Local Sales (DQ)

The latest stats on home sales were released by DQ news (ok, I'm tardy blogging them). Basically the trend is a weak 2Q2009 home sales. Oh, the local REIC is trying to make it sound like its almost a seller's market.

It will be interesting to see how we do this winter. We're unlikely to see 2003 before late next year or early 2011 in 90505, 90274/90275, and 90277. But 90278 is almost there. A little winter weakness and it could be there...




With the huge fraction of California mortgages not being paid... its going to be interesting times ahead.

Got Popcorn?
Neil

DQ news, July

I mentioned before that July and November are two months where the data should be just lumped into the quarterly numbers. Unless something had really broken out, the data for those months can be very noisey.

So I charted data from dqnews.com. Sales aren't great for a July. But nor were they bad.

Price per square foot is back to 2004/early 2005 levels. I notice 90278 is slipping back to 2003 values. This could be interesting.

From my perspective, I find the linear drop in price per square foot in 90275 very interesting. Its a linear trend down. $17/ft^2/MONTH! The trend was for zip codes of interest to be dropping $30/ft^2/YEAR! I will be very curious if this trend continues. Since 90278 and 90274 did not drop as 90275 did... I suspect its a trend that is about to be broken. As a potential buyer. :( But then again, one more month of this trend erases a bubble year, in four months!

Basically, nothing broke the downward trend. We have only August left of the 'sales months' of the year. Overall, the dq data (LA times) showed a lot of areas struggling to sell.

Got Popcorn? (Thanks for the icon on CR Ken!)
Neil

Inventory

I've been lazy tracking inventory. One data point in a month. oh well... at least I have detailed past data to compare with. The quick summary is that inventory is starting to climb up in many areas, but is still low compared to the last few years.

Note: DC and Houston are starting to look quite healthy; since their job situation is 'ok,' they could be done with the downward trend. The only question is hidden inventory.

Here in California, 9% of the mortgages are in default. That's a HUGE hidden inventory. If those mortgages are fixed so that the 'owners' can afford the mortgage, that's the same as cutting the home sales price.

Note on the upgrade market: Its dead here in California. I do not expect it to return for 5 to 7 years. Since the areas I want to buy are at inventory levels at or near the levels before everything fell apart... and Alt-A is just starting to tickle the market... I'll wait.

I still think the bottom in prices (National and South Bay LA) will be February 2011. I expect a long 'churning flat' after then as ALT-A and prime implode. Between now and then... we exit this 'calm of the storm.' I'm coasting until I see the August data (in September). July is a non-event for Real Estate in California. No conclusions should be made off July data (good or bad, same is true for November). But to get through this storm, we have the seasonal October-February "Buyers Market" to get through.

Let's just say the OC Register's attempts to make it sound like bidding wars are the norm amuse me; the best strategy for a home seller is to price below market and let the market work (bids up the home to market). Yawn. I've been suggesting that strategy to sellers for two years. Now let them mention how many chase the market down...

Keep in mind Realtytrack's latest on foreclosures:
"In spite of the industry-wide [foreclosure] moratorium earlier this year, along with local, state and national legislative action and increased levels of loan modification activity, foreclosure activity continues to increase to record levels,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes’ are now worth represent a potentially significant future risk…."

There is no Real estate price recovery until incomes improve.

But the whole point to my plotting data if for you to make your own conclusion. Just realize how hard it would be to do a worse investment than SoCal Real Estate during the last five years.

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Neil

Local Sales Data

Home prices continue to drop. All of the zip codes I plot dropped in $/ft^2 terms. Only 90275 had decent sales volume (of course, where I wish to buy). I set up trend lines months ago on $/ft^2 and have not had any reason to adjust them. The market appreciated about $70 per square foot anually on the way up. Now its dropping at the rate of $30 per square food anually on the way down. Or is it...

May, June, or August are the three critical months of the local sales year. In terms of $/ft^2, May and June have been weak. This implies either buyer resistance/fear or that the market is about to capitualate. I think its the later, but the data does not *yet* prove it. It does look like 90275 has broken below $450/ft^2, but let us wait for August data to confirm that.

I should mention a little about the local selling seasons. I'll post July's data, but I'll warn you there are two months locally that do not deserve to have any conclusions made on their data: July and November. November is due to the holidays. The data could fluctuate any which way that month and it wouldn't tell us a thing. July is a weird month. Sales can spike or plummet in July and it would probably correlate best with vacation packages or the price of steaks at Costco; its certainly not a month that produces numbers of interest (locally). Yes, this July is also impacted by 'Bear Chits' (California IOU's) too. Hence, we'll make conclusions after August's data is available. February is the darkest month of the bad selling season (October-February). However, December does have a spike in closing, but I speculate that is just for tax advantage and does not compare to June-August closings. The exception being December 2007 (with the market turning south).

Another caution: While prices seem to be turning down since April at a faster pace, I would hesitate to make a conclusion before seeing the August data. If you cannot tell, I'm expecting no surprises that waiting buyers wouldn't like to see. But I'm not yet ready to declare a major change.

Note: Some friends & coworkers are noting its tougher to procure a mortgage above $417k locally too. Rumors are that mortgage insurance above $417k loans is tough to find. If that is the case, prices in this region of 10% down payments is going to make a huge belly flop. I suspect everything possible will be done to bring back the 'conforming jumbo' ASAP with 10% down. I do not think that any effort will work out, but the REIC will try. (I'm a fan of *real* down payments to stabilize a society.)

