Glut: 5.1 million homes for sale

A major homebuilder warned this morning of the growing problem of "surplus inventory" as another month of weak sales of new homes left the inventory of unsold new homes at 529,000, and the total number of homes for sale in America at a staggering 5.1 million.

Inventory of unsold homes has spiked 14% in the past year, and 77% from August 2004 levels (see chart below).

Homebuilder KB Home reported a 32% drop in third-quarter revenue and warned that inventory will continue to rise, driving prices lower: "We expect housing industry conditions to continue to worsen through the end of the year and into 2008," said Jeffrey Mezger, president and chief executive officer. "Rising foreclosure rates are intensifying the problem of surplus inventory and will likely drive further home price reductions."

Mezger says the "oversupply of unsold new and resale homes" has worsened in many markets. "At this time, we see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins," he said.

Reuters on new home sales: "Sales of new single-family U.S. homes fell 8.3 percent in August to a 795,000 annual sales pace, its slowest rate in over seven years, while the inventory of homes dropped, a Commerce Department report showed on Thursday."  Inventory dropped 1.5% from July to August, and stands at 529,000.

The National Association of Realtors reported earlier this week there are 4.58 million existing homes for sale, which represents a 10-month supply of homes at the current pace of sales.

Stats:
Month     Total homes for sale Existing homes   months to sell  New homes months to sell
Aug 07    5.11 million           4.58 million       10.0 mo.         529,000      8.2 mo.
Aug 06    4.49 million             3.92 million         7.5 mo.         568,000      6.6 mo.
Aug 05    3.34 million             2.86 million         4.7 mo.         479,000      4.7 mo.
Aug 04    2.88 million             2.48 million         4.6 mo.         404,000      4.2 mo.
Sources: NAR (Existing homes), Commerce Dept. (New homes)

Comments? Insights? Email story tips to lalandblog@yahoo.com.

Comments

[xtine]

Peter, I am so confused about the organization and point of your last post.

KB reports inventories of 5.1.
Metzger reports an oversupply and worry over the future market.
Then Reuters says inventory DROPPED.
Then NAR reports 4.85mil inventory.

Confused. Headache. Help.

[Rob]

regional breakdown would be useful, but i guess that would detract from the desired effect

[Pete Viles]

xtine wrote: "Peter, I am so confused about the organization and point of your last post."

Thanks for the comment and sorry for the confusion. The point is that inventory of new and existing homes has risen to 5.1 million -- that is, the 529,000 unsold NEW homes reported today plus the 4.58 million EXISTING homes reported earlier this week by NAR. KB Homes did not report these numbers -- I did.

Yes, the freshest news is that inventory of new homes dropped very slightly, to 529,000. But when added to the 4.58 million unsold existing homes reported early in the week by the NAR, you get rising inventory of all houses on the market, even though the smaller of the two numbers declined slightly month to month.

KB Homes is warning that this problem of "oversupply" is worsening and driving prices lower.

I hope that clears it up.
Pete

[David]

The continued reportage of conflicting statistics, or statistics tailored for a point of view, has as much to do with the current state of the real estate market all over the country as the foreclosure rate.

[Richard Allen]

$500K for a starter home? Are you nuts in CA? There is going to be a world of hurt for lots of people in America. And it's ALL SELF INFLICTED...No one forced you to sign on the dotted line.

Sad but true, lots of homes that could be used to house people will have to be bulldozed in Florida because you cant leave a house closed up in a humid area, mold, warping, rotting....

Such a terrible waste of resources, and yet i have no health insurance....because i make too much money at $11 hr.

The only way out is PAIN or inflate the money like Zimbabwe and raise the minimum wage to $25 hr

[Jack D]

A housing bust delivered via the illegal Federal Reserve (it's a private company, so it is not 'Federal and it certainly has NO reserves) and their paper money, yet another infringement on our rights by the gov't. Add it to the ever-growing list of violations:
They violate the 1st Amendment by opening mail, caging demonstrators and banning books like "America Deceived" from Amazon.
They violate the 2nd Amendment by confiscating guns during Katrina.
They violate the 4th Amendment by conducting warrant-less wiretaps.
They violate the 5th and 6th Amendment by suspending habeas corpus.
They violate the 8th Amendment by torturing.
They violate the entire Constitution by starting 2 illegal wars based on lies and on behalf of a foriegn gov't.
Support Dr. Ron Paul and save the US economy.
Last link (unless Google Books caves to the gov't and drops the title):
http://www.iuniverse.com/bookstore/
book_detail.asp?&isbn=0-595-38523-0

[calihome_fantasy]

Richard Allen's sentiment is mirrored among the new 30-somethings. We all just kind of resign to the fact that it would be insanity to buy a tiny "starter house" at 500K in some remote region of California. The money is better spent in other kinds of investments inside and outside of California. For the lucky who are inheriting houses, I hope you can afford the property tax.

[La]

Can ANYBODY put a positive spin on this . . . the press has a remarkable ability to do it on most anything else . . . . just maybe if we can get average folks to believe the sky isn't falling in spite of the reports

[Michael Snyder]

Ten million homes on the market; what a wonderful opportunity!! I've built my contracting buisness through Realtors & I've a few observations on our current situation: The number one problem is in getting Investors willing to underwrite loans in a market dominated by jumbo's with no protection other than the buyer's credit and equity. The House reciently passed a bill, HR 1852 raising the limits in Federally guaranteed loans to $700,000. This measure is now languishing in Senate Committee where it will no doubt grow pork and unrelated measures before being sent to the President's desk for veto. Please write our Senators about this measure. Statically, politicians see one written communication as expressing the views of a hundred people. That's leverage!
Prices are "correcting" and last years comps won't work. Just more of the lending conundrum that will work itself out with a lot of realistic , responsible Realtors. Speaking of which, while many are rending their clothing and bemoaning their fate and market woes, others I know will close four escrows next month and their pipeline is full into the Holidays; which brings us to the bottom line. The Chinese ideogram for danger is crisis and opportunity and their are many opportunities in these dangerous times.

[MyLessThanPrimeBeef]

Being a patriot, I propose this solution.

Why don't we ask Caltrans to move all the excess unsold new homes to India and China where jobs are?

Not only will this help with the current housing glut, but it contributes positively to the trade deficit problem.

[Inland Empire]

According to someone I know who lives in a KB home, they are not as well constructed as their peers. Perhaps this has something to do with why they are not selling well.

[Ron Ballard]

Having worked for various mortgage companies for years now, I can tell you the supply of vacant houses here in Florida will continue to rise. New developments continue being built and people are walking away from homes at an alarming rate. In addition to my increased workload from month to month, my realtor friends haven't sold a house in months. In most cases people say they want to buy a new house but can't sell their existing house

[Jason s]

Richard Allen - based on your comments it's obvious why you make only $11 an hour.

[Aaron]

50% off sale coming to a Open House near you.
Tred lightly falling homes prices are the norm.

[RodTfactor]

Dear Robert, why don't you buy your own health insurance? increasing the minimum wage is not the answer because everything will have to adjust to the new cost and believe me companies will be laying off more workers to afford higher wages. I't is not the governments job to take care of you, get a better job

[R.C.]

If the major home builders will just stop building inventory homes for a few months, maybe things will stabilize.

[Unpopulardude]

Sure. I can put a positive spin on this. Young couples who are saving their money will be able to buy a house with an aftertax cost similar to renting in a couple of years.

Here is a second positive spin: more people will actuarlly be saving and investing. Recently, house payments have been so large, and down payment requirements so small, that many homeowners didn't save.

