Sunday, July 20, 2008

California Sales

DQnews recently posted California sales. What struck me is that 41% of Southern California Sales were foreclosures! That means only 1/3rd as many owner-owned homes traded hands in June of 2008 versus 2006!

Think about that for a minute. Considering how much tighter credit is going to become and how there are more foreclosures waiting to happen in the backed up system than their are buyers for the next 12 months... Consider the implications. Southern California, combined with Florida, Ohio, Michigan, Nevada, and Arizona are really hurting economically. All real estate is local, but all credit is national. Heck, their have been a few articles on how banks will no longer loan against bonus income as that is too variable. One must now save the bonus checks and use them as part of the down payment. How un-American. ;)

California sales in general were so-so. Notice the trend line going forward? Every year has a drop in sales from June on. There is no month later in the year that would be expected to be better than the month we just went through.

LA sales started the year anemic and have grown to weak. LA inventory is at 120,000+ units per zip realty! With over 21 months of inventory, do not expect this city to turn around in 2008 or 2009. There has never been a case post WWII where New York City or LA has had a recession and the rest of the nation didn't follow.

San Diego is the lead lemming. With the shear amount of construction, employment flight, and misguided policies, this city will be hit hard. Only Miami rivals in the number of condos being constructed. Both with have to become far more affordable to end the current glut.

The recent trend in the SF Bay Area sales should give an indication of where that over-hyped market is going. Yes, this is one of the strongest economic areas of the US economy. However, as the rest of the nation weakens, it cuts IT spending which hurts the Bay Area. This area will be worth watching. I can see prices dropping 40% from the peak (per Case-Shiller).

There are only about six weeks left in the California home sales season. Every single graph I've plotted shows that September has very weak sales in a normal year and that the next strong sales month is March. This time, there is too much in the foreclosure pipeline to create a strong spring selling season for 2009.

My last article was my real estate emotions article. Due to the economic pain in California, we are one major event away from Panic. I think we'll hold on until the Fall, but if a big enough even rolls through... it will happen earlier. Since California does more to fund the Federal government than any other state... there is no "its different here." Quite bluntly, the economy is not in a position where it could handle California contributing 10% less to the Federal coffers.

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