We could see the dollars per square foot drop pretty quickly soon... or it could be a blip. Stay tuned.

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Neil

The graphs:
Note that the slopes on the sales trendlines are calculated by excel:

Inventory

I'm chuckling reading the comments from my last post. Yes, Inventory is down, but I still find it interesting. I also find there is a disconnect. Homes show up in the local MLS already with an offer. While I can only point to one agent doing this, I wonder, are homes being marketed before being put on the MLS? Significant? I doubt it, but interesting.

Ok, Inventory is way down. Everywhere I've been tracking. Heck Phoenix is below 40,000 (I lack detailed historical data as OCRenter used to have great data before that blog went private, so I didn't bother to track it.) Remember when it was 64,815 in Phoenix? 3/26/2008 is the peak I recorded. But there might be a day when it was fractionally higher. Today Phoenix is at 37,828!

Palm Beach (which by Ziprealty includes areas too far away to really be palm beach, but I was lazy and just used their inventory) peaked at 132,636 on 2/28/2008 (which was estimated to be a multi-year inventory at the time). Now its at 90,478. So Palm Beach county is still in deep chit.

Do note my south Bay LA only includes Torrance, Redondo Beach, RPV, PVE, Rolling Hills, and Rolling Hills estates. Yes I realize Hermosa and Manhattan beach would be among the high end areas... but I skipped to only tracking where I wish to consider buying.

Oh, I've been recording data since 11/9/2006 just for the record.

So in celibration of the Bear chit (California IOUs), I bring inventory graphs!

June Real Estate Emotions.

Well... I missed the transition to Capitulation. But in the zip code I care about, you can see a roll into it starting a week ago. Why do I say this? People I know who own and I thought could afford multiple homes are now putting their *primary* home on the market. Families I know who proudly held onto oversize homes are suddenly finding an urge to downsize and move closer to grandkids. Quite a few people just decided to 'retire' (business dried up) and move full time into their vacation home.

While Capitulation seems to be happening is Phoenix and a few other cities, it certainly isn't national. Ok. We're towards the last part of the best time of the year for sellers.

For California, the budget debacle will probably be blamed for tipping us into Capitulation. But I do not think the budget is the root cause. Its just a coincident event. Any tax increase will just be an excuse to cut unprofitable business ventures. Any layoffs will be minor compared to what is naturally happening.

I'm seeing more people going to mocking buyers. We've been hearing this since 2003. Its not going to work on the people that held out that long. Investment emotions have to be worked through. It is a process that cannot be skipped. We've gone from being too invested in real estate to 'doubling down.' Instead of investing in infrastructure, we've extended the bubble. Which as kept the builders building... which lowers the final bottom price. :)


The latest update by Fitch is that CA real estate prices will drop 36%.

Their national prediction seems reasonable. I would have put California price drops, in a longer timeframe, at 30%. We'll see which is right.

In December I noted: "What I'm noticing is that no one seems to be willing to say real estate is a bad investment!" 40% of the local homes are selling to investors!

What I'm seeing is homes that are well priced and qualify for a FHA loan are selling quickly. But what really interests me is that the 'well priced' home is getting better month by month. Local sales are pitiful. Where are the months that break 100 sales per month? That used to be typical for many of the local zip codes? Ranch PV (90275) Sold a mere 17 homes in May at a Median price of $970k. Wait... that is a conforming loan with 20% down! There is an absolute wall above conforming+20% down. Heck, conforming +10% down is slow.
DQ-link, updates to latest (no archive)



But then we see rates on jumbo and jumbo conforming disconnecting from the standard product. Not to mention the jobs situation. Nothing like a dose of financial reality to splash cold water onto the local market.

What I'm seeing is people are willing to jump in (FHA). If they miss-bet... well, it was only 3.5% and they're planning to keep 10% of the home's price is a crush fund.

As I noted before, the home market is still worse than I expected. I'll repeat what I've been saying: "For those waiting for the crash in house prices in high end neighborhoods, the big drops happen during Capitulation." You have only a month or two to wait until the start of Capitulation and then another year for the emotion to do its job. We're rolling into the emotion. Let's face it, at today's prices, a buyer must go 'all in' to purchase. Any financial hiccup and they lose their down payment. Should it surprise anyone the market is retreating to FHA? Oh, a few are trying to get ahead.

I'll update this figure when we're into capitulation. We're so close I can almost taste it. The buying season is dying off. Pretty much everyone I know has a close friend who has been hit hard by this downturn. Heck, everyone I know also knows someone with a failed flip.



















1. Optimism
2. Excitement
3. Thrill
4. Euphoria (market price peak) Peaked in late 2005/early 2006
5. Anxiety (I'm a long term investor, not a speculator. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. Desperation: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
10 Capitulation: Spring 2009 Mid to late summer (update) 2009 well into 2009.
11 Despondency (start of market price bottom) Not before Summer 2010 (updated). Possibly as late as end 2010 (unchanged). Much more uncertainty here.
12 Depression (end of market price bottom) Not over before summer 2011, probably later. It could be as late as 2014. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)




I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
















I wonder if everything falling apart won't correct house prices like the stock markets. Oh... there will be a six month delay (or more). We're on an accelerated cycle. Panic started barely within my fall prediction. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).

I miss prediced too short of a panic (six months, it looks to be 10). We're just now blending from Panic into Capitulation. Remember, Capitulation is the time of the greatest price drops. I'm referring to total rate of dollar value drop off. I'm thinking Lancaster might be close enough to the bottom.



Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, there is a chance of a protracted downturn than the last one. I would love it if someone who point out a forward looking indicator that isn't ugly.

To think, the majority of layoffs lie ahead.



Now, there are some positive indicators out there.
But look at CR's latest on DC.

Prices track incomes.

Thus, why I think there are a few areas worth buying into. For most, wait.
The #1 indicator I'm seeing is that some of the loudest 'Prices always go up' people I know have put their homes on the market. These homes would have easily sold for $1.3M to $1.7M during the peak. All quickly drop their prices to below a million. Some then sell, some are still sitting. All above a million... sit. Its the homes that were going for $1.9 to $2.2 that seem to be able to fetch $1.3M right now.

The local equivalent of Case Shiller has been dropping fast. I'm really going to be interested to see the $/sqft for September 2009-February 2010 (see two posts ago). It has the feel of a sharp turn down coming (not yet here).

Until employment improves, housing will tank. Too many areas are near or breaking 10%. What I'm worried about is that people I *never* talk economics/housing with are scared of depression. That meme has taken hold. I'm talking about parents I interact with to be a parent. Around the kids, it should only be about the kids. But too many parents are fearing for their job.

I'm going to remember this spring bounce of optimism. It was interesting. It makes it clear why my fellow bears insisted emotions last a year. I will modify that, they can only change if the seasonal mood helps enable the change. For the stock market its 'Sell in May and go away.' For housing, the spring selling season is quite the drive.

Oh, five friends have admitted selling every stock, mutual fund, etc. They have retreated to T-bills. I'm talking everything (including 401k's). Too many have not made money for two decades in the stock market. While this could reverse quickly... it indicates a sharply changing emotional state. Of those I know who invest in real estate, only a small fraction have any capital left. With 40% of sales to investors... it will get interesting.

Late edit: I notice the latest REMax commercial is sellers 'waiting for the market to heat up' instead of 'buyers kicking themselves for not getting into the market.'
Rotfl. While I appreciate the Realtors (tm) must advertise to both sides of the market... I think their advertising board might be accepting reality.

Got Popcorn?
Neil

Blog recommendation

I was recommended this blog and its well worth the time to read it. For those looking into Long Beach, or lofts, I found it an excellent read.

Yea... Its on CR's blog roll too. Time is too precious to review all of them!

http://www.longbeachhousingblog.blogspot.com/

Got Popcorn?
Neil

Trends updated

This is an update with the recently released April data for California.

My conclusions are not changing. While the last few data points are above trend, there is no break in the overall downward slope. We should expect a season spike this time of year, but what the CAR is raving about is a really weak seller's season. In none of the zip codes is there anything but noise around the long term trend.

I'm assuming that any potential 90275 buyer looks at that coastal developments that are failing:


http://www.terranea.com/,
Wait... they next a tax break!
http://www.dailybreeze.com/news/ci_12302705

Terranea is locally famous as the reason it was given the go ahead based on the expected tax revenue for the city... hmmm...

or
http://www.trumpgolfcoursehomes.com/

ROTFL. Their own web side points out that out of the first 5 homes constructed, only one is is escrow!?! So Trump sues the city as some of the lots are unstable (the local 'slide zone' that swept the signature golf course hole into the ocean)... sigh. 1 out of a planned 50 sold. Trump, leave the city alone. This is like your Baja, Tampa, and other projects, a failure.

One out of 50 sold... talk about a missing the boat. Its called 'hamburger hill' for a reason. People stretch to get into the good school districts in RPV. The 'flashy money' is in Manhattan beach, various Westside areas, or elsewhere.

The data really says it all:
1. The price per square foot is declining.
2. Sales are slow. Again, only Rancho Palos Verdes, 90275, broke 20 sales in an area where, for this time of the year, pre-bubble sales would break 30 per month for every zip code!























Why am I being harsh on the coastal developments? They are far overpriced for the local market. When that one home closes in Trump National, it will skew the data. How could the only sale above $2 Million out of 20 sales not skew the data? I have no idea where in the $8M to $10M price range that sucker is going to pay. But ouch... RPV is not where people buy estates. Oh, there are a few true ones in 90274. That is not 90275. There simply is not a market for the combined 82 McMansion 'estates' these two developments are trying to sell.

I have not done my real estate emotions lately. Basically, we're still in Panic. Capitualation isn't here yet. But that is next... When these charts turn down, we'll know we hit the next investment emotional state.

Got Popcorn?
Neil

Long Term trends for 5 zip codes

A coworker has been saving the DQ data since March of 2003. Sadly, the REIC pulls the data off after a new version is released.

But this data tells quite a story. Sadly, it has personal information so tied in with it, I haven't had time to scrub it. This is the *full* data set for LA county though.

Since I'm only interested in single family homes, that is all I will plot. Also, the data is on a bunch of excel spreasheets in varying formats, so there was quite a bit of effort just to sort out the data for a few zip codes. I have all the torrance zip codes... but whenever sales were low, it was "n/a" if the data was ugly and a high value if it showed what the REIC wanted people to see... Grrr...

I really think the graphs speak for themselves. But I'll still comment. ;) These are my first choice zip codes to buy into. Look at that sales graph! It tells us clearly this area is *not* done dropping.

90275 is my first choice zip code to buy into. As with Case Shiller, we can see that the price per square foot peak was in 2006. Just earlier than Case-Shiller!


