[jb]

Mortgages are not the problem. Overpriced housing driven by greed and fraud is the problem. Do the standard calculations comparing your income, rental costs, etc and you will know what you can afford. Dont catch a falling knife.

[Jonah]

"Sure. I can put a positive spin on this. Young couples who are saving their money will be able to buy a house with an aftertax cost similar to renting in a couple of years. "

"Here is a second positive spin: more people will actuarlly be saving and investing. Recently, house payments have been so large, and down payment requirements so small, that many homeowners didn't save."

LOL...sounds economically balanced to me!

[Rick S.]

David wrote

"The continued reportage of conflicting statistics, or statistics tailored for a point of view, has as much to do with the current state of the real estate market all over the country as the foreclosure rate."

Of course reportage affects the market, but I think the state of the market is also very much to do with fundamentals. The housing stock nationwide is still overvalued. The 100% price runup from 2000-2005 was a speculative bubble and it finally burst. This brought on the increased rate of foreclosure, and the corresponding tightening of credit, which has in turn pushed prices down further.

This is not all bad, in fact, in the main I think a rollback could help a lot more people than it hurts. Flippers, realtors, tax assessors, and builders might not fare so well, but first-time buyers and those wishing to move up-market will see lower costs.

[steam3]

Problem with the article is it's written in a vacuum. 5.1 mil houses SOUNDS like a lot--maybe it is , maybe not. Compare it to similar figures in Sept 2006, Sept 2005, Sept 2004 and the data would nmean something. Without it information, this article is worthless!

[Melissa Arnold]

To La who said, "Can ANYBODY put a positive spin on this . . . the press has a remarkable ability to do it on most anything else . . . . just maybe if we can get average folks to believe the sky isn't falling in spite of the reports"

Part of the answer is giving people the homes they want. Builders can't afford to keep building the same old houses over and over again and expect them to sell. Buyers are rethinking their lives and their budgets. For the money they're spending, they want a home that truly fits their lives. That's why the new Woman-Centric Matters(sm) program is working well for the builders smart enough to take the leap. Floor plans that address de-stressing, entertaining, storage needs and flexible spaces that can be adapted as lifestlyes change. Builders in the program are not only weathering the current downturn in the market, but thriving. And homebuyers are loving it. www.womancentricmatters.com

[eddie willers]

A tighter credit market will also actually reward those of us who have maintained above average credit, since the days of sub prime NIV-NAV (LIAR LOANS) and approving deadbeats who are fresh out of bankruptcy are finally GONE! Hopefully the 30 year (or less) fixed rate will again become industry standard. Prices will adjust to accommodate a sane market.

[Pete Viles]

Steam3 wrote, "Problem with the article is it's written in a vacuum. 5.1 mil houses SOUNDS like a lot--maybe it is , maybe not. Compare it to similar figures in Sept 2006, Sept 2005, Sept 2004 and the data would nmean something. Without it information, this article is worthless!"

Steam3 -- fair points, all of them. I just ran those numbers and will update the post momentarily. But here is your sneak exclusive, personal preview: total inventory of 5.1 million in August is up 14% from last August (4.49 million), and up 77% from 2004 levels (2.88 million). Supply as expressed in how long it would take to sell off has more than doubled in three years, from 4.6 months in August 2004 to 10.0 months in August 2007.

[Jay Michaels]

Buy now sheep before prices go down any more. Before there are only 5 million 999 thousand 999 homes for sale!! The idiots are building 5 million dollar homes near me in a white trash suburb of Boston. who is doing jumbo loans?????? They still built amazing!!

[Richard L.]

The article says the current rate of sales is the lowest in 7 years. At this low rate the inventory of new and old homes would last 10 months.

What's the big deal? The stability KB seeks is with a view to ramping up development. There's nothing actually instable about the market. Sales have slowed because the buyers can't get financing or don't want to pay the current price.

If you live in California and you're waiting for a $350,000 starter home you'll never get started. I'm sure over the coming year some lenders will loosen up a bit, the sales will pick up, the current inventory will be gone in 6 to 8 mos. tops and builders will be feeling better.

Bottom line; much ado about nothing.

RCL

[Ace]

'50% off sale coming to a Open House near you.
Tred lightly falling homes prices are the norm.'

I can't believe that people actually believe that price of houses is going to drop 50 percent. If prices drop nationwide anywhere near 50 percent, our economy will be bankrupt.

It is obvious that the current government is going to do everything possible to prevent a bubble burst. They would rather print more money and have record inflation than see housing prices drop. When they do that, it is the home owners who win again and the savers who lose. Great job saving up a 20 percent down payment to buy a house. With the out of control inflation, your 20 percent down payment is now only 5 percent down.

[Jack]

Maybe we can get Brunei to buy up 20% of the excess homes.

[amir]

And yet I don' t see prices falling down. Excluding home builders, that need to report to Wall Street and now see the whole market, few sellers are really adjusting their prices to the new reality. The psychological shock, in transitioning from boom to bust, is too much. It will take years until sellers realize they need to slash prices in double digits percentage points to get any interest in their assets.

Maybe next summer...

[ben]

There are more homes than there are families and many of those homes are unaffordable. If you are looking for a home, wait a few years and prices will come crashing down hard, especially in the coastal areas. You cannot defeat gravity. People working at WalMart cannot afford $500,000 homes.

[Rob Dawg]

Just to be clear, only about 1.5 million houses are for sale. 3.6 million only think they are for sale. Those first 1.5 million will sell at market prices in 60-120 days. Slow but tolerable. The other 3.6 million are in absolute denial. What they don't understand is that they are hurting their own chances to sell. Potential buyers can get discouraged seeing so many high prices for instance.

The phrase "glut" doesn't apply. An overupply does not cause a 50% decline in consumption. The population continues to grow at 1.2%+ and the numbers in household formation or homeownership categories are growing even faster. In this we see 15 months of declining homebuilder construction rates. Were the homebuilders to bulldoze houses at the rate of construction recently we'd still be years away from a demand driven housing market. It is just plain silly to blame a great range of choices at generally lower prices for a decrease in consumption.

[Jim]

Go to college.... Don't work at Walmart and blame the "system" for not being able to afford a house....

[Joe]

Jack D is on crack, folks. Ignore his liberal blather.

[Dave]

I can put a postive spin on this. I just bought a 4 bedroom , 2500 sq foot house in a nice neighborhood for $49,000 and only one week before th closing I demanded the seller pay my closing costs and the realtor cut his commission, and they were so desperate they both did!

[Ace]

'That's why the new Woman-Centric Matters(sm) program is working well for the builders smart enough to take the leap.'

What the? Peter, you sly dog, are you selling advertising now?

[Robert Birdsall]

An oversupply of homes in the upper income bracket an overall glut does not make.

[Cal]

Richard L.:"If you live in California and you're waiting for a $350,000 starter home you'll never get started."

I was looking at a particular area and keeping inventory stats based on price ranges. Last year there was 14 homes under 500k mostly mislabeled town homes, it was more like 5 and they all were extremely bad houses. None under 400k.

Now this year there are 250 places in one city under 500k, with the dregs now under 400k approaching 350k.

The first level commuter towns (like a Santa Clarita) already are under 350k for a starter home. The fruther out towns (Palmdale,Lancaster, riverside) are way under that. You also get the close in dregs that are under that price range.

It not only will happen, it is already happening.

People looking at medians instead of looking at the stratification of the market (in both inventory and sales) are going to be completely surprised at what is really going on in the marketplace.

