thursday, May 15, 2008

Housing Market Watch #6

This is the sixth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in Santa Ana, California (Orange County). I chose Santa Ana because it was The Biggest Loser in Orange County.

Type: SFR
Status: Active
MLS#: S519235

Sq. Ft.: 1,678
Lot Size: 5,150 sqft
Year Built: 1920

Beds: 3
Baths: 2
Stories: 1
On RedFin: 101 days


Description
THIS IS A SHORT SALE SUBJECT TO LENDERS AUTHORIZATION AND COMMISSIONS, THIS PROPERTY HAS MOLD IN A BEDROOM CLOSET, SELLER HAS NO MONEY TO DO ANY REPAIRS. SOLD AS IS. COULD BE A POSSIBLE DUPLEX OR FOR LARGE FAMILY. ONCE REPAIRS ARE MADE YOUR BUYER WILL HAVE A TERRIFIC HOME AT A VERY LOW PRICE. PLEASE SHOW AND BRING AN OFFER.


Sales History
Date Sold Price Gross Gain Change ($) Change (%)
05/24/04 $395,000 N/A N/A N/A
01/25/07 $620,000 +$225,000 +$225,000 56.96%

Once again, today's home has appreciated by unsustainable percentages during the Great Housing Boom, increasing by an average of 15.9% per year between May 2004 and January 2007.


Pricing History
Date Asking Price Gross Gain Change ($) Change (%)
01/25/08 $425,000 -$195,000 -$195,000 31.45%
03/30/08 $275,000 -$345,000 -$150,000 35.29%
04/21/08 $230,000 -$390,000 -$45,000 16.36%
07/22/08 $244,900 -$375,100 +$14,900  6.48%
08/26/08 $220,900 -$399,100 -$24,000  9.80%
09/30/08 $195,500 -$424,500 -$25,400 11.50%

The median home price has declined by 38.1% in Santa Ana (when comparing the numbers from March 2007 to March 2008), and are set to continue falling. This property has declined in value by $390,000 (62.90%) since its last sale in January 2005.

As I've demonstrated in previous episodes of the Housing Market Watch, if an uninformed buyer were to have purchased this home before April 21st, that buyer would have lost $45,000 of real money.  To put those savings into perspective, one could purchase a Mercedes-Benz SLK 300 Roadster (albeit not a fully loaded one).

My Thoughts

I was absolutely amazed when I examined the Santa Ana market for this post. I had no idea there were so many homes that have dropped by such large amounts, with some homes as low as $100,000 (asking price). Unfortunately for the seller and the institution that irresponsibly lent the money for this home are both in dire straights, as I believe this home will continue to decline until it reaches a $100,000 price point... or lower.

UPDATE 07/22: The property was re-listed at $244,900.
UPDATE 08/26: Price decreased to $220,900.
UPDATE 90/30: Price decreased to $195,500.

Wednesday, May 14, 2008

Housing Market Watch #5

This is the fifth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in Laguna Niguel, California (Orange County). I chose Laguna Niguel because it was The Biggest Winner in Orange County; the city whose median home price declined the least between March 2007 and March 2008.

Type: SFR
Status: Active
MLS#: S503764

Sq. Ft.: 1,628
Lot Size: 8,640 sqft
Year Built: 1966

Beds: 4
Baths: 2
Stories: 1
On RedFin: 253 days


Description
this property has been completely remodeled.granite counter top in the kitchen with a serving bar.office area or eating area opens to the backyard.beautiful tile flooring throughout.newly painted,cozy fire place in the family room with french doors opening to the back yard.newly painted interior,crown molding throughout.new cabinetry in the kitchen.both bathrooms have been redone with new flooring and fixtures. move in condition very light and bright.close to the freeway,shops,park and restaurants.

Sales History
Date Sold Price Gross Gain Change ($) Change (%)
06/08/95 $123,900 N/A N/A N/A
05/22/96 $188,000 +$64,100 +$64,100 51.74%
11/13/06 $750,000 +$626,100 +$562,000 198.94%
07/24/08 $509,900 +$386,000 -$240,100  32.01%

As you can see from the data above, the seller who sold the home in November 2006 made an incredible profit; however this was at the peril of the buyer who made such an aggressively foolish purchase.