Look at the sales trends. Notice the long term decline? It looks like people were 'priced out forever' before this data series even started. This leads credance to the theory that the bubble really started earlier than many people suspected. Certainly earlier than I was aware.





















I've been curious which areas 'align' where I wish to buy. 90274 was easy too eliminate, its low sales rate and variety of unique (and pricey) properties had me cutting it first. But then I noticed that these three zip codes align on a price per square foot basis... Notice how they all align? So much for it being 'different here.'

















We're not ready to buy now. But this data strongly suggests that waiting is the best strategy. We hear the noise of the recovery... there might even be a blip. But the long term trend is clear. Prices and sales have yet to recover. Sales must recover 12 to 18 months before prices. So waiting is pretty safe. :)

I'm still shocked how 90275 dropped from 60+ sales per month to where 20+ sales in a month is considered something for the CAR to brag about. Note: All 5 zip codes should be seeing 20+ sales per month! Not one out of five! Most actually should be seeing 30+ per month... None are above that threshold (yet).


Now to take off the bear's hat. One truism that the bears have held is the downturn would be as steep as the uptick. So far, its at a much lower slope (I 'eyeballed 90275). Does that mean?:
A) 'green shoots' is sort of working...
B) The worst lies ahead
C) The theory was wrong

They say the 'trend is your friend.' Well, this is an interesting sales trend (same sales per month plot, with a few trendlines). The sales trendlines do look like they are approaching a singularity. This, to me, implies we're at or near the sales bottom. Certainly by next February. That isn't the same as a price bottom though.

Inventory

I've been really bad at both blogging and tracking inventory. Mea Culpa. Inventory is down everywhere I'm tracking and crossing through 2007... EVERYWHERE! The most dramatic drops, which I haven't been charting, have been in Palmdale and Lancaster California.

Palmdale has 1,094 homes on the market. Peak was at 3,281 on 9/17/2007 (per my snapshot).

Lancaster has 1,133 homes on the market per zip realty. Peak was 3,521 on 9/27/2007 (ten days after Palmdale).

Greater Palm Beach Florida is even below 100,000 (peak 132,636 on 2/28/2008)

Phoenix is at a mere 45,086. Remember when it was at 64,815 on 3/26/2008? On 5/4/2008 it was still 62,071.

Something seems odd though. Why is LA inventory down so much? Why is any inventory down so much when so many people are known to be doubling up. I speculate the foreclosure moretorium... But is that enough to explain it? I see two groups of buyers. Those confident of their job who are leaping at the chance to buy and those being more hesitant.


Ok, inventory graphs that speak basically for themselves. We're crossing through 2007 pretty much everywhere:

Case-Shiller released seasonal worst month of year

The Case-Shiller data for January was just released. Normally, the fastest price drops of the year happen in this data set. Now, for Florida and maybe a few other places, it looks like February could be worse; but for most areas we expect slower price drops until November.

So expect your favorite Realtor (tm) organization to state how much the market is improving.

Since Calculated Risk does a much better job of documenting the big picture, I focus on the last 3 cities that held their Case-Shiller above 200: Los Angeles, Miami, and DC.
















I believe the derivative provides even more information than the absolute number. Notice the seasonality? The greatest drops are October-February. Suddenly for march the slope changes, pretty much every year and I do not expect an exception for 2009. However... I still expect the overall year to be negative. Loan rules keep being rewritten.

I also wonder when the black hole of 'off the market foreclosures' will be relesed. Sorry... but I know of too many people who haven't made a payment in 9+ months. When the time comes, they'll move back in with mom and dad. Too many bedrooms for too little income.


















What is it with journalists pointing that the price declines are easing in LA?!? A 2.87%/month price decline might be less than the peak of a year ago, but it points to a bottom in 2011, not even 2010!

Now I'll do a caviat. You could see miniscule price increases, per Case-Shiller in May-August. But... they will be given up in the winter.


e.g.:

yeahoo article













Oh, any price increases will require the job market to stop sucking. Do you think that will happen? Historically, the price bottom is about 12 to 18 months after the employment bottom (or when employment is starting to rise again).


Thankfully, unless there is a huge surprise to the downside, I think we're starting to come to the end of the worst of this recession. Now when are we going to fix the trade deficit? We have to (again, as we did for a little time under Reagan). By trade deficit I mean oil and goods (China). Not to mention, its going to be 7 years before easy credit rears its ugly head again (and it won't be as easy for 70+ years).

Got Popcorn?
Neil

Saturday Music

Mea culpa to all the blogs that started this trend years ago.

But I've been having too much fun watching bearish Youtube songs this morning.

You've got the Fed was a nice morning song:



Got Popcorn?
Neil

Data and regrets

I'm really regretting not recording the LA Times data from DQ news more often.

My only other snapshot is from July 2008.

http://www.dqnews.com/

Why? I'm comparing $/ft^2 both where I want to live and some 'interesting areas.'
I just captured the Febuary data.

Just a few zip codes of interest on home much the SFR $/ft^2 has dropped:

Lancaster 93534, 93535, 93536 are down 26%, 33%, and 22% respectively
Manhattan Beach 90266, is only down to $702/ft^2. (1% drop)
Malibu 90265 is down $501/ft^2 or a 22% drop
Palmdale 93550, 93551, 93552, 93591 are down 33%, 22%, 28%, and 49% respectively
Palos Verdes Pen (90275), down 3% (but very few sales, 7 SFR homes)
Pasadena 91101, 91103, 91104, 91105, 91106, 91107 is down 20%, 14%, UP 37% to $470/ft^2, and down 4%.
RPV 90275 is down to $410/ft^2! or down 18% from July! (My first choice zip to buy.)
Redondo Beach 90277, 90278 is down 5% and 19% (nicer area down more?!? Wait... only three 90277 sales in February...)
Torrance 90501, 90503, 90504, 90505 area mixed, down 6%, NO SALES, down 8%, and the last two are up 5%

There is much more. I really wish I had taken more data for I do not know the month to month variety (extreme due to low Febuary sales). I would also like to compare with February 2007, 2006, 2005 (ok, before I was blogging here).

