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
Showing posts with label affordability. Show all posts
Showing posts with label affordability. Show all posts
Monday, March 23, 2009
Friday, August 22, 2008
Repost of this month's inventory, affordability, and SoCal foreclosures
This is a long post and it took a bit of work to create. So rather than have it lost after so other posts, I'm bringing the charts back to the front. Please grab a drink as there are a ton of charts to wade through. But I ask you the reader to look at them as a group; they're related. We're in a new point of the market. You'll find sales and foreclosures for DQ news, afford ability from Wells Fargo, and inventory from ziprealty and the MRIS.
If you're not a bit scared after reviewing these graphs... I think you've missed something. We have proof of tight credit, foreclosures exceeding sales in more and more markets, and a general bear market that is entrenched in real estate. In California, foreclosures are happening faster than sales. In other words, the current sales spike that is foreclosure dominated isn't enough to slow the decline nor even the driving forces behind the decline! California and Florida on their own are going to end the mortgage market as we knew it. Too many Billions have been destroyed as is.
Do remember that during the 1990's SoCal downturn, the communities that were immune through 1992... were the ones hardest hit. The overall market only dropped 18%. But the "immune" areas had late price drops that went to almost 40%!!! That is the pattern we're currently following. This time Nationally. Edit from the first posting: I have no charts to 100% prove this. Believe or not. My main prediction is that 2009 will be the year of the greatest price drops in US real estate. We're not quite yet in the timeframe of the greatest price drops, but we will be soon.
Affordability is shooting up. But wait... this assumes income measurement are following the historical pattern! Please, do not get me wrong. I appreciate Wells Fargo Keeping the same methodology. But one assumption about these charts is that grey market income is *not* declining. Can we assume that anymore? Certainly not in Southern California. I believe, as with many metrics, that the change in incomes is being under-recorded. I do not fault Wells Fargo, they are doing the best job possible. LA is also in trouble due to Hedge funds cutting the funding of "Hollywood." Also, do you see advertising spending going up or down in 2009? Advertising has been keeping the Westside market alive. If that revenue drops significantly, expect things to get worse quickly.
I've selected the same cities for a while. Notice the spike up in affordability. Its all due to a drop in sales price. Mostly due to foreclosure sales and
Here is a close up on the latest. Do review the previous graph of where affordability has been historically. Note: For some cities (e.g., DC), I expect the new plateau to be at a slightly lower level of affordability (due to the city establishing 'economy of scale' in the world market).
National inventory isn't growing like it used to. If it wasn't for all of the markets with huge amounts of 'shadow inventory,' I would think this downturn was closer to being done than it is. We'll hit a bottom; but not before 2011 and more likely in 2013 or so.
If there is one thing to scare you, it should be the drying up of the Jumbo mortgage market. Look at the hit SoCal is taking. Thankfully, DQ News has published information on the distribution of mortgages.
I'm going to be posting this chart I from Deutsche Bank over at Patrick.net. It really shows how the real estate market is in a brave new world:
We're at the point where many markets are now driven by foreclosures. Since there is better data for Southern California than many other markets, I'm plotting my home region. But these charts plot a trend that would be true of Florida, Arizona, Nevada, Ohio, Michigan, Virginia, and a few other markets. Its brutal now for a home owner to try and sell. The competition from foreclosures will even impact the 'immune' markets. I'm seeing high end properties skip foreclosure (jingle mail) and go straight on the market as bank owned.
I'm plotting California sales and foreclosures by quarter to take out noise in the data. Compare this graph to the next one and Note that foreclosures exceeded sales in California in the first and second quarter! California is getting ready to really implode.
Compare this graph to the above one:
Now on to other cities. Sales are down, but not too bad:
But note the Median price is down. I haven't been in DC for a year, but I'd bet bargain hunting is going on:
Las Vegas is in a later stage of implosion. I know of too many people holding on in Las Vegas who should be selling, so the small drop in published inventory is masking a rising shadow inventory. Once the recession really gets going, expect the next wave of the Tsunami to spank Las Vegas. US Air 'de-hubbed' in Las Vegas for a reason: The Origination and Destination market is dying.
Phoenix has been the poster child of the bubble for a while. IIRC, 40% of the jobs in Phoenix are for growing Phoenix. I'm an airline fan, so I wonder if US air will get into trouble in Phoenix too.
Overall, DC's inventory hasn't climbed much over 2007. But look at Case-Shiller prices, inventory is too high in the region to sustain current prices overall. Counter is that DC's median income has gone up ~6%.
Houston is an interesting case. I posted before how it has the fastest job growth in the USA. But how much is due to the commodities bubble? Part of the reason I'm curious about Houston is that high end manufacturing and IT outsourcing is drifting to the city. Is it enough to insulate it during the later parts of this recession?