[DHMartens]

There is no surplus inventory. Most houses on the market aren't for sale. Everyone is putting their house on the market just to force prices back up by forcing the Fed to lower rates out of panic. A more realistic number for inventory is new homes on the market. Builders are realistic about selling homes. Remember It still only costs $80,000 to $120,000 to build a house. If they sell it for $240,000 they doubled there money, $720,000 is a 600% profit. Minus the cost of the land.

[Larry]

Jim,

Do you know how many Criminal Justice, Poly Sci, Womens Studies graduates work for 11 bucks an hour? College isn't the answer my friend, There is nothing wrong with a tradesman pursuing the American dream of owning a home. A College education should not be a prerequisite to buying a home.

Home prices will fall indeed! Even in California. I would gladly give up half my equity in my own home if it meant that my children could afford to buy a home when they start their families.

Raising home prices have been fueled by greed. Realtors, Banks, Builders, Flippers etc... I take no pity on these pathetic leaches.

[Aaron]

Ace,
You are right they will inflate the monetary base but the can't stop home prices from falling.(The Fed can't force people to borrow or banks to lend) We are headed into a DEPRESSION and the owners of captal are headed east to exploit Asia. The American consumer and economy will be left in tatters. America is not entitled to economic success and there can be only one pinnacle in a market based captialistic system and it will be China within 3 - 5 years if not sooner. If China lets their currency appreciate quickly it will happen sooner. The failed Fed attempt to inflate us out of this mess will lead to capital flight out of the US as the price for staples(sundries) go up rapidly. Imagine getting kicked in the b@lls and then kneed in the mouth as you keel over. Sounds pleasant huh. Get your head out of the sand and prepare for the worst.

[Jason]

Bad news for future home buyers like myself: Rent will go up even faster now because less people can afford to buy.

It's hard to say how much property value will decline in a city like Los Angeles because there are always people coming in and willing to pay high prices. Obviously, the outlying cities have been more affected (ex: Riverside). Anyway, the rent/buy ratio will be a little more balanced with the rent skyrocketing so I wouldn't say it's safe to assume prices will drop to 50% as many people predict.

[Jamal Mashburn]

What were the numbers for 1996 1998 2000 2002?

Showing the fall from the peak (04) tells us nothing, especially when the vast majority of us are in this for the long haul.

[waitingitout]

Random thoughts on data and comments above:

Declining sales: the drop in y-o-y sales when compared to the unprecedented run-up is not in itself a sign of the apocalypse. "The slowest rate in 7 years" puts us back to 2000, at the beginning of the speculative bubble, which if anything means that we're only now back to normal. (but wait for it...)

Sell-off rate of inventory is another matter. When you have anything more than a 6-month supply of homes in an area - so the conventional wisdom goes - then you have enough competition among sellers to force prices down. Sure, plenty of sellers are in denial and pulling their homes from the market, but those that remain listed are starting to fall. I've been tracking a subset of homes in the neighborhoods I want to buy, and particularly in September I've watched just about every one of them re-priced $20k-$50k in aggregate. That's 3-10% in a single month. These are the first dominoes to fall.

ACE: Agree that prices aren't going to fall 50% in nominal terms, that would put us below pre-bubble prices. BUt in real terms, 50% is about right. Assuming 3% inflation, you only need an initial correction of about 25% and a few more years of stagnation to get there.

Richard L: Don't be too sure the lenders will loosen up. The bad paper is going to circulate in the secondary market for a long time, and as long as it's out there, no one's going to be too keen on buying more of it. I really think the standards we see today (min. 10% down, no seconds, 700+ FICO required) - which, by the way, are still easier than the historical standards for 100 years - are going to continue at least until this hangover is gone, and that won't be until next decade.

Bottom line: the lending standards aren't going to change appreciably in the near term, no matter what the rates do. Real prices are going to have to fall.

[Jim]

Why is there a problem? Greed? It's simple economics. I want your money and I'll do whatever I have too to get it. Who cares what happens downstream as long as I get mine.

The folks that are scared here are the ones working and paying. You can bet the folks who made money off the sales and financing are laughing all the way to the a bank.

Everyone has to worship something, too bad in America that usually means worshiping money.

[Mac]

This is all Bush's fault, just like 9-11 and Katrina and Global Warming and how they put tomatoes on my burrito today even though I specifically told them not too. All Bush's fault.

[campechano]

ACE- Nobody is saying houses are going to drop 50 % NATIONWIDE, however, there are some markets and some areas within specific markets that have rocketed as high as 171%. Those places WILL see some aggressive ( and painful) adjustments. Exactly how much? I don't have a crystal ball, but I can tell you it won't be pretty. I agree with the reader who says the law of gravity WILL apply.

[TC]

Dave - The "reportage" of the real estate market has nothing to do its current state. There is no conflicting data on housing - there is a severe imbalance with supply fare outstripping demand, exacerbated by issues with our credit markets. Sub-prime demand is not coming back and the latest fed funds cut has caused the 10 yr note (and therefore the 30 year fixed mortgage) to go up, not down, on inflation worries. If housing is what is dragging the economy down into recession – I do not believe the rate cut is the cure for what ails our economy (and if we enter a recession where unemployment ticks up, you’ll think back fondly of the past two year of the housing downturn as the “good times”). If you are in the real estate biz or are trying to sell a home, I am truly sorry, but the reporting on housing as been entirely accurate, if not late to the party. Here a quick rule for you – if you live in an area where housing appreciated at more than double the rate of inflation between 2000 - 2006, the price of your home is going down. Good luck Dave, but remember that market forces rule the real estate market, not “reportage.”

[John D]

I can't understand why so many are expecting massive price cuts from homesellers. Do you think that someone who's desperate to sell now has any equity room to negotiate a slashed price? If they did, they would have refinanced by now to get some breathing room. If a person owes $700,000 on a home that alot of bloggers believe is worth only 400 - 500 thousand, the seller cant just sell for the best price he can get. I think the bank might frown on that. Is it your expectation that you'll wait until the seller walks away from the home so you can deal with the bank thru the forclosure process?

[Semphris]

To those of you who think that housing prices can't fall 50%, you're deluding yourselves. Do not expect the government to pull a white knight maneuver and save the day either.

I live for numbers (its what I do) and the proof is in the actuals. Thats why I like posts like these. Especially when Pete added the year-to-year comparisons.
There is money to be spent on homes except that people are not willing to invest at the current prices. Why should I take on someone elses debt? Let them fall.

[Andy]

Jim said:
"Go to college.... Don't work at Walmart and blame the "system" for not being able to afford a house...."

Listen up Jim: When all your 'college-educated' (indebted and unemployable) American peers are waiting in line for jobs at Walmart because the 'market' in Indian and Chinese educated worker-drones meets the needs of the hyper-capitalist corporate American 'knowledge economy' - without the 'problem' of paying $11 an hour..... see how you feel.
Honestly, when will America 'get it'? Life is not just about being a 'personal success'. It's about trans-generational equity and societal ethics. Thank God I live in a post-modern European, secular market-democracy. We don't want your wacky obesity food, your wacky hedge-fund 'corporate welfare' finance schemes. Or your wacky, egregious junk-loan mortgage lending. Time for some Sobriety, America. You drank the booze, you suffer the hangover.....

[Ron K]

I love/hate reading these blogs. Makes me laugh....The vast majority of posters remind me of the loser, whiner, victim mentality so common to overweight people. They moan on and on about hard it is to lose weight all the while eating more junk and sitting on their ever expanding tushes.

