Bay Area Housing Woes Continue - But The Spin Machine Works Overtime
http://www.dqnews.com/News/California/Bay-Area/RRBay080520.aspx
For the Bay Area, April housing sales are down 15% over April 2007.
Here's how that compares:
Return to normalcy
It looks like the normal April sales rate is ~7K homes per month. Even during the furious dotcom craze, April home sales peaked at 7.8K. And after the dotcom bubble burst and population decline rose to over 100K, home sales drifted back down to 7K per month.
Arguably, we might head even lower for a while. A lot of people who would have waited to buy were able to get easy credit and bought sooner than they would have. The market in 2005 pulled in folks who would have normally been buying in 2008, for example.
Speculators stuck
If 7K was the home sales rate for residents, it is plain that the 2002-2006 rates reflect speculation. My ballpark guesstimate would be 150,000 homes are owned by speculators and investors. That's a lot of excess inventory waiting to get released into the market
The media is spinning hard
The media wants a happy ending to this story. So they are pointing out that home sales are up 28% since March. Some 1,400 more homes were sold in April 2008 than in March. Does this mean that the good times are back?
I wouldn't break out the champagne yet.
First of all, 26% of the April Bay Area sales were foreclosures. A lot of wannabe investors pounce on foreclosures. Take out the foreclosures, and home sales are closer to 4.7K homes, about the number sold in March.
Now consider that all things considered, this was the worst April since 1995.
Most likely, we are witnessing the first wave of knife-catchers, the folks who jump in too soon. We want to see knifecatchers because it reassures us that this bubble is behaving like all other bubbles. Every bearish bubble enjoys a wave of knifecatching before falling again. Because there aren't a lot of these investors. The sooner that they are pulled out, the sooner the real price drops can start.
Meanwhile, weakness is finally hitting Silicon Valley: Santa Clara county sales are down 28% year-over-year and San Mateo are down 16% yoy. The Silicon Valley home sales are incredibly dependent on stock market options - and those haven't been performing well. Imagine what happens when layoffs start hitting the area.
No remedy in sight
A major headwind is interest rates. The 4% ARM rates are gone. Anyone facing a re-setting loan rate is looking at a significant hit. A $700K mortgage now costs ~$14K more per year. And the rules are much more stringent - downpayments are required and no more liar loans.
Will rates fall? With Congressional meddling on mortgages, it's difficult to say. But they won't fall to the pre-2005 levels.
And inventory is rising. Some 1.5K foreclosed homes sold in April but that's against a rate of 2.3K homes getting foreclosed on each month since January.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/23/MNK0109TLP.DTL
The backlog is big and growing.
Finally, think about the impact on HELOCs. Median home prices in the Bay Area dropped ~$100K in one year. Banks will not be giving credit lines. A lot of spending is going to dry up. The California consumer is the biggest market in the US, and they have no money to draw on.
For the Bay Area, April housing sales are down 15% over April 2007.
Here's how that compares:
Return to normalcyIt looks like the normal April sales rate is ~7K homes per month. Even during the furious dotcom craze, April home sales peaked at 7.8K. And after the dotcom bubble burst and population decline rose to over 100K, home sales drifted back down to 7K per month.
Arguably, we might head even lower for a while. A lot of people who would have waited to buy were able to get easy credit and bought sooner than they would have. The market in 2005 pulled in folks who would have normally been buying in 2008, for example.
Speculators stuck
If 7K was the home sales rate for residents, it is plain that the 2002-2006 rates reflect speculation. My ballpark guesstimate would be 150,000 homes are owned by speculators and investors. That's a lot of excess inventory waiting to get released into the market
The media is spinning hard
The media wants a happy ending to this story. So they are pointing out that home sales are up 28% since March. Some 1,400 more homes were sold in April 2008 than in March. Does this mean that the good times are back?
I wouldn't break out the champagne yet.
First of all, 26% of the April Bay Area sales were foreclosures. A lot of wannabe investors pounce on foreclosures. Take out the foreclosures, and home sales are closer to 4.7K homes, about the number sold in March.
Now consider that all things considered, this was the worst April since 1995.
Most likely, we are witnessing the first wave of knife-catchers, the folks who jump in too soon. We want to see knifecatchers because it reassures us that this bubble is behaving like all other bubbles. Every bearish bubble enjoys a wave of knifecatching before falling again. Because there aren't a lot of these investors. The sooner that they are pulled out, the sooner the real price drops can start.
Meanwhile, weakness is finally hitting Silicon Valley: Santa Clara county sales are down 28% year-over-year and San Mateo are down 16% yoy. The Silicon Valley home sales are incredibly dependent on stock market options - and those haven't been performing well. Imagine what happens when layoffs start hitting the area.
No remedy in sight
A major headwind is interest rates. The 4% ARM rates are gone. Anyone facing a re-setting loan rate is looking at a significant hit. A $700K mortgage now costs ~$14K more per year. And the rules are much more stringent - downpayments are required and no more liar loans.
Will rates fall? With Congressional meddling on mortgages, it's difficult to say. But they won't fall to the pre-2005 levels.
And inventory is rising. Some 1.5K foreclosed homes sold in April but that's against a rate of 2.3K homes getting foreclosed on each month since January.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/23/MNK0109TLP.DTL
The backlog is big and growing.
Finally, think about the impact on HELOCs. Median home prices in the Bay Area dropped ~$100K in one year. Banks will not be giving credit lines. A lot of spending is going to dry up. The California consumer is the biggest market in the US, and they have no money to draw on.
posted by Andrew at
6:26 PM
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