This is where I plan to buy. But there is a disconnect between official inventory and what I see on the street. Can we say shadow inventory? ;) Seriously, prices peaking at 11.2X income was insane! Ok, Wells Fargo put it at 9.3X income and now at 6.3X income. Per Wells Fargo, the last recession hit a trough at 3.5X income. My oh my... that leave a lot of downside. Note: Per Wells Fargo incomes have dropped ~3%. Personally, I think the income drop is accelerating.
I've skipped a lot of comment, but note that LA's decline in inventory is mostly due to foreclosures taking homes temporarily off the market. Mostly in the ex-urbs.
This is quite a bit to review here. I ask my readers patience to note the pattern these graphs lay out. Its showing the impact of the credit crunch, income loss, and the recession we are in. I still make no definitive predictions until we get to "Fall, probably late Fall." But soon we will see data showing a major transition. Soon might be November data... Heck, late Fall technically is until 12/20, so it could be in the December data; but I suspect it won't happen at the end of Fall.
Other bloggers are noting the bottom will be a two to three year bog where prices stay low due to the economy and credit tightening. I see no reason to debate that.
Got Popcorn?
Neil
If you're not a bit scared after reviewing these graphs... I think you've missed something. We have proof of tight credit, foreclosures exceeding sales in more and more markets, and a general bear market that is entrenched in real estate. In California, foreclosures are happening faster than sales. In other words, the current sales spike that is foreclosure dominated isn't enough to slow the decline nor even the driving forces behind the decline! California and Florida on their own are going to end the mortgage market as we knew it. Too many Billions have been destroyed as is.
Do remember that during the 1990's SoCal downturn, the communities that were immune through 1992... were the ones hardest hit. The overall market only dropped 18%. But the "immune" areas had late price drops that went to almost 40%!!! That is the pattern we're currently following. This time Nationally. Edit from the first posting: I have no charts to 100% prove this. Believe or not. My main prediction is that 2009 will be the year of the greatest price drops in US real estate. We're not quite yet in the timeframe of the greatest price drops, but we will be soon.
Affordability is shooting up. But wait... this assumes income measurement are following the historical pattern! Please, do not get me wrong. I appreciate Wells Fargo Keeping the same methodology. But one assumption about these charts is that grey market income is *not* declining. Can we assume that anymore? Certainly not in Southern California. I believe, as with many metrics, that the change in incomes is being under-recorded. I do not fault Wells Fargo, they are doing the best job possible. LA is also in trouble due to Hedge funds cutting the funding of "Hollywood." Also, do you see advertising spending going up or down in 2009? Advertising has been keeping the Westside market alive. If that revenue drops significantly, expect things to get worse quickly.
I've selected the same cities for a while. Notice the spike up in affordability. Its all due to a drop in sales price. Mostly due to foreclosure sales and
Here is a close up on the latest. Do review the previous graph of where affordability has been historically. Note: For some cities (e.g., DC), I expect the new plateau to be at a slightly lower level of affordability (due to the city establishing 'economy of scale' in the world market).
National inventory isn't growing like it used to. If it wasn't for all of the markets with huge amounts of 'shadow inventory,' I would think this downturn was closer to being done than it is. We'll hit a bottom; but not before 2011 and more likely in 2013 or so.
If there is one thing to scare you, it should be the drying up of the Jumbo mortgage market. Look at the hit SoCal is taking. Thankfully, DQ News has published information on the distribution of mortgages.
I'm going to be posting this chart I from Deutsche Bank over at Patrick.net. It really shows how the real estate market is in a brave new world:
We're at the point where many markets are now driven by foreclosures. Since there is better data for Southern California than many other markets, I'm plotting my home region. But these charts plot a trend that would be true of Florida, Arizona, Nevada, Ohio, Michigan, Virginia, and a few other markets. Its brutal now for a home owner to try and sell. The competition from foreclosures will even impact the 'immune' markets. I'm seeing high end properties skip foreclosure (jingle mail) and go straight on the market as bank owned.
I'm plotting California sales and foreclosures by quarter to take out noise in the data. Compare this graph to the next one and Note that foreclosures exceeded sales in California in the first and second quarter! California is getting ready to really implode.
Compare this graph to the above one:
Now on to other cities. Sales are down, but not too bad:
But note the Median price is down. I haven't been in DC for a year, but I'd bet bargain hunting is going on:
Las Vegas is in a later stage of implosion. I know of too many people holding on in Las Vegas who should be selling, so the small drop in published inventory is masking a rising shadow inventory. Once the recession really gets going, expect the next wave of the Tsunami to spank Las Vegas. US Air 'de-hubbed' in Las Vegas for a reason: The Origination and Destination market is dying.
Phoenix has been the poster child of the bubble for a while. IIRC, 40% of the jobs in Phoenix are for growing Phoenix. I'm an airline fan, so I wonder if US air will get into trouble in Phoenix too.
Overall, DC's inventory hasn't climbed much over 2007. But look at Case-Shiller prices, inventory is too high in the region to sustain current prices overall. Counter is that DC's median income has gone up ~6%.