In 1998 when I purchased my old home for $225K, my rent at the apartment I was leaving in Westlake Village was $790 a month for a very nice 1br. Now the rents there are $1800 for the same place.

I've heard a lot of moaning about the Fed's recent rate cut only adding to inflationary pressure and weakening the dollar, and still I read that wishful thinking that prices are going to drop off a cliff.

If these posters were using their heads instead of their emotions they would realize that the inflationary pressure HAS ALREADY dropped the prices of all these homes sitting on the market by about 10%. No one has adjusted their listing price up to reflect the weaker dollar. Unfortunately for the American buyer, their paychecks haven't adjusted up to reflect the weaker dollar either. BUT......and this is a big but, sorry to burst everyone's bubble on this blog, prices will not drop much. Foreign buyers will swoop in and gobble up most of the distressed inventory now that the dollar is so low. The Euro is now 1.42 to the dollar!

[Repo Man]

"Go to college.... Don't work at Walmart and blame the "system" for not being able to afford a house.... "

Most first time buyers that are teachers, firefighters, and police officers (median income) cannot afford a $500,000 "median" priced house.

Can we blame the "system" yet?

[Wayne]

Sent the last payment on our house Saturday. Paid off in 15 years on a fixed interest loan. The problem is:
1. People who were allowed to buy homes when they really couldn't afford them. Realtors doing all sorts of creative financing to qualify them.

2. People who bought homes they couldn't afford figuring them could "flip" them in a few months for a big profit.

3. People who bought into variable interest loans and saw their payments go to unmanageable levels when the interest rates went up.

[MyLessThanPrimeBeef]

Hey, what abou the For Sale By Owner homes?

That will make it at least 5.5 million.

[Cal]

I like how Ace thinks the government will trash the whole economy (rampant inflation) just to save the few major bubble markets. Those paychecks must be getting fewer and farther between, the desperation is palpable.

The housing base in the most danger is those who purchased from 2004 to present, while those were heavy volume years relative to the whole base of housing it is not much. The bubble markets can and will correct, kicking or screaming or not.

Just wait until LA county gets hit with the dreaded "declining market" flag (there is a time lag due to how they measure things), you think underwriting was tough before, just wait.

[Aaron]

Ron K,
Your deluding yourself if you thinks foreignors will buy when the value of the asset is falling. Why would they buy here our economy is going into the toilet. Why are Intel, Microsoftm Google and every fortune 500 companybuilding and investing overseas? They know capital restrictions will be put in place by the end of 2008, watch! You are falling for the media spin that a lower dollar is good for America that it makes our products more attractive and it does with regards to earth moving machines and otheer big ticket durable goods.. Unfortunatley housing is consumed where it is located unless is being moved by CalTRaN.

[Rich]

Just for perspective, the median national home price is still $233,000, slightly expensive for the national single-wagearner median income of $43,000 but comfortably within reach of working couples. So disaster is not going on everywhere; If you watch HGTV's house-buying programs you see people looking at incredibly beautiful and spacious new construction in places like Texas and North Carolina for prices under $200,000. And in my area of Connecticut, one town full of $500,000 McMansions is suffering like LA while the adjacent mill town with reasonable $180,000 houses is booming and things sell overnight.

I believe a key feature of the problem in the biggest boom markets like California and Florida were organized crime rings deliberately flipping houses to shadow buyers for big price tags to pocket the mortgage money and commissions. This has been reported on elsewhere and all it takes in any given market is a crime ring with a few hundred successful cons to blow a whole market out of proportion. I would love to read more stories of how these crime rings got going without anybody in the industry noticing, but there are probably dozens of investigations still going on...

[Ace]

Cal said 'The first level commuter towns (like a Santa Clarita) already are under 350k for a starter home. The fruther out towns (Palmdale,Lancaster, riverside) are way under that. You also get the close in dregs that are under that price range.'

You are absolutely right, the commuter towns will probably be hit hard, really hard.

Is Santa Clarita really a first level commuter town? I had a friend who bought a house there about 6 years ago and commuted to North Hollywood (about 20 miles). The drive was 20 minutes, then 30, then 45, then an hour each way after about 2 years. Eventually he sold the house and rented in Burbank.

Santa Clarita has got to be an hour and a half each way to downtown. Who is making that commute?

The city is becoming more and more crowded and traffic is only getting worse. It will only drive up the prices of land in the city and lower the prices of land in the suburbs.

[Ace]

Larry said 'Raising home prices have been fueled by greed. Realtors, Banks, Builders, Flippers etc... I take no pity on these pathetic leaches.'

Huh? Seriously? You think these people are to blame for the raising home prices? Wow.

Let's not forget that it is the home owners who actually profited from the raise. It is your Grandmother who sold her house for $900k when she only paid $35k. That greedy old bag.

You can't blame anyone for modernization and development but the people. It is the Los Angeles citizens who decided that a 3 bedroom in a decent neighborhood is worth a million, not the realtors or banks.

[MyLessThanPrimeBeef]

The rich 1.42 Euro to a Dollar Europeans aren't buying more subprime securities at 90% off.

Why should they buy homes that are only 5% off?

[aaron]

Wayne,
Congrats on paying of your home that is awesome. I had a 15 year on the home I bought in 2003 and sold in late 2005, as the dark clouds began forming on the horizon.

[Steve Johnson]

"I can't believe that people actually believe that price of houses is going to drop 50 percent. If prices drop nationwide anywhere near 50 percent, our economy will be bankrupt."

Really? Go to San Diego. The sale this weekend is 55% off list.

Not going to happen? Already happening. Wake up Sellers!

http://www.redchomeauction.com/

[Timothy]

It will only get worse as Boomers retire. If you're a Boomer, sell early:

"2. A crash in the housing market precipitated by the huge Boomer Generation trying to unload their starter castles to an eleven percent smaller Generation X. Generation X, now twenty-two to forty-two, simply does not have the critical mass to buy up the homes being exited by the retiring Boomers. Most of what Boomers have in terms of net worth is in their depreciating homes."

http://kgcdirect.squarespace.com/journal/2007/8/2/the-real-issues.html

[Michael]

Foreigners aren't going to "buy" prices back up. The whole reason the dollar is crashing is because foreigners do not want to hold U.S. assets, which are greatly overvalued. NOBODY wants to jump into this maelstrom until they are 100% sure that it has hit rock bottom. Don't kid yourself that the United States is going to see a rush of foreign money coming back in; that sucking sound you hear is the foreign money being pulled OUT.

National prices are already down about 5% year over year - without adjustment for inflation - and only in the next 2-3 months will we start seeing *real* pricing data emerge as the glut intensifies and people begin not just stalling -- but breaking. As it stands, the homebuilders have been the ones taking the hits now, throwing in costly incentives and deals that don't get reflected much in the price. The homeowners/speculators who can't match the speed and decisiveness of the homebuilders are the ones who are going to be holding the bag through the hurricane's eye and beyond.

[Mike]

Bruce Norris has accurately predicted this market and the last two. Its tied to affordability, despite what the "experts" are now saying. The same experts that didnt see this coming a year ago. The Norris Group has a web site worth checking out.

[Rickstar1]

To everyone saying, "Home prices in Southern California will never really go down because there are always people moving in"... FYI: People have ALWAYS been influxing to California, this is not a new phenomenon. The staggering price increases of the last few years are unprecedented and not natural. And prices have fallen in the past, even in So Cal, even when loads of people were moving in.