What does this tell us? Not much. Without knowing normal month to month variation... I could be makign conclusions off 'noise.' But what about the price increases (numbers in bold above)? That is price increase per ft^2. I'm not sure what to make of it yet.

But RPV (90275, had only 12 Single family (SFR) sales and 4 condos in February with inventory of 148 to 153 during the month... (per snapshots by me of ziprealty inventory on 2/1/2009, 2/23, and 2/26). Hmmmm... 164 on the market today.

but 90274 is more interesting. 8 total sales (1 condo) and inventory of:
PVE: 98
Rolling hills 21
Roling Hills estates: 44

Hmmm... 163/8=20 months of inventory. Me thinks the great squish down continues...

Off topic:
I've secured my job, but I will be expected to travel 1/2 time. Certainly not the end of the world, just not my ideal. For example, my lunch today was spent holding my infant daughter on a pony saddle! She loved it. If I'm traveling, such events with 'Daddy' will happen less. One makes choices. Note: New efforts are being done to 'accomodate my preference' to spend more time at our main location. But spring and Summer (at a minimum) will be spent with a lot of road time.

Also, the wife likes the idea of a Macbook. I almost forgot I promised her that our next computer could be a Mac... 'Could be' is becoming 'will be.'

I'll take snapshots more often and I've added Ventura, Orange, Riverside and San Bernadeno counties (its all on the same web page, so why not).

I speculate we are in the last major year of decline. But are we? This doesn't mean rush to buy... (Its best to buy after the bottom.) Late edit: I have posted in the past that, for myself, its best to buy before the bottom for best inventory selection. I still believe this. But its tough to blog with advice for those *really* following and those just reading for the first time. But the trend will be interesting.

I'll restart my 'emotions' series after I travel for a bit more. So do not expect a February update. Overall, people are excited to buy. But I look at those Palmdale $/ft^2 that were once much higher and now are $43 to $94/ft^2. I'd swear I saw it break $300/ft^2, but I didn't save that snapshot of the data.

Oh... notice I never talked median price? Worthless statistic in my opinion.

Got Popcorn?
Neil

Wife to be laid off

We knew this was likely as she works for a bank.

My wife has received notice that she will be laid off in 5 weeks.
The severence package is... unbelievably fair. Over a year of pay
and benefits (minus 401k matching, serously the only cut!).

My job has also become far less secure. :(
Oh, I have an out. By 'volunteering' for a high travel assignment,
I secure my position for a while. (In negotiation, I only found out yesterday.)
My previous boss wants me back and I do not have enough supporters to be
'bullet proof' at headquarters. :( But it means a ton of time away from
my wife and daughter.

Kinda sucks after getting another awsome review
(but pay raises are tiny this year, my lowest ever).
But my skill set has gone from being in short supply to a surplus with layoffs and
a few individuals 'reading the tea leaves' and taking early retirement.

Thank God we didn't buy. Why?
1. Our little two bedroom cottage has low rent (for the area)
2. Lawn service is included
3. Its not that hard to clean
4. Down payment sitting in CD's. :)
5. We can *easily* rent on just one income.
6. We were living as if we had bought a place that cost $850k, money has been 'tight.' Now that is an 'artificial tight' as we were pocketing the
difference into our 'car and furniture fund.'

One of the reasons I haven't blogged as much is the nervousness that these
two events would happen. Now that they have... at least we know how to adapt.
Heck, after travel pay and benefits, we should save more in 2009/2010 than
any other year. But I do hate the travel and we'll have to hire a maid (I refuse to let my wife handle cleaning chemicals while breast feeding).
I did this travel for years and burned out on it.
I've only been off it for three months and did not wish to go back. But in this
economy, its not a time to be picky. At least I'm not burnt out on travel anymore.

Oh, this travel is why I felt so qualified to do the national emotions. I'll be back at it. All corners of the US. Sigh... Hawaii travels to visit us not vice versa.

Family has volunteered to help my wife while I'm away. In particular, there will
be four weeks I'll travel while she must work. ugh...

Oh, if you travel and like to read. Buy a Kindle. I LOVE it! My one splurge lately. What book are you in the mood for? I have over a dozen loaded and two of my favorite authors are about to release a number of books onto the Kindle. Warning: the available selection is much more limited than Amazon advertises. Tons of classics, but weak on releases over the last few years.

Got Popcorn?
Neil

ps (late edit): What laptops do you recommend? My personal one just overheated/fried and needs replacement (right after a FULL backup, no file losses). I'm looking for a *tiny* one
as when I travel its best to have computer for work and another for leisure. Why?
#1, work turns off the wireless (no free hotel Wifi).
#2, no installing software on the work computer (e.g., games, firefox, etc.)
#3 I often leave the work laptop 'on site' for file transfers.

I'm seriosly thinking Linux, but how is the photo editing and speadsheets now? When I last used Linux, I had to dual boot into Windows for those features.