Houston is an interesting case. I posted before how it has the fastest job growth in the USA. But how much is due to the commodities bubble? Part of the reason I'm curious about Houston is that high end manufacturing and IT outsourcing is drifting to the city. Is it enough to insulate it during the later parts of this recession?
This is where I plan to buy. But there is a disconnect between official inventory and what I see on the street. Can we say shadow inventory? ;) Seriously, prices peaking at 11.2X income was insane! Ok, Wells Fargo put it at 9.3X income and now at 6.3X income. Per Wells Fargo, the last recession hit a trough at 3.5X income. My oh my... that leave a lot of downside. Note: Per Wells Fargo incomes have dropped ~3%. Personally, I think the income drop is accelerating.
I've skipped a lot of comment, but note that LA's decline in inventory is mostly due to foreclosures taking homes temporarily off the market. Mostly in the ex-urbs.
This is quite a bit to review here. I ask my readers patience to note the pattern these graphs lay out. Its showing the impact of the credit crunch, income loss, and the recession we are in. I still make no definitive predictions until we get to "Fall, probably late Fall." But soon we will see data showing a major transition. Soon might be November data... Heck, late Fall technically is until 12/20, so it could be in the December data; but I suspect it won't happen at the end of Fall.
Other bloggers are noting the bottom will be a two to three year bog where prices stay low due to the economy and credit tightening. I see no reason to debate that.
Got Popcorn?
Neil
Wednesday, August 20, 2008
Affordability, Inventory, and SoCal foreclosures
This is a long post. Please grab a drink as there are a ton of charts to wade through. But I ask you the reader to look at them as a group; they're related. We're in a new point of the market. You'll find sales and foreclosures for DQ news, afford ability from Wells Fargo, and inventory from ziprealty and the MRIS.
If you're not a bit scared after reviewing these graphs... I think you've missed something. We have proof of tight credit, foreclosures exceeding sales in more and more markets, and a general bear market that is entrenched in real estate. In California, foreclosures are happening faster than sales. In other words, the current sales spike that is foreclosure dominated isn't enough to slow the decline nor even the driving forces behind the decline! California and Florida on their own are going to end the mortgage market as we knew it. Too many Billions have been destroyed as is.
Do remember that during the 1990's SoCal downturn, the communities that were immune through 1993... were the ones hardest hit. The overall market only dropped 18%. But the "immune" areas had late price drops that went to almost 40%!!! That is the pattern we're currently following. This time Nationally.
Affordability is shooting up. But wait... this assumes income measurement are following the historical pattern! Please, do not get me wrong. I appreciate Wells Fargo Keeping the same methodology. But one assumption about these charts is that grey market income is *not* declining. Can we assume that anymore? Certainly not in Southern California. I believe, as with many metrics, that the change in incomes is being under-recorded. I do not fault Wells Fargo, they are doing the best job possible. LA is also in trouble due to Hedge funds cutting the funding of "Hollywood." Also, do you see advertising spending going up or down in 2009? Advertising has been keeping the Westside market alive. If that revenue drops significantly, expect things to get worse quickly.
I've selected the same cities for a while. Notice the spike up in affordability. Its all due to a drop in sales price. Mostly due to foreclosure sales and
Here is a close up on the latest. Do review the previous graph of where affordability has been historically. Note: For some cities (e.g., DC), I expect the new plateau to be at a slightly lower level of affordability (due to the city establishing 'economy of scale' in the world market).
National inventory isn't growing like it used to. If it wasn't for all of the markets with huge amounts of 'shadow inventory,' I would think this downturn was closer to being done than it is. We'll hit a bottom; but not before 2011 and more likely in 2013 or so.
If there is one thing to scare you, it should be the drying up of the Jumbo mortgage market. Look at the hit SoCal is taking. Thankfully, DQ News has published information on the distribution of mortgages.
I'm going to be posting this chart I from Deutsche Bank over at Patrick.net. It really shows how the real estate market is in a brave new world:
We're at the point where many markets are now driven by foreclosures. Since there is better data for Southern California than many other markets, I'm plotting my home region. But these charts plot a trend that would be true of Florida, Arizona, Nevada, Ohio, Michigan, Virginia, and a few other markets. Its brutal now for a home owner to try and sell. The competition from foreclosures will even impact the 'immune' markets. I'm seeing high end properties skip foreclosure (jingle mail) and go straight on the market as bank owned.
I'm plotting California sales and foreclosures by quarter to take out noise in the data. Compare this graph to the next one and Note that foreclosures exceeded sales in California in the first and second quarter! California is getting ready to really implode.
Compare this graph to the above one:
Now on to other cities. Sales are down, but not too bad:
But note the Median price is down. I haven't been in DC for a year, but I'd bet bargain hunting is going on:
Las Vegas is in a later stage of implosion. I know of too many people holding on in Las Vegas who should be selling, so the small drop in published inventory is masking a rising shadow inventory. Once the recession really gets going, expect the next wave of the Tsunami to spank Las Vegas. US Air 'de-hubbed' in Las Vegas for a reason: The Origination and Destination market is dying.