[MyLessThanPrimeBeef]

Certainly if a guy wants to commit suicide, that is his prerogative.

But the crowd that cheers him on and tries to make it a fad, make it fashionable and encourages and enables others to follow and copy, others like your sons and daughters so that you become personally effected and they profit from it in the process, well, they have to something to answer to also.

I think Larry has a point here.

[kgd]

The homes that will hold their value are the unique homes. The ones that have character; older homes that have been renovated and maintained. The cookie cutter homes are going to be traded and used and not appreciate. Those are the homes that sufering from lack of sales.

[Ace]

'I like how Ace thinks the government will trash the whole economy (rampant inflation) just to save the few major bubble markets. Those paychecks must be getting fewer and farther between, the desperation is palpable.'

The goverment isn't trying to save a few major bubble markets, Bush is trying to save middle America. He has asked lenders to come up with new mortgage products to help people refinance. He has lowered interest rates a half a point. He has increased the FHA loan amounts to $700k.

Wait, that last one only helps bubble markets. Maybe he only cares about us afterall?

The local and state governments will get involved next. If home values fall 50 percent, that is 50 percent less tax dollars coming in. They can't even balance the budget now. How can they survive on less?

On second thought, they wont have to. We have been talking 'bubble' for a couple of years now. Median prices continue to go up.

[Molly]

"The first level commuter towns (like a Santa Clarita) already are under 350k for a starter home. The fruther out towns (Palmdale,Lancaster, riverside) are way under that.....

Sorry, but as someone who actually lives in Riverside, I can tell you that my 2 bedroom, 2 bath, 1100 sq foot, 100 year old house has been valued at $330,000, down from $350K a year ago. I don't know what qualifies as a "starter home" for families but most people seem to want to at least 3BR, 2000 sq feet houses and you can't even touch one of those out here for less than $350-$400K.

Even in RIVERSIDE!

[Ace]

Cal said 'The housing base in the most danger is those who purchased from 2004 to present, while those were heavy volume years relative to the whole base of housing it is not much. The bubble markets can and will correct, kicking or screaming or not.'

You should have added 'and have to sell in the next few years'. If someone bought in 2004 and are currently in a mortgage they can afford, they probably wont sell for another 5 or 10 years. It wont affect them.

Talk to people who bought during the crash in the early 90's and lost $100k in equity the first year. Their house went from $300k to $200k and is now worth $900k. You only lose money if you sell. You shouldn't be buying a house if you are not going to live in it for 7 or more years.

[Rick]

People who signed on the dotted line, knowing that they cannot afford the payments, created the present problem. Greedy bankers and builders were smart enough to take their compensation and go bankrupt and now everybody is crying because their hame values have come crashing down. $600K for a home? you must be kidding!!!

[Ace]

Steve Johnson said 'Really? Go to San Diego. The sale this weekend is 55% off list. Not going to happen? Already happening. Wake up Sellers!'

Ok, first of all, this is an auction. The OPENING bid will start at 55 percent off list. They will sell for much more than that amount.

Second, this is 'list' price. It is a fictional, made up price. It is not the value of the house.

Ok, I gotta run. I am on my way to a police auction of vehicles they seized in drug raids that I heard about on late night television. I can get a yacht and a porshe for only $2000.

[Rick]

I remember Bill O'Reilly comment in 2002 that because of the Bush tax cuts homeownership is at an all time high.

[MyLessThanPrimeBeef]

Ace, if you live in that house for 7 years, you wouldnt' get $900K for the house you paid $300K in the early '90's.

You need about 15 years.

Most people like to say they will live in the same house for 15 years. But no one can guarantee that...you can have an earthquake, job change, illness, bad investment, divorce, marriage, kids, etc.

And purchasing things so that you can unload it during a buble is not a sound basis for buying. Let's just drop the 'you can get this much in 2005' stuff.

[Timtan]

Ive been waiting for this..... When I found out I couldnt afford a one bedroom condo after selling my townhome, I knew something was wrong. Also, I noticed all the apartments going condo, which was a joke! As a result, I figured this had to topple, at least in Tampa, FL. This is a working town, not a resort. So the likelihood that the rich would occupy all the homes sounded ridiculous to me....not to mention my inability to find a place to rent.

Either way.....this was destined to come to a head and people will just have to take the hit.

Meanwhile, I am waiting for the prices to drop again so I can get the home I want,......not a tiny matchbox for an unbelievable price...

Lets all thank the house flippers for this one......

[aaron]

Ace,
You are a fool! The government is not bailing out the middle class, it is bailing out the lenders and locking the middle class in a financial prison.(This will ultimately make more people completely dependent on governement handouts) The government's plan will allow banks to rework loans for borrowers as the value of their home drops. A bank doesn't want its investments (that is what your monthly mortgage payment is) to turn into a liability. You heard it here first, the banks and politicians, will place a clause in these recently reworked loans that will force the homeowner to stay for at least 5- 10 years unless they declare bankruptcy). The justification will be that the banks helped them so now they can't leave and must pay in order to pay the bank back for its help. (it is only fair, right? LOL) Finally, you sound like a desperate man attempting talk up his position or the position of a family member in need. Do yourself or them a favor, sell the house! Hit the bid, take the loss and move on.

[robert No longer in L.A.]

Whether it was the Bible or, a Byrd's pop tune, "To everything there is a season...' If you bought in last two years, you got a problem...especially if Boeing closes the L.B. plant in 1-2 years - Pentagon doesnt want it's tankers! 1990-95 deja vu!!! Easy 50% decline..and that's when you should buy; NOT when $500K buys a starter shack, and especially when the homebuilders built crap - no other word for it, as they never KNEW their subs...just GET IT DONE CHEAP and FAST. We rented 6 years (90-96) but won in the end.

[Melissa Arnold]

Ace said:

'That's why the new Woman-Centric Matters(sm) program is working well for the builders smart enough to take the leap.'

What the? Peter, you sly dog, are you selling advertising now?

Sorry to disappoint you, Ace. It wasn't an advert. Just plain common sense. 91percent of the homebuying decisions are made by women. Give people what they want, and they're a whole lot more likely to buy it. Smart builders know that. Ergo, the success of the Woman-Centric Matters program and the builders who are part of it.

[Cal]

Molly: I just put 3 bd 2 bth 1200+ sq ft under 350k in Riverside in Zip Realty and its showing me 282 homes

Ace: "The goverment isn't trying to save a few major bubble markets, Bush is trying to save middle America. He has asked lenders to come up with new mortgage products to help people refinance. He has lowered interest rates a half a point. He has increased the FHA loan amounts to $700k. "

Middle America aint a California buying a 500k home, the sooner you realize that the sooner you will realize what is going to happen here.

The people (like you) who think FHA/Freddie/Fannie are going to save the housing market fundamentally dont understand the loans and underwriting that propelled the market. Their are plenty of markets with plenty of jobs (Phoenix and Vegas are two prime examples) in the FHA/Fannie/Freddie territory that are still screwed. If you are out of whack with fundamentals, you are out of whack, regardless of the loan amount.

Ace:"You shouldn't be buying a house if you are not going to live in it for 7 or more years."

I guess all those people in 2/28s and option arms shoulda thought of that.

Do you have any idea the huge concentration of option arm/IO loans that have been used the last few years to purchase in CA? In the Los Angeles region the last 2 years its over 60%, many of those are short term ARMs with little to no down payment.