What I need:
100GB+ of storage (huge photo collection, mostly of my daughter, that I will not do without)
2GB+ memory
Minimal games capability (I haven't bought a new game in 3 years... I play maybe
one hour per week, but its good R&R when frustrated.)
3+ hours of battery life.
Some ruggedness as travel is hard on a laptop.

I own an external DVD writter (USB), so I can do without that built in.

I'm willing to consider an Apple laptop too. I guess its time to read the reviews..
But then again, if I give up the games, the Kindle's internet access is just good enough (and I could buy a portable USB frame for photos). Decisions... Decisions...

Neil

Miss titled articles

Its spring and the NAR is publishing reports about how "its a great time to buy."

In this mistitled article I found an interesting quote:

Determined to remain in their homes, 72 percent of adults reduced spending in the past year in order to make monthly mortgage or rent payments, mostly by cutting discretionary spending such as vacations, entertainment and eating out. Regardless of age, most Americans are cutting spending back from some aspect of their life to pay housing costs, according to the survey.

But “It’s not all doom and gloom,” said Move, Inc., CEO Steve Berkowitz. “We found Americans are optimistic about homeownership despite concerns. They’re doing everything they can, from reducing discretionary spending to pay their mortgages, to planning to take advantage of the administration’s new program to stop foreclosures.”


Wow... that's a spin. (emphassis mine) Quite bluntly, people are waking up to the fact their home isn't affordable. The economy will not function if everything is being done to service debt.

Home sales are down at a normal level. What happens if they actually drop to a recessionary level?

Got Popcorn?
Neil

Retirements, interest rates, and home inventory

Companies are doing retirement buy out packages right now. Not great ones... but when you consider the low interest rates, people are able to cash out their pensions for large amounts.

What this is bringing to the table is home inventory. I congradulated a few people retiring this week. Its all the same story:

1. They already have their home in escrow (to sell) in the 'beach cities.' This is *before* commiting to retire.
2. They are retiring to already owned (mortgaged?) property outside of the 'urban zones.' (Either on water or on a mountain with a spectacular view.)
3. Cash out of the pension
4. Large stock market losses (forcing sale of urban 'work area' home)

All wish they could have sold for the $250k more of 2006. But all realize now is the time to move on.

Oh... I know more than a few companies where these workers will be 'unemployed.'

Interesting consequence of low interest rates (home will sell, pension cashes out for more). But what does this do for the company (Due to the pension benefit hit)?

I'd imagine similar effects are going to hold true with government workers. (Sans pension cash out.) Has the government tried to help the retirement scenario in order to make the layoff scenario less scary?

Side note: Multiple of these retirees were considering buying a downsided place (e.g., a condo) in the beach cities of LA to 'keep in touch' with friends. More than one has realized:

1. Large boats are cheap today $30k for the floating condo!
2. Slips are available (rare for LA) and the fees are reasonable.

Got Popcorn?
Neil

Daily Breeze on South Bay LA home sales

Hat tip to Ben Jones' excellent HBB blog.

http://www.dailybreeze.com/ci_11797406

I find it very interesting that less than 30 homes sold on the PV Peninsula last month. There are 313 on the market as of last night. I haven't been tracking the inventory much this year (I'll get better), but have 277 homes for sale in the four cities that make up the PV on 1/5/2009, 297 on 2/1/2009, and 309 on 2/23/2009.

The LA times lists the January sales as 9 single family and 3 condos (from DQnews).

277/12=23.08 months of inventory. Now, I expect some spring improvement, but its very unlikely we'll drop below a year of inventory in 2009.

I think we're approaching a local capitualation as Realtors (like the one in the daily breeze article) are now conceeding 2009 is a lost cause. They're swamped with desperate sellers and very few buyers.

I think its the perfect time for the Screen Actors to rattle their saber. Will they strike? I double dog dare them. ;) (The blowhards are powerless.) edit: I have friends who work the film industry. I do not take joy in what's happening, but the SAG had over a year to be sensible and instead they were stupid. This once powerful union went from feared to sidelined in less than four years. If they strike, many middle class individuals will be hit hard. The 'big name' actors are effectively corporations that will be fine. Just the threat of a strike forced industry wide cutbacks for the entire 1Q 2009. Let's see how SAG handles commercials. This will make or break the union. There was a lot more money flowing around when negotiations first started. Now they're going to be fighting over the scraps instead of the ribeye steak.

Got Popcorn?
Neil

edit: One of my coworkers bought on the PV peninsula in February. He knows of other February 'sales' that went pending amoung his friends. So I expect sales in February to be much better than January. But not enough to drop the inventory enough to matter. There are too many homes overpriced by $1M+ over what the market will bear today. But I bet the Realtors will spin this. March sales will show us how truly broken the market is.

Case Shiller

Case-Shiller just published their December results. Its a bit scary. Since other blogs do a better job of discussing the 10 and 20 city results, I'm going to focus just on the last 3 cities that remained about 200: LA, DC, and Miami. They are all crashing and going down together.

The chart of the three is here. But its going to be the next chart that tells the story:














What is the trend of the monthly losses for each region? Amazingly, they are behaving very similarly. This implies that its a national phenomenon. Its not 'different here.' Now, we're at the point of rolling losses. I'm watching the ex-urbs of LA almost stabilize (they're still dropping) while the inner core is now pulling down Case-Shiller. Where I want to buy, my wife is seeing 30k to 50k drops per Month!