Pricing History
Date Asking Price Gross Gain Change ($) Change (%)
09/02/07 $899,900 +$149,900 +$149,900 19.99%
09/05/07 $849,900 +$99,900 -$50,000 5.56%
09/18/07 $839,900 +$89,900 -$10,000 1.18%
09/25/07 $829,900 +$79,900 -$10,000 1.19%
10/18/07 $799,900 +$49,900 -$30,000 3.61%
11/13/07 $650,000 -$100,000 -$149,900 18.74%
12/21/07 $599,900 -$150,100 -$50,100 7.71%
02/26/08 $575,000 -$175,000 -$24,900 4.15%
03/25/08 $550,000 -$200,000 -$25,000 4.35%

The median home price has increased by 7.0% in Laguna Niguel (when comparing the numbers from March 2007 to March 2008); however, it would prove difficult to convince the seller that owns this house, as their home value has declined by 26.67% (a whopping $200,000) since it's listing in September 2007.

The simple truth is many homeowners overpaid for their homes, and now those who need to sell are finding it difficult to do so, even at steep discounts.

Considering the numbers above, if an uninformed homeowner had bought this home for the full asking price prior to March 25th, they would have lost $25,000 of real money!!!  To put those savings into perspective, one could buy a fully loaded Mini Cooper.

My Thoughts

Even the cities that you thought were impervious to the economic high's and low's are succumbing to this turbulent housing market. The truth is, if you buy now in Laguna Niguel, chances are you will have overpaid unless you're able to pick up the home for pennies on the dollar.

UPDATE 07/24: This property has been sold for $509,900.

Tuesday, May 13, 2008

Housing Market Watch #4

This is the fourth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in Simi Valley, California (Ventura County).  I chose today's home to illustrate that it's not just the lower end of the market that is crumbling, the upper end is also fair game.

Type: SFR
Status: Active
MLS#: S472435

Sq. Ft.: 4,453
Lot Size: 16,340 sqft
Year Built: 2004

Beds: 6
Baths: 5
Stories: 2
On RedFin: 482 days


Description
Entertain in this gorgeous, 180' panoramic view home w/$150K in upgrades too many to mention, gourmet kitchen w/granite countertops, stainless steel appliances, built-in BBQ & tranquil water fountain in backyard, custom drapes, plantation & wood shutters throughout, 2 master suites, 2 balconies off master and den, mother-in-law suite downstairs w/full bath,extra large closets, tile floors in all baths, fireplace! Short sale subject to lender approval.


Sales History
Date Sold Price Gross Gain Change ($) Change (%)
02/24/05 $960,000 N/A N/A N/A
06/16/08 $781,096 -$178,904 -178,904 18.64

Based on the available information, it looks like the seller is the original owner. Having purchased the home (err.. mansion) in 2005, the seller bought at the height of the housing boom.


Pricing History
Date Asking Price Gross Gain Change ($) Change (%)
02/03/07 $1,200,000 +$240,000 +$240,000 25.00%
03/17/07 $1,129,000 +$169,000 -$71,000 5.92%
07/10/07 $1,049,000 +$89,000 -$80,000 7.09%
08/13/07 $999,900 +$39,900 -$49,100 4.68%
10/25/07 $949,000 -$11,000 -$50,900 5.09%
01/09/08 $899,000 -$61,000 -$50,000 5.27%
03/20/08 $849,900 -$110,100 -$49,100 5.46%
04/17/08 $799,000 -$161,000 -$50,900 5.99%

The median home price has declined by 11% in Simi Valley (when comparing the numbers from March 2007 to March 2008), and are set to continue falling.
This property has declined in value by $161,000 (16.77%) since its last sale in February 2005, a whopping 2.38% decline per month since it was listed.

As I've illustrated in previous episodes of the Housing Market Watch, if an uninformed buyer were to have purchased this home at the full asking price before April 17th (less than one month ago), that buyer would have lost $50,900 of real money. To put those savings into perspective, that's enough money to purchase a well equipped BMW X5!

My Thoughts

Thus far, Simi Valley has faired considerably better than most other cities in Ventura County; however, one has to wonder whether the trend will continue, or whether other local issues in the city like the crisis facing Countrywide Home Loans, it's largest employer will cause massive declines in the near future. So, as prices continue to decline, will you be the owner of one of these Ventura County mansions? Good hunting.

UPDATE 06/16: This property has been sold for $781,096.