Phoenix has been the poster child of the bubble for a while. IIRC, 40% of the jobs in Phoenix are for growing Phoenix. I'm an airline fan, so I wonder if US air will get into trouble in Phoenix too.
Overall, DC's inventory hasn't climbed much over 2007. But look at Case-Shiller prices, inventory is too high in the region to sustain current prices overall. Counter is that DC's median income has gone up ~6%.
Houston is an interesting case. I posted before how it has the fastest job growth in the USA. But how much is due to the commodities bubble? Part of the reason I'm curious about Houston is that high end manufacturing and IT outsourcing is drifting to the city. Is it enough to insulate it during the later parts of this recession?
This is where I plan to buy. But there is a disconnect between official inventory and what I see on the street. Can we say shadow inventory? ;) Seriously, prices peaking at 11.2X income was insane! Ok, Wells Fargo put it at 9.3X income and now at 6.3X income. Per Wells Fargo, the last recession hit a trough at 3.5X income. My oh my... that leave a lot of downside. Note: Per Wells Fargo incomes have dropped ~3%. Personally, I think the income drop is accelerating.
I've skipped a lot of comment, but note that LA's decline in inventory is mostly due to foreclosures taking homes temporarily off the market. Mostly in the ex-urbs.
This is quite a bit to review here. I ask my readers patience to note the pattern these graphs lay out. Its showing the impact of the credit crunch, income loss, and the recession we are in. I still make no definitive predictions until we get to "Fall, probably late Fall." But soon we will see data showing a major transition. Soon might be November data... Heck, late Fall technically is until 12/20, so it could be in the December data; but I suspect it won't happen at the end of Fall.
Got Popcorn?
Neil
If you're not a bit scared after reviewing these graphs... I think you've missed something. We have proof of tight credit, foreclosures exceeding sales in more and more markets, and a general bear market that is entrenched in real estate. In California, foreclosures are happening faster than sales. In other words, the current sales spike that is foreclosure dominated isn't enough to slow the decline nor even the driving forces behind the decline! California and Florida on their own are going to end the mortgage market as we knew it. Too many Billions have been destroyed as is.
Do remember that during the 1990's SoCal downturn, the communities that were immune through 1993... were the ones hardest hit. The overall market only dropped 18%. But the "immune" areas had late price drops that went to almost 40%!!! That is the pattern we're currently following. This time Nationally.
Affordability is shooting up. But wait... this assumes income measurement are following the historical pattern! Please, do not get me wrong. I appreciate Wells Fargo Keeping the same methodology. But one assumption about these charts is that grey market income is *not* declining. Can we assume that anymore? Certainly not in Southern California. I believe, as with many metrics, that the change in incomes is being under-recorded. I do not fault Wells Fargo, they are doing the best job possible. LA is also in trouble due to Hedge funds cutting the funding of "Hollywood." Also, do you see advertising spending going up or down in 2009? Advertising has been keeping the Westside market alive. If that revenue drops significantly, expect things to get worse quickly.
I've selected the same cities for a while. Notice the spike up in affordability. Its all due to a drop in sales price. Mostly due to foreclosure sales and
Here is a close up on the latest. Do review the previous graph of where affordability has been historically. Note: For some cities (e.g., DC), I expect the new plateau to be at a slightly lower level of affordability (due to the city establishing 'economy of scale' in the world market).
National inventory isn't growing like it used to. If it wasn't for all of the markets with huge amounts of 'shadow inventory,' I would think this downturn was closer to being done than it is. We'll hit a bottom; but not before 2011 and more likely in 2013 or so.
If there is one thing to scare you, it should be the drying up of the Jumbo mortgage market. Look at the hit SoCal is taking. Thankfully, DQ News has published information on the distribution of mortgages.
I'm going to be posting this chart I from Deutsche Bank over at Patrick.net. It really shows how the real estate market is in a brave new world:
We're at the point where many markets are now driven by foreclosures. Since there is better data for Southern California than many other markets, I'm plotting my home region. But these charts plot a trend that would be true of Florida, Arizona, Nevada, Ohio, Michigan, Virginia, and a few other markets. Its brutal now for a home owner to try and sell. The competition from foreclosures will even impact the 'immune' markets. I'm seeing high end properties skip foreclosure (jingle mail) and go straight on the market as bank owned.
I'm plotting California sales and foreclosures by quarter to take out noise in the data. Compare this graph to the next one and Note that foreclosures exceeded sales in California in the first and second quarter! California is getting ready to really implode.
Compare this graph to the above one:
Now on to other cities. Sales are down, but not too bad:
But note the Median price is down. I haven't been in DC for a year, but I'd bet bargain hunting is going on:
Las Vegas is in a later stage of implosion. I know of too many people holding on in Las Vegas who should be selling, so the small drop in published inventory is masking a rising shadow inventory. Once the recession really gets going, expect the next wave of the Tsunami to spank Las Vegas. US Air 'de-hubbed' in Las Vegas for a reason: The Origination and Destination market is dying.