Notice how all three cities have stabilized at about a 2.5% drop per month? Also note the last spring selling season. For March through July, the rate of drop decreased during the seasonal 'sellers market.' It wouldn't surprise me if DC's rate of drop went to near zero during the selling season. I suspect Miami and LA will show much smaller 'seller season' trends in 2009.

August through February is the 'buyers season.' Its very clear on last year's Case-Shiller derivative. The only question is how will employment and the overall economy effect buying?
















We've had two straight years of declining home values. I stand by my prediction that 2009 will be the most brutal year for price drops nationally. With the Asian markets now net sellers of Fannie and Freddie backed bonds... The 729k 'conforming jumbo' is a bit of a joke. They're going to be tough to aquire.

Do note that in the case of LA, these 2.5%/month price drops were occuring while everything possible was being done to slow down the entry of foreclosures onto the market. All those stupid laws have done is:

1. Tighten up mortgage rules
2. Delay the introduction of inventory until the spring buying season (which I call 'sellers season' as it is the best time to sell a home during the year).

Some areas will fall harder than the cities I ploted. I have no desire to beat up on Detroit, so I'll do no more than mention it. Las Vegas is doomed. Same with Phoenix; both are dropping faster than the examples listed.

Doing some simple charting, we won't see an increase in Case-Shiller before the 2011 selling season. There is quite a bit of downside potential between now and then. Oh, if you get the bargain of a lifetime, go ahead and buy. I'm going to wait until 2010. I still see price drops ahead greater than $100k. Thus, its not yet time to buy.

Got Popcorn?
Neil

California passes a budget

Yahoo article

The one tax increase I was hugely in favor of, the gas tax increase, was removed at the last minute. Ugh. Yes, I'm a bit obsessed in my belief that our trade deficit is part of what made this mess. Oil is far to large a component of that deficit to not make strategic policy changes to cut consumption.

Many of the other tax increases... I consider a problem.

I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. -- Winston Churchill

Wise taxes and tariffs have a role. I would have supported up to a 50 cent per gallon increase in gasoline taxes! We need better roads, a bus system, and even rail. (I expect two people to dislike the last: my best friend and Rob Dawg.) Then again, I have relatives who design rail projects and if they could be installed from precast (in a factory) concrete assemblies, it actually makes economic sense. ;) Assuming you also build bus terminals to anchor major destinations (e.g., LAX, union station, Burbank airport, etc.)

I'm glad there is a budget. I'm just very upset the wisest tax in the whole package was cut. The only problem is that in six months the state will have to panic and put together a revised budget to handle the further drops in income, capital gains, sales, and property taxes.

Got Popcorn?
Neil

Skiing in the Netherworld?

Ok, I'm about to recommend an article in the OCRegister's Real estate section.
I'd better check on season tickets for skiing in the afterlife... ;)

The Article

Let's see... bottom in 2010...

No price appreciation before 2013...

Hmmm... I would slide the 2010 to 2011, but gee, we finally have a post that removes the 'six month' blinders! I'm shocked!

Oh, on bidding wars, I'm noticing that has cropped up on the HBB blog today. There are too many pigs going through this python. Too many surplus homes. We've talked before how these lies would keep cropping back up...

A little reminder on my thinking:
I'm still planning, assuming I'm employed then, to buy in 2010. Now... I'm also assuming homes drop most of the remaining 30% they should be dropping by then too. If not... I'll wait.

As to bidding wars, I'm not going to ever believe that. Even if true, what's the worst that happens? You find the next good home.

Bidding wars do not become common until inventory drops below 3 months. Be really suspicious if you shop during these high inventory times and people discuss bidding wars. Oh... under-market priced short sales, foreclosures, and estate sales will probably attract bidders. One wise seller, in a down market back in 1992, noted that if you price your home initially at 97% of market price, you should expect to sell for 102% of the current market price. He sold at 103% of what we agreed was a fair market price.

I'm going to consider finding the place listed at 102% of market price and bid below market. How much further below 'market' will depend on the conditions then. There is always a market clearing price. So sellers with 100% equity can always sell. So Mr. Banker... what's the sales price? ;)

Got Popcorn?
Neil

Optimism for future?

There are many indixes still cliff diving.

But one I've been posting on a while is showing some recovery,
the baltic dry index:



Now, I'll be excited when this breaks 2,500 from its current 1,895. At that point mothballed ships will be pulled out of port and put back to use. It implies the rate of ship mothballing should be slowing.

Part of the reason I'm posting this is the bearish blogs have been invaded by people who seem to want a depression. There is a huge difference between warning about one and wanting one. The whole point is to try and keep it to a 'deep recession' at worst. Some people want to see their 'political enemies' punished for no other reason than they think its their right. Ugh... that is very short sighted at best.

I've had people get very angry at me for not being pro-tax on taxes that would kill employment. Instead of debating economics, they make fun of voodoo economics. Fine. But I know of enough people who will lay off if their taxes are increased too much. This is the boiling frog syndrome. If you change things too fast, the frog will jump away.

There are taxes that I would like to see raised. I'm convinced the cash flow out of the USA to pay for oil is killing us economically. Recall that is far more money than we send to China and India! So raise the gasoline tax governator. Heck, I'm pro raising the car registration tax.

Build infrastructure to enhance the economy short and long term. How I wish the unions would allow pre-fabricated elevated buildings, road, or rail to be put in. For long term a city needs transportation to prosper. While we're at it, upgrade LAX, SFO, OAK, and build San Diego a proper airport (multi-runway with one runway long enough for long haul).