We are back to some down payment full doc 28% of gross income type buyer if you think Fanny/Freddie/FHA are going to save the day (dont forget PMI!). It is simply not going to happen. Just like we had an huge surge (due to loosening underwriting) of motivated uneducated new buyers in the market from 2004-2006 , we have a huge surge of motivated sellers unable to sell.

Throw in the economic slowdown and rising interest rates and its just icing on the cake.

We have just had a golden age of employment and easy credit, it simply cannot get better than it had been and it is showing that it is getting considerably worse. The only people in denial are those whose jobs depend on it.

As for the state government rescuing the tax base with prop 13 the tax base of the last 3-4 years wont really have as much of an affect imho. The payroll taxes arent tied to housing but the economy. The economy isnt served by huge numbers of tax payers spending an inordinately high portion of income to live in a box.

[Greg]

Location location location. While prices are certainly falling in and around the LA area, the more desireable areas in the city are still fetching good prices. I live in the hills of Studio City and houses are selling well IF they're not priced way out of whack.

[Steve Johnson]

Ace, you are either in extreme denial or just plain stupid.

What's the difference between the 'list' price for new homes and 'asking' price for existing home? They're both what the seller is asking for. Furthermore, in general, seller for existing homes are more likely to negotiate.

As for 'auction' vs actual selling price, they're new homes by DH Horton. Not an auction by a bank. They're simply reflecting current market conditions and price.

Are you willing to put $$ where you mouth is? Go buy ALL the homes they couldn't 'auction' off this week in San Diego at their new 'auction' price.

We'll check the same web site on Monday for number of unsold homes up for sell.

[Mick Gregory]

I saw the bubble was about to burst in California two and a half years ago. We sold our home for a huge profit and moved to the Houston suburbs where brick mansions cost half as much as California starter homes.

It's a free, highly mobile country. Do a little "home work" on Google and see for yourself.

Another plus, not many liberals in Texas.

[Mick Gregory]

Take a look on Google. LaLa Land is way over priced. I moved from California 2.5 years ago to the suburbs of Houston, a skyscraper filled boom town. Mansions cost less than starter homes in the outback of California.

Look up the difference on Google. Do your home work.

[RMF]

Steve Johnson said: ""I can't believe that people actually believe that price of houses is going to drop 50 percent. If prices drop nationwide anywhere near 50 percent, our economy will be bankrupt."

Really? Go to San Diego. The sale this weekend is 55% off list".

Ace is right. This is an auction and in the end, the old price will be as close as the original selling price. The other thing to consider is that location of these condos and townhouses are not in a good area. That's why the auction prices starts at a very cheap $.

[investorguy]

RMF: true that. A recent foreclosure sale saw 92 properties go for no more than 10% under market.

[TS]

I live overseas, in Russia. Russians build houses far better than those in the US. The stick, sheetrock and tarpaper shacks that go for houses in the US would be laughed out of the market here. They are crap. A Russians house is built like a castle and will last for 500 year. All of the shack builders in the US should come to Europe and Russia and learn to build real houses.

[LDC]

Oh, my GOD, we're all going to die!!! Doom and Gloom. The Four Horsemen of the Apocalypse are coming!! All is lost!! The sky is falling!!! Disease and pestilence.

Be sure to renew your subscription to the LATimes for the latest news.

[Steve]

This is great news, the Fed will have to reduce the rate at lease a another full point. I am now saved and can refi all of my ARMS, keep the depressing news coming.

[Dan]

When we bought our house in 2002, the lender wanted us to borrow another 100,00+ because we qualiifed for it. We said no we like to eat also.

[Gringo]

mick gregory: There is a reason why Houston's home prices are much lower than LA's - the quality of life there is much lower. High crime, oppressive heat and humidity much of the year, traffic gridlock, the gulf water in Galveston is muddy and there are oil rigs all around - the smell of petroleum refineries everywhere, and I won't even get into the backwards mentality so many of the people there display. Many people would gladly pay twice as much for half the house in California because it is simply a more beautiful, pleasant place to live. Good for you if you like Houston, but I'm originally from East Texas and would NEVER go back to that hellhole.

[Steve Johnson]

Investorguy, RMF, Ace...etc.

Put $$ where you mouth is. Go to the seller in San Diego tomorrow morning and offer the 53 homes for sale at 10% off the 'list' price. If they don't jump at the offer in 24 hours, I'll give you the 10% difference for you to buy the entire lot at 'list' price.

This is how the seller came up with the 'selling/auction' price:

1) Average annual household income in SD: $70,000
2) Max of 28% of gross income toward your home (Fannie May)
3) 28% of $70,000 = $1,633/mo Max Affordability.
4) 20% down of $250,000 is $50,000
5) Monthly payment: $1,474 for $200,000 loan at 6% (30 year fix) plus 1% tax and $800/year for insurance.
6) Oh, by the way, the HOA is $332.

Get the picture? Get real.

[The Philster]

My fellow Americans.. have NO FEAR! After all in 2008 the Smartest Women in the World will be our new president and we will have free healthcare, affordable housing and we can always be on strike or on vacation like the lazy French.

[investorguy]

Steve: I would never offer 10% off. I would offer 50% off, because I am an investor. I was making the point that banks are not discounting yet in LA, not San diego.

Your numbers are bullsh$t. You're the one who needs to get real.

Never buy retail, moron. You make your money when you buy.

[Gene]

There is a re-model CONDO building in Studio City, CA it was on the market for a long time, prices between 529K-679K, there are 4 units left in it, I don't know who are the people buying in it, and who is providing loans for these people. The construction is crappy, and units are not that large, honestly I am shocked at this point that they have 4 units left. There is no way in hell I am paying 400-500 sq foot. One thing I am going to do is find out the sales cost once its available. LA market is going down however that is for sure.

[BottomFisher]

Maybe we should start a '5 Million Home March'?

[Steve]

Investorguy, No need to make it personal.

Which part of my numbers are 'bullsh$t'?

1) The 'Affordability' set by Fannie Mae? Here's the web site: http://finance.yahoo.com/how-to-guide/real-estate/12822

"The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Two income-to-debt ratios established by Fannie Mae are standard requirements for conventional mortgages. The first requirement is that monthly mortgage principal and interest payments (P&I), plus insurance and property taxes, cannot exceed 28% of the buyer's gross monthly income...etc."

2) The 20% down of $250,000? $50,000 down?
3) The $200,000 loan?
4) The 6% interest?
5) The 30 year loan?
5) The 1% property tax?
6) The $800/yr insurance?
7) The calculation? I used the comprehensive mortgage calculator by yahoo: http://finance.yahoo.com/calculator/real-estate/hom-03
8) The $300+ HOA?

Again, no need to make it personal. Just trying to understand how people are making their mortgage payments. Or are homes overvalued.

Thanks

[investorguy]

Steve: yawn.

[Steve from Madison]

This is a market adjustment.
Investors were throwing money at Real Estate from 2001 till a year or two ago, due to the stock market doing so bad.
This drove real estate prices thru the ceailing, thus attracting more investors and even higher prices.
Well now the stock market is doing better and the investors have pulled thier money out of real estate and certainly have stopped pouring more in, thus prices are falling.
Add to that the subprime foreclosures and you have a little mini perfect strom situation.

[John T Watts]

What a great time for builders to take a nice vacation. Keep an eye on this blog and you will know when it's time to come home.

[smokey]

Steve,

Investorguy is actually David Lereah. Such is the reason for thin skin.

[Inland Empire]

"The first level commuter towns (like a Santa Clarita) already are under 350k for a starter home. The fruther out towns (Palmdale,Lancaster, riverside) are way under that.....