Phoenix has been the poster child of the bubble for a while. IIRC, 40% of the jobs in Phoenix are for growing Phoenix. I'm an airline fan, so I wonder if US air will get into trouble in Phoenix too.
Overall, DC's inventory hasn't climbed much over 2007. But look at Case-Shiller prices, inventory is too high in the region to sustain current prices overall. Counter is that DC's median income has gone up ~6%.
Houston is an interesting case. I posted before how it has the fastest job growth in the USA. But how much is due to the commodities bubble? Part of the reason I'm curious about Houston is that high end manufacturing and IT outsourcing is drifting to the city. Is it enough to insulate it during the later parts of this recession?
This is where I plan to buy. But there is a disconnect between official inventory and what I see on the street. Can we say shadow inventory? ;) Seriously, prices peaking at 11.2X income was insane! Ok, Wells Fargo put it at 9.3X income and now at 6.3X income. Per Wells Fargo, the last recession hit a trough at 3.5X income. My oh my... that leave a lot of downside. Note: Per Wells Fargo incomes have dropped ~3%. Personally, I think the income drop is accelerating.
I've skipped a lot of comment, but note that LA's decline in inventory is mostly due to foreclosures taking homes temporarily off the market. Mostly in the ex-urbs.
This is quite a bit to review here. I ask my readers patience to note the pattern these graphs lay out. Its showing the impact of the credit crunch, income loss, and the recession we are in. I still make no definitive predictions until we get to "Fall, probably late Fall." But soon we will see data showing a major transition. Soon might be November data... Heck, late Fall technically is until 12/20, so it could be in the December data; but I suspect it won't happen at the end of Fall.
Got Popcorn?
Neil
Thursday, May 03, 2007
Net Worth Killers
CNN's Money is doing a series of "net worth killers."
#2? Buying too much house:
Money2
Gee, never would have thought that...
And who wrote #6?
Money6
Sell the house, rent, and live off the income? Ok, fess up, who of you writes for CNN?
edited with hyperlinks (yea... Neil was slow to implement)
Got popcorn?
Neil
#2? Buying too much house:
Money2
Gee, never would have thought that...
And who wrote #6?
Money6
Sell the house, rent, and live off the income? Ok, fess up, who of you writes for CNN?
edited with hyperlinks (yea... Neil was slow to implement)
Got popcorn?
Neil
Monday, April 30, 2007
Convince me to buy: Job security
I cannot help but notice the number of posts by "anons" saying something along the lines of "it hasn't crashed, ignore the high inventory, BUY!" Not just my blog, but all over the housing blog spectrum.
But I look at it this way:
I'm an engineering manager
My job security is dependent on keeping those whom work for me happy and productive.
All but a few of those who work for me earn less than I do (some exceptions, but they're worth it).
50% of engineers retire as a senior engineer... so they have to be able to afford homes.
Engineers are worthless without technicians (whom also want homes)
Basically, if someone cannot afford to earn 1/3rd less than I do and buy...My job is a lost cause as our business model is broken. :(
So don't bother to taunt me about buying, show me how those who work for me can afford to buy in such a way that I'll know they'll be around in five years. That's what concerns me. I really pull myself out of the picture, as most good managers do.
I know of several senior engineers and a few other managers who are ready to throw in the towel. (This has already been blogged.) A good subset have already moved out of the south bay. I've only once seen a similar number with their foot in the door once before; that was the only engineering "revolt" I've ever seen in aerospace. (A big one is supposed to happen ever 3 to 5 years nationally... but its really hard to get the technical guys that pissed off...) For the record, people like to work for my employer... so its not that.
We're already transferring technicians to Phoenix and paying them hotel, airfare (southwest advance purchase), and rental car for the work week. Not many... but the number is growing. Update: Had technicians in Phoenix. They found jobs out there sans the inter-city commute hassle. (Notice given 5/1/2007).
So now, like David's excellent DC blog (bubblemeter), you've found my blog. Convince me that those I'm responsible for will stick around. Then... I'll buy a home.Until then, me and my fiancee (soon to be wife) will save our money. We just re-affirmed our savings goal (again, previously blogged).
Let's put it this way, I'm pretty relaxed financially. Heck, my biggest worry today was "should I spend $120 for a fancy knife to compliment my kilt at the wedding?" Yea... I'm part Scottish. So I'll say vows in slacks but when my wife puts on the traditional Chinese wedding dress... I'm marching around in my kilt! :) (Can't wear a kilt without knives... yea, I bought the knife.)
So give me reason that those I mentor will stick around the south bay... and I'll buy. But right now... *everyone* seems to be working on getting to either senior engineer or the 1st rung of manager... and then moving out of state.