Mostly I'd like to see carpool/bus lanes built and bus terminal built analogous to the ones I've used in Europe and New York. I'm pro-rail, but the current system is so corrupt that rail is an economic nightmare. sigh... Why could they do it 100 years ago but not today?!?

Otherwise this will get worse. I've been investigating the 'Autobahn' method of stimulus. In that not only do you build infrastructure, but you force companies to assign workers to the project so that those companies are then forced to go out and hire new workers. Oh, mostly you take the unemployed. You then also work those workers under... harsh conditions that makes everyone glad they have a city job. The US' 'New deal' wasn't that bad. But I'm wondering if the US needs this sort of program to reteach a work ethic and to 'shut up and appreciate' what you have. I've read translations of letters written by lawyers forced to work the autobahn. Why do I bring this up? I do not want to go down the path Germany did... (Certainly not in certain extreme situations). But if you wish a depression... Don't expect those in control at the start to necessarily chose the path out.

So let's celibrate good news. We'll need it over the next 18 months. I'm done with schadenfreude. Oh, I want the worst criminals put in jail. But if you want to go after a large group, they will band together in an unpredictable way. Set up better laws and regulation.

And read Adam Smith. The latest people to invade the blogs are good at mocking. Yea for them, but so were the Realtors (tm) in 2005-2007. But its also obvious the new commentors haven't read the background text books. Not even Marx. They just want a change in society... that won't happen. Oh, society is going to change. But I've yet to see it go a way where Adam Smith doesn't get the last laugh after a few decades.

Got Popcorn?
Neil

Not much has changed

I've been really busy in my personal life. So I haven't paid much attention to real estate. Emotions? They're strong here in California. Intense panic. But I see no evidence that nationally anything has moved on.


My last emotions post in December Seem as current as ever.

I missed tracking inventory for January. Oops. I'll update and then post.

I personally know good people losing their jobs. Outside of Healthcare and IT, I know of no industry hiring more than it is laying off.

I really hope things return to the 'deep recession' path.

Got Popcorn?
Neil

Happy New year

Predictions for 2009:
1. More layoffs than 2008. :(
2. High end areas will see their greatest percentage drop off of this downturn. (National)
3. A few areas, mostly those that took their medicine early, will recover (but very few, and not enough to cause any panic buying).
4. A tightenting of credit. Most areas will see high down payments required for Jumbos. I also believe that Fannie and Freddie will have to introduce a 25% minimum down payment for 'conforming Jumbos.' Expect those 'conforming Jumbos' to be tough to get too!
5. Real Estate transaction rates fluctuate, but with the year ending at recessionary levels. I can see a horrid January and February with the *possibility* of a spring rally. But will there really be a spring rally (Nationally)?

The last is going to be important. Several events have been happening that are important. For example, California is trying to sell far more debt than the market will accept. They have to cut spending. Will their be a tax increase? Sure. But its near the Laffer curve effect. How close? I wish I could predict that...

I also predict that the 'skeptical bond market' will return. May at the earliest, most likely later in the summer. This will impact the next administration's spending plans.

The real estate market, as well as the economy, is like a HUGE ship. Its momentum is amazing. I have often neglected the momentum. I believe this is the #1 reason I have tended to 'overpredict' the speed of the recovery. Right now the momentum is turning down. That's right, the rate of economic decline is getting worse.

But here is where I part with some bears. I see the worst of this economic crisis being in the Fall. Now... I'm not talking real estate. I'm discussing the overall economy. (Most jobs and incomes.) But between now and then... is about 3 million jobs going 'poof' (net). (Compared to ~2 million in 2008). This implies a net unemployment just in the double digits.

But here is what worries me. Government interference is removing the incentive for free enterprise to expand. Why bother when its less risky to accept a handout? e.g., one of the reasons given for high home prices in DC was the diversified economy. Now that it is becoming more government centric...

The hardest hit economies are going to be those that depend on credit. Ok... stop laughing. I'm trying to start a serious point and I'm not trying to be 'Captain obvious.' Certain economies *really* need a fresh input of sucker venture capital to expand: Pharma, tech, and for some reason movies... (it should be a mature industry by now...).

The next hardest hit are going to be those that rely on Ad revenue.

I've blogged before how the automotive states are unusually hard hit. That won't stop... they need credit to 'oversell' basic transportation. But now the mess will spread to Sillyvalley, Hollywood, 'Tech' (due to the need for venture capital or Ad revenue), and a dozen other businesses.

When everything overexpands... everything contracts together.

My forward indicators:
1. International travel
2. Baltric Dry Index (ugh... UGLY!)
3. FedEx (companies ship a lot as they ramp up)
4. Middle/upper middle class birth rate (they will spend on kids like nothing else!)

Maybe its my age or maybe there is an uptick, but only #4 looks ok for now (but this could be distorted by my peer group, I do not claim to base this on statistics). Everything else scares me.

Off Topic: The wife and I have moved into an 'estabilished neighborhood' into a very fairly priced rental. I noted before how rental availability was sky-rocketing. So we moved. Due to the cost (friction) of the move... we are convinced we will only move once more (if its our choice).

OcRenter just blogged that he bought in a good school district, estabilished neighborhood, for 45% off peak. I consider that wise. I'm willing to buy within $100k of the bottom. We're not there yet. Not where I want to buy.

Since most of the renters I know have given up on buying in bubble markets... There will be quite a bit of mobility in 2009. I'm curious on the 2008 United Van lines survey...

Got Popcorn?
Neil