Sorry, but as someone who actually lives in Riverside, I can tell you that my 2 bedroom, 2 bath, 1100 sq foot, 100 year old house has been valued at $330,000, down from $350K a year ago. I don't know what qualifies as a "starter home" for families but most people seem to want to at least 3BR, 2000 sq feet houses and you can't even touch one of those out here for less than $350-$400K.

Even in RIVERSIDE!

If you have been reading the news this week, the I.E. ranked high on business/jobs in the area according to at least one study. With business growing and plenty of affordable homes (maybe not 350K but less than LA in general), more people are making the I.E. home. I might add that the 350-400k "starter" home the above poster mentions buys you a small lot, a "basic" house (not stainless appliances) and no landscaping.
What I think many on this board miss in regard to prices and jumbo loans is that not everyone is a "starter" buyer. Many have bought houses before or have some amount of down payment money larger than 10%.

[Jax]

"Ok, first of all, this is an auction. The OPENING bid will start at 55 percent off list. They will sell for much more than that amount."

*Maybe they will sell for more...........and maybe they won't. Similar auctions have been held recently in Miami & Fort Meyers and the starting bids were 50% off and that's exactly what they sold for. Some decent REO's have been offered at over 50% off in the Sacramento market and there were no takers. If you think these types of discounts are not coming to your neighborhood, you are sadly mistaken. The fundamentals of moving any product dictate that you can't have continually increasing inventory and a lack of qualified buyers without the end result being, falling prices. In the case of housing, prices will continue to drop until you can attract qualified buyers who can get loans and are willing to pay "X" price for a specific property in a specific neighborhood.

[fly4vino]

The good news is that in the long term there is more housing and therefor lower prices. Contrary to what the affordable housing folks believe, it is the total number of homes built that determines the price, not building 2% affordable homes and raising the price of the other 98%. Hopefully they will learn something from this.

The bad news is that a whole lot of people made bad bets and a whole bunch of semi-competent ( too often dishonest) people made a killing off those making bad bets. The bettors were the new homeowners, the investors in the mortgages and those who loaned money to the mortgage holders and originators. Add to this list the number of people who purchased land or lots for development and abd are now learning the concept of land residual value.

Sadly there is a national urge to buy up these loosing lottery tickets so that nobody gets their feelings hurt, but using the taxpayer as the cure for the results of dumb decisions. If we do this our nation will be poorer and we will have thwarted the forces of economic Darwinism which would otherwise punish the greedy, the dishonest and the dumb while rewarding the smart, the conservative, the honest and the patient.

Make no mistake. The foundation of this downturn has been obvious for the past few years but few people wanted to put the pieces together and tell people it is lights out at the party.

Those who believe we must have continued growth every month , regardless of the long term cost have their collective panties in a wad, telling sad tales of folks who took on far too much debt after lying on their loan applications so that they could purchase overpriced homes supported by less than professional appraisals. During this binge those who had saved, worked hard to create a stable level of income and submitted honest loan information paid the same inflated prices as those with little or no savings .

Professor Cockrum, legendary professor of Entrepreneurship offered priceless guidance to his students that is highly relevant to those purchasing a home. Never run out of cash. Translated it means never put yourself in the position where you have to sell your house at a time not of your choosing. Add to that the need to structure your financing so that you are never forced to obtain a loan in a bad market..

One of the saddest days of my business career was spent looking at an RTC portfolio of home loans down in TX during the early 90's. The box was filled with files from people who had purchased their homes in a large new development 5-10 years earlier, many retirees. They had made every loan payment but the loans were now due and there was simply no source for new residential loans, anywhere. We were offered the portfolio as something like $.50 on the dollar with the assurance that once you foreclose of enough of them the others will get the word that you mean business.

[A]

California is growing in population and the current supply of homes is low. The supply of land is not low. Most of California is uninhabited. Developers will continue to build communities into the desert as needed. High prices are caused by irresponsible lending practices, monetary policies, and reckless speculation. Our current Fed and government regime are despicable. They will be replaced soon.

[investorguy]

Smokey: Nope. That's not who I am.

But I am your worst nightmare: someone who is making money in this market -- what are you doing?

[campechano]

Hey Ron K:

First, your anology about overwheight folks whining....I don't get it...try another one.

Second, so now it's the "weak dollar", is it?

He he....

As you said it...what fed this frenzy was psychology ("emotions")....and now the reverse of that is happening...and we're going to see some changes....

[MyLessThanPrimeBeef]

Oh, my GOD, we're all going to die!!! Doom and Gloom. The Four Horsemen of the Apocalypse are coming!! All is lost!! The sky is falling!!! Disease and pestilence.

Be sure to renew your subscription to the LATimes for the latest news.

---------------------

LDC, 'none but a coward dares to boast he has never known fear.'

Trust me, it's OK to panic.

I do it all the time and I am a very happy person.

[MyLessThanPrimeBeef]

And I am investorguys' worst nightmare - I continue to abstain from buying in today's market and thus make money by not losing.

What was that sayiing, 'A dollar not wasted away is a dollar earned?'

[Inland Empire]

Oh, my GOD, we're all going to die!!! Doom and Gloom. The Four Horsemen of the Apocalypse are coming!! All is lost!! The sky is falling!!! Disease and pestilence.

Also don't forget that next year the excuse can be "It's an election year - don't make any financial moves". Followed by 2009's "It's a new administration - don't make any financial moves".

[HAPPYGUY]

I'm pretty happy with housing bubble. I told all my idiot friends do not buy a house at this time, but they would not listen to me and laugh at me. I make 70K+ per year and can not afford even a condo. the current price does not make sense to me at all.

I am starting to save up money to ready in 2012 and i wiil purchase a home when the price hit at bottom.
do you agree with me year 2012 a price hit to bottom?

[Ace]

'What a great time for builders to take a nice vacation. Keep an eye on this blog and you will know when it's time to come home.'

If builders take a vacation, prices will continue to rise. You should be begging the builders to keep building if you ever want to own a home.

LA's population has grown by over 400,000 people since they year 2000. These people need a place to live too. They will be bidding against you for your 50 percent off house next year!

[MichaelSch]

It's amazing how the real estate cheerleaders screw up the perspective.
One writes here: "The number one problem is in getting Investors willing to underwrite loans in a market dominated by jumbo's with no protection other than the buyer's credit and equity. The House reciently passed a bill, HR 1852 raising the limits in Federally guaranteed loans to $700,000."
This one phrase has at least 3 misrepresetation of facts:
1. It tries to tell us that mortgages should be protected by something "other than the buyer's credit and equity". But mortgages by difinition are loans insured by the equity. Any other protection is in fact a government (=taxpayor) subsidy. Why should I subsidize any investor?
2. Changing the guaranteed loans limit from $417K to $700K presented as a simple and innocent act. In fact it directly means the devaluation of $US by more than 40%. It will cause a corresponding inflation. We all will have to pay for it.
3. Finally his "The number one problem". The real number one problem is: real estate prices are inflated much beyond the real value. It's time for the prices to fall. Any artificial support, like abovementioned devaluation of $US will bring more problems and more pain.

[Ace]

'Put $$ where you mouth is. Go to the seller in San Diego tomorrow morning and offer the 53 homes for sale at 10% off the 'list' price. If they don't jump at the offer in 24 hours, I'll give you the 10% difference for you to buy the entire lot at 'list' price. This is how the seller came up with the 'selling/auction' price'

I would not pay 90 percent of the list price for a condo in San Diego. San Diego is not LA. They are a true bubble.