Don't worry, I have confidence aerospace will stay in Southern California. I just have a finger on the pulse... and the rumor mill keeps talking about a few thousand here and there moving out of state. I know of 2,000 condos/townhomes being built (soon to be built) on land that my employer has sold within the last 30 months. Not one of those units is complete... And co-workers were shocked when I showed them the links in our quarterly report on land options in other states...
Let's just say engineers are good with numbers and patterns... and while there are always land options out there, the quantity (acres) was not within the norm. Since the group of departments I work for will stay in state, may I wish my coworkers Bon Voyage? (And if my employer moves to Austin or another fun city I like, don't get in my way to the door!).
And let's say a certain employee of a competitor spilled their attrition rate... and I knew they were building in another state... yea... Convince me to buy now or be price out forever. (Need we mention buy vs. rent?) Put they guys who work for me in homes... and I'll know all is well. (Townhomes are fine... but engineers and condos... you won't convince me.)
So to the anon's who say "buy now!" I say... why? Give me numbers... not emotion. Numbers. To those who say the market isn't bad... so what? I'm a saver. I can only hope credit tightening temporarily excludes me from the market. Eventually I'll be let back in at a reasonable price level. But until those that work for me are let back in.... being out of the market is a no lose option for me.
Got popcorn?
Neil
But I look at it this way:
I'm an engineering manager
My job security is dependent on keeping those whom work for me happy and productive.
All but a few of those who work for me earn less than I do (some exceptions, but they're worth it).
50% of engineers retire as a senior engineer... so they have to be able to afford homes.
Engineers are worthless without technicians (whom also want homes)
Basically, if someone cannot afford to earn 1/3rd less than I do and buy...My job is a lost cause as our business model is broken. :(
So don't bother to taunt me about buying, show me how those who work for me can afford to buy in such a way that I'll know they'll be around in five years. That's what concerns me. I really pull myself out of the picture, as most good managers do.
I know of several senior engineers and a few other managers who are ready to throw in the towel. (This has already been blogged.) A good subset have already moved out of the south bay. I've only once seen a similar number with their foot in the door once before; that was the only engineering "revolt" I've ever seen in aerospace. (A big one is supposed to happen ever 3 to 5 years nationally... but its really hard to get the technical guys that pissed off...) For the record, people like to work for my employer... so its not that.
We're already transferring technicians to Phoenix and paying them hotel, airfare (southwest advance purchase), and rental car for the work week. Not many... but the number is growing. Update: Had technicians in Phoenix. They found jobs out there sans the inter-city commute hassle. (Notice given 5/1/2007).
So now, like David's excellent DC blog (bubblemeter), you've found my blog. Convince me that those I'm responsible for will stick around. Then... I'll buy a home.Until then, me and my fiancee (soon to be wife) will save our money. We just re-affirmed our savings goal (again, previously blogged).
Let's put it this way, I'm pretty relaxed financially. Heck, my biggest worry today was "should I spend $120 for a fancy knife to compliment my kilt at the wedding?" Yea... I'm part Scottish. So I'll say vows in slacks but when my wife puts on the traditional Chinese wedding dress... I'm marching around in my kilt! :) (Can't wear a kilt without knives... yea, I bought the knife.)
So give me reason that those I mentor will stick around the south bay... and I'll buy. But right now... *everyone* seems to be working on getting to either senior engineer or the 1st rung of manager... and then moving out of state.
Don't worry, I have confidence aerospace will stay in Southern California. I just have a finger on the pulse... and the rumor mill keeps talking about a few thousand here and there moving out of state. I know of 2,000 condos/townhomes being built (soon to be built) on land that my employer has sold within the last 30 months. Not one of those units is complete... And co-workers were shocked when I showed them the links in our quarterly report on land options in other states...
Let's just say engineers are good with numbers and patterns... and while there are always land options out there, the quantity (acres) was not within the norm. Since the group of departments I work for will stay in state, may I wish my coworkers Bon Voyage? (And if my employer moves to Austin or another fun city I like, don't get in my way to the door!).
And let's say a certain employee of a competitor spilled their attrition rate... and I knew they were building in another state... yea... Convince me to buy now or be price out forever. (Need we mention buy vs. rent?) Put they guys who work for me in homes... and I'll know all is well. (Townhomes are fine... but engineers and condos... you won't convince me.)
So to the anon's who say "buy now!" I say... why? Give me numbers... not emotion. Numbers. To those who say the market isn't bad... so what? I'm a saver. I can only hope credit tightening temporarily excludes me from the market. Eventually I'll be let back in at a reasonable price level. But until those that work for me are let back in.... being out of the market is a no lose option for me.
Got popcorn?
Neil
Saturday, April 07, 2007
Video of Real estate roller coaster
I'm obsessed. Someone has created an incredible little video of the inflation adjusted price of real estate (from Shiller's book).
http://www.youtube.com/watch?v=kUldGc06S3U
I'm having issues with youtube allowing posting to this blog, so pardon the link.
Hat tip to http://sandiegomarketmonitor.blogspot.com/
I'm afraid pretty much everyone I know will be getting to see this video. My favorite part? The coaster is turning the final corner (2006) and you look back to see the previous trend of real estate... Way down below. It leaves the viewer to question where the market is going in a way that normal graphs just don't drive home as effectively.
One thing I would like to change is to put the ground level at the median income. (e.g., hills and valleys). But I only critique as I'm so excited about this format of showing just how overpriced homes are today. Showing how prices bounce above and below real median income would be a great little additional tidbit.
Got popcorn?
Neil
http://www.youtube.com/watch?v=kUldGc06S3U
I'm having issues with youtube allowing posting to this blog, so pardon the link.
Hat tip to http://sandiegomarketmonitor.blogspot.com/
I'm afraid pretty much everyone I know will be getting to see this video. My favorite part? The coaster is turning the final corner (2006) and you look back to see the previous trend of real estate... Way down below. It leaves the viewer to question where the market is going in a way that normal graphs just don't drive home as effectively.
One thing I would like to change is to put the ground level at the median income. (e.g., hills and valleys). But I only critique as I'm so excited about this format of showing just how overpriced homes are today. Showing how prices bounce above and below real median income would be a great little additional tidbit.
Got popcorn?
Neil
Friday, January 26, 2007
Home affordability
You've probably seen the "Map of Misery before." It details where the sub-prime "Option ARM" mortgages were issued. Why does it matter? It shows which regions had home prices shoot so far beyound incomes that people did really stupid loans to get into a house.Ok, it also shows where rampant home speculation has occured. Don't think its happened in your neighborhood? Drive around, see how many homes are empty. Is it a flip? Well... is the flooring under the washer and drier new? If so, in my opinion, its a flip. Let's face it, who actually lives in a place and doesn't use the washer and drier? If they never spilled anything there, they are a much more dexterious person than I'll ever be.
There is a new blog on real-estate affordability. Unfortunately, the data is quarterly and thus there is a time delay between when the data is received and then published. Cest la vie:
http://www.housingtracker.net/affordability/
Let us take a look into Los Angeles. In 3Q 2006 the price to rent was 332X. Ok, Los Angeles never gets down to a price to rent of 120 to 150 (normal market) or the 110 that is the supposid traditional end of a RE drop. So it comes down to, who can afford to live in LA?
I know my employer is having to consider moving departments out of state. Our competition relocated a thousand already and a similar number is scheduled. Thus, it implies my industry is priced out.
But we pay above the local median wage! Thus, this implies that a large fraction of the LA workforce is "priced out forever." Ok, its normal in LA for the bottom 40% to 60% to have no hope of owning. Bummer... but that's the fact. But when its the bottom 80%? Watch the middle class leave.
So what will happen to our tax base in 2007 and 2008? Yep... shrink. And do pay a visit to CR's blog and note how quickly construction jobs are going to go "poof." Jobs that do not show up in unemployment statistics due to the fact that they are "independent contractors." Notice he forcasts a drop in March, April, and May. A pretty steep drop.
So who is going to stick around? Who's going to leave? And who is going to hold onto a home where they owe 110% of the purchase price AND the market has dropped 10%+? The "Map of misery" is about to become the map of foreclosures.
Anyone who bought in 2006 is well underwater. Unless they put 20%+ down, there is no reason to protect their credit (its just far too expensive to do so). If they option ARM'd their equity away (or HELOC'd, Refied, etc.), they'll bail too. We can safely predict that 20%+ of 2006 sales will be back on the market, soon. 2005? They'll be underwater not too far behind. 2004 sales? They'll be underwater by fall. 2003? By spring 2008. 2002? By summer 2008. What's your prediction? When will it stop?
Due to the amount of stock margined to invest in RE, its going to hit Wall Street too. I'm trying to find the stats on that. Please post links if you have them!
One tidbit, Fortune 500 moves are slow to plan and execute. Nissan showed a lot of foresight. By the time anyone else moves, we'll be in a steep decline. But my employer needs to see a large drop in prices to justify keeping some divisions in state. Once the decision to move has been made, its too late to stop the wheels (buildings would have been bought and sold, moving contracts signed, etc.). Thus, we'll have jobs exiting state right just as the proverbial stuff hits the fan.
Most of my life I've been far more optimistic on everything. Economically, I can't believe how much of a bear I am. But the facts... don't show a sudden influx of young entering California; the opposite is happening. It takes those young to foster the next generation of high wage industries. Sigh... They'll be in Pheonix, Vegas, Austin, etc.
This is going to be a very long downturn for Califonia. Worse... if property values drop in Florida or Hawaii, that's where forign money will go. (Better weather or at least closer proximity.)
Got popcorn?