Second, the owner came up with the auction plan from a book called 'how to sell your home in 5 days'. See my post under the auction listing for the details.

[Ace]

I think I am going to start a support group for all of the angry renters. It can't be healthy to have this blog as your only outlet of your anger.

How does Tuesday nights at the Sheraton sound for everyone?

[Ace]

'Ace, you are either in extreme denial or just plain stupid.'

I am definately not in denial. My eyes are wide open. I do not see anything in my neighborhood (Studio City and NoHo Arts) that would lead me to believe that the bubble is gonna burst. Houses are still selling at outrageous prices, new condos are being built everywhere, and more and more people move here everyday. Heck, we just got a few hundred new residents of hurricane katrina survivors last month. The rents are increasing, alot. The rents will push people into condos. The condo owners will buy houses. More people will move here and start the cycle all over again.

[Hank]

There's one important point to remember about the home builder companies making these announcements. They are AFAIK all publicly traded companies. This means that their corporate executives can be sued for making misleading statements.

So, it's much safer from a corporate liability standpoint for them to say things are bad, sales and profits will be bad for a long time, et cetera. Then, if things don't work out as badly as they predict, their stock may have a nice pop to the upside. If things don't work out, well, they told you so.

If I could predict the future...well, Santa Anita will be running soon, and I'd go to the track and make some real money.

Make no mistake about it, new home builders are in for a bumpy ride. But they do have a motive for emphasizing the negatives, just as the NAR has a motive for emphasizing the positive. A grain of salt...

[filmguy]

Bottom line is - home prices were distorted on the upside by insanely loose financing. The mortgage party is OVER, almost no one can afford homes at these prices if they have to pay real mortgage costs. Prices must drop 40-70% to bring the system back to equilibrium. The Fed cutting rates will not help. This just keeps destroying the value of the dollar so that overseas investors will not want our debt. Here in southern Cal, expect to see prices fall off the cliff and not begin to stabilize until we get to around $200k and maybe lower. The good news is that those of use who acted responsibly, have no debt and are sitting on cash are going to clean up buying 'luxury' assets like plasma tvs and other financed purchases for dimes on the dollar when these folks get wiped out.

[Cal]

Ace:"I think I am going to start a support group for all of the angry renters. It can't be healthy to have this blog as your only outlet of your anger.

How does Tuesday nights at the Sheraton sound for everyone? "

You might as well run it every day 7 days a week, we know you aren't busy selling homes.

[MyLessThanPrimeBeef]

Studio City and NoHo Arts district are ready to take a steep fall if the saying 'It's always darkest before dawn' and its converse are true.

[investorguy]

filmguy: I'll bet you write fiction. Because that's a renter's fairy tale you're spinning.

[investorguy]

Reality check time: If sales drop, say, 10 percent this month over the same month last year, that means there are still 90 percent as many sales completed as there were last year.

Take a breath and relax. Let this thing sort itself out.

[MyLessThanPrimeBeef]

I am all for calm and all that naval gazing, but where was invetorguy when 'nobody was building more homes by the freeway anymore and you better get in now' was the truth du jour?

[investorguy]

MyLess: I'd be happy to tell you, but I have no idea what you're asking. If I understand your question, I probably had stopped buying here already because investors get out of the market before consumers and civilians rush in. That's when we sell...

[MyLessThanPrimeBeef]

Investorguy, I meant when everyone was screaming 'better buy now, it's your last chance' in 2005, people could have used your wisdom about not getting too excited and waiting for a better opportunity.

[Hula Girl]

My Prime Beef,
I would've long abandoned this blog if it wasn't for your pithy comments and dead-on sense of humor. - more fun than a pocketful of ferrets! Thanks for giving me something to look forward to besides the loss I might take on my real estate. The bottom is a goal I can strive for and most likely achieve.

[TrickyChrycky]

If houses are -on average- supposed to appreciate at 3% a year, what is a house that sold in 1970 for $18500 selling for $599,999 instead of $55,226.69 ? Yes, I think sellers are completely out of their MINDS if they think this isn't going to bite them in the arse.

http://www.hsfcuonline.org/cw2.1/calcs/Appreciation/calc_appreciation.asp

I despise that my tax dollers are going to bail out idiots. I hate that. They made the mistakes, they should suffer, not me. Anyone who says this bubble isn't going to burst, or isn't bursting, will you please pay my tax bill for the next 10 years? Thanks in advance..

[ThriftyE]

I can put a positive spin on it.

I'll soon be able to buy my own place outright with all the cash I've saved not buying overly inflated real estate !!

It feels great being debt free !!

[investorguy]

Thanks for the clarification, LessThan. As a buddy of mine says: The deal of the century comes along at least once a week 8-)

That's why I look at the numbers first.

[monkframe]

The problem is in part that the state religion, known as capitalism, decrees that owning one's own home is the "American Dream."
So add to that the religious belief that "prices always go up," and you have the recipe for the "bust" phase that capitalism always goes through.
Faith-based investment, it's not just for the faithful anymore!

[David Banks]

Its the price and it always was the price. Raising the limit on GSE to 10000000 will not help if salaries don't support the prices. Lower the price and the house will sell.

[Jose]

A $500,000 house going for $175,000- absolutely. It is a mathematical certainty- do the math. The mortgage on a $500K house (fixed 30 year at 5% interest) is $2684 per month. This will consume at least half the income of the average wage earner couple. Now if the Fed has to raise the interest rates to stop the dollar from plunging in value- say to 18%. As they did in the early 1980’s (almost 18%). Then the same $500K house will have a monthly mortgage of $7535 (fixed 30 year at 18% interest). No average income couple can pay $7535 per month on a mortgage. So, the banks can still collect their $2684 monthly mortgage payment by selling the same house at about $175K but at 18% 30 year fixed. Now, if you were the bank would you bulldoze the house or collect the same mortgage payment for 30 years by selling at $175K. These people that say the houses will never go for these lower prices are the ones that paid $500K+ and are in denial. They cannot believe they paid $500K for a $175K house.

[Bob]

Peter -

Can you provide any insight on what you think is happening in the West Hollywood condo market. I have been sitting on the sidelines waiting to find and buy an entry level 2 bedroom condo. I have been watching the market closely and it seems that a lot of the units are still going fairly quickly. I am renting in a condo bldg. and a 2 bedroom dump just sold for $569k within a week. It blew my mind. The unit had a lot of potential but the upgrades would have put the price tag in the $630 - $640 range. It seemed high. I'm trying to figure out if I should jump in now or wait? There also still doesn't seem to be a lot of inventory in WeHo.

Thanks and love your blog!

[John]

One Simple formula to calculate here .....

a) what is the Cost of building a new Home per sq. ft ... ?

b) How good is it to stay in LA than other Parts of the country and get the Plot Value for it .

Here is what my calculation goes

a) $100 per sq.ft is the minimum money required to build a new home

b) i would rate the value of land in LA and orange county to be the lowest @ $50 per sq. ft and this is precisely the value if you go any where in the world .. even a thirld world country like India has this value ... and looking at the wonderful climate and living conditions that LA enjoys i cannot see it going down because u cannot find a 12 month living and working climate like LA in other parts.

so if you are talking about a 2000 sq. ft home on a 5000 sq. ft. lot size the minimum it will cost for any person to build new is
$200k for the building house and $250k for the land ....

now u guys can decide what the future pricing will be .... unless theres a major calamity or a war .....