Neil
Friday, December 15, 2006
Without a "bubble," buyers are going to wait anyway
There has been much talk about how the press is slowing real estate sales. I’m going to present an argument as to why if buyers do not anticipate incredible equity gains they will wait with no regard to what the press is saying. In other words, common sense, without any knowledge of a bubble, is enough to force down home sales rates.
The first bit point is obvious. Home prices are at incredible heights compared to incomes. Thus buyers are going to be financially tight for a long time if they purchase. Buyers know this and this thought scaring them away from buying or at least making them hesitate. Also, everyone in bubble areas below age 40 knows someone in financial trouble due to the suicide loans, HELOCs, or normal financial distress. I
The second bit is most of the remaining buyers recognize that owning a home in bubble markets is stratospherically more expensive than renting. Thus many, like my fiancée and myself, are adjusting first to the lifestyle home ownership would entail: less dining out, cutting costs, etc. Thus a delay of home purchase.
The third and I believe most important reason is that it is now impossible to save money for the first 5 to 7 years after buying. Most people know a financial cushion is invaluable. Thus, sensible buyers (about all who are left…) won’t be afraid of 2% appreciation. As long as home prices are at such multiples of incomes and appreciation is weak… they will put money away until their down payment and their financial cushion are sufficient.
Since the market cannot sustain current prices without continued fevered sales rates… we have a guaranteed drop in real estate prices. Everyone should have asked what happens when enough people are “priced out forever.” It has happened and thus this is the real estate market we’re stuck with. Press reports might slow the market a little further, but they are not the cause nor the cure.
Neil
Sunday, October 29, 2006
Housing affordability
I found this (old) link while perusing the net. Whatever you do, make sure you look at the figure on slide 14 (Figure 7).
www.demographia.com/dhi-ix2005q3.pdf
Ok, its a pdf (you've been warned). What it does is rack and stack local home affordability to the median income. I *strongly* believe that long term home prices are driven by the median income. What this pdf notes is that Los Angeles has the highest multiple in the world for a large city!
Homes in Los Angles are selling for 11.2 times the median income. This puts it as the poster child of unaffordable locations. Forget having businesses locate here... you won't be able to afford the salaries.
Is Los Angeles becoming a 2nd home destination market. Ok, I would ask why? Its not Florida with Northeastern folk swarming down to avoid the winter. We're not Hawaii with year round perfect surfing. Heck, half of my SCUBA friends have stopped diving California waters as its too cold; they only dive on vacation. I cannot imagine the baby boomers excited about our cold waters... Hmmm...
Now what does slide 14, Figure 7 say? Simple, this market isn't sustainable. If that isn't scary, I don't know what is. No amount of cheerleading is going to sustain... that! Severly unaffordable is a 5.1 multiple or greater, seriously unaffordable is 4.1 to 5.0. Moderately unaffordable is 3.1 to 4.0. Affordable is 3.0 times median wage or less. So we currently have 2/3rds of the markets that are unaffordable about to become affordable. (It was ~55 of 65 markets in 1995 versus 20 of 65 today.)
I've noted before that whenever LA broke through 8.0 times median salary it drops to 6.0. What will be the bottom this time? I'm betting LA will drop down to seriously unaffordable before returning to its normal premium. But how long? How much of that will be wage inflation? How much dropping home prices? We won't know until 2008. Whatever you do, don't buy a home in California, Hawaii, or Florida today!
Neil
www.demographia.com/dhi-ix2005q3.pdf
Ok, its a pdf (you've been warned). What it does is rack and stack local home affordability to the median income. I *strongly* believe that long term home prices are driven by the median income. What this pdf notes is that Los Angeles has the highest multiple in the world for a large city!
Homes in Los Angles are selling for 11.2 times the median income. This puts it as the poster child of unaffordable locations. Forget having businesses locate here... you won't be able to afford the salaries.
Is Los Angeles becoming a 2nd home destination market. Ok, I would ask why? Its not Florida with Northeastern folk swarming down to avoid the winter. We're not Hawaii with year round perfect surfing. Heck, half of my SCUBA friends have stopped diving California waters as its too cold; they only dive on vacation. I cannot imagine the baby boomers excited about our cold waters... Hmmm...
Now what does slide 14, Figure 7 say? Simple, this market isn't sustainable. If that isn't scary, I don't know what is. No amount of cheerleading is going to sustain... that! Severly unaffordable is a 5.1 multiple or greater, seriously unaffordable is 4.1 to 5.0. Moderately unaffordable is 3.1 to 4.0. Affordable is 3.0 times median wage or less. So we currently have 2/3rds of the markets that are unaffordable about to become affordable. (It was ~55 of 65 markets in 1995 versus 20 of 65 today.)
I've noted before that whenever LA broke through 8.0 times median salary it drops to 6.0. What will be the bottom this time? I'm betting LA will drop down to seriously unaffordable before returning to its normal premium. But how long? How much of that will be wage inflation? How much dropping home prices? We won't know until 2008. Whatever you do, don't buy a home in California, Hawaii, or Florida today!
Neil
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