Tuesday, October 16, 2007

September DQ plunge

DataQuick's September southern California sales numbers are out today. Volume plunged and median prices fell across the board.

...
A total of 12,455 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in September. That was down 29.9 percent from 17,755 for the previous month, and down 48.5 percent from 24,195 for September last year, according to DataQuick Information Systems.

Last month's sales were the slowest for any month in DataQuick's statistics, which go back to 1988. The previous low was in February 1995 when 12,459 homes sold. The September sales average is 25,258.

"Some of last month's drop was part of the longer-term slowing trend, but most of it was due to mortgage market turbulence and difficulties in getting jumbo financing. There's a good chance there will be some "catch-up" sales activity between now and the end of the year as jumbo loans become more available. Still, we can't expect the market to re-balance itself until sometime in 2008," said Marshall Prentice, DataQuick president. ... [emphasis added]

The drop in jumbo loans is finally having an effect on median prices. In LA County (graph above, with 2nd quarters highlighted yellow), the median fell 4.5% to $525K, last January's level. Orange County's median fell 11% to $570K, not seen since March 2005. San Diego County's $470K goes back to June 2004, and Ventura County's 20% drop to $462K was last seen in March 2004.

Recovery "sometime in 2008" seems to be the new spin. Although does "re-balance" actually mean anything? At least they acknowledge the "longer-term slowing trend" which was very visible before last summer's mortgage meltdown.

We're already at record-low sales volume, but only at the beginning of this downturn. Which, from Case-Shiller perspective may take another five years to bottom out.

32 comments:

NeedleBrain said...

It's like an elevator dropping...

You get that first sickening feeling that the bottom is dropping out; but then it keeps falling and falling and falling...

As they used to say in elementary school, its not the falling that hurts; its the sudden stop at the end.

It's a good time to buy, or sell, or both said...

I think a moment of silence is in order for all of the hard-working, honest, ethical real estate professionals who haven't made a single sweet commission in 6 months.

Anonymous said...

so september sinks like a rock because financing is impossible for jumbo loans for all but the perfect. how long until someone figures out a way to finance jumbos with some new method? what happens in october?

Anonymous said...

There will be no "new" method to finance jumbo loans.

The gig is up and the circus has left town. October will be worse than September, that's what is going to happen.

This is just wonderful to watch--it's like a replay of the tech bubble except on a larger and grander scale.

WarChestSM said...

Here are some things to consider (and consequently, reasons why this won't get better soon):

Secondary market demand for jumbos, anything subprime and even alt-A is way down. Many of the CDOs and MBS are currently on negative rating watch or haven't even been reviewed yet for possible downgrades...and the losses to holders have already been huge. They don't want anymore.

OK, so then the banks/lenders can retain the loans in their portfolios, right? Well, Goldman came out today and said they are expecting CFC to announce huge write downs over the upcoming quarters. CFC also announced $150 million in restructuring charges today for all the lay offs...looks like the beginning of lots of charges and write downs. They don't want to retain anything toxic on their books anymore. The losses hurt.

And then there are our friends at WaMu, First Fed, etc...these guys are still busy hiding the upcoming damage from their neg-am time bombs they have on their books currently. When the neg-am interest alone represents over 100% of quarterly net income, you know there are problems coming down the road.

The problem is that nobody wants this garbage paper anymore, and lenders don't have the ability to hold it on their books. This is just like the situation with home builders. Write down the inventory so that markets clear, slowly build up demand for product and then begin to increase volumes from their currently depressed levels. This requires many quarters and many losses to happen, not months and "flat" markets.

Anonymous said...

Agreed.

In addition, in my line of work ($1.5B money mgr), I am seeing lots of new opportunistic, vulture debt funds from real pros (PIMCO, TCW) that want to take advantage of hung loans, CDOs and mortgage debt. The funny thing is even the investment managers of these funds haven't drawn down capital that their investors committed. They are sitting on the sidelines because they know there is a HUGE second, third, fourth leg down in the financing that facilitated more liquid trading of the illquid hard asset called 'real estate.'

Anonymous said...

90402: Santa Monica
Median sale price
Sept. 2006 Sept. 2007 Change
$2,443,500 $2,975,000 up 21.80%

Number of transactions
Sept. 2006 Sept. 2007 Change 6 8 up 33.30%

Did you care to check that ?

And this is in the jumbo crisis. All gloom and doom at the high end :-)

Honestly, despite some interesting discussions this blog has become exactly the same as the realtors propaganda -only it serves the opposite purpose. Manipulation of data. Picking up only these facts that suit the grand theory of total collapse of Westside real estate. I wonder why.

Anonymous said...

The jumbo loan, secondary market, etc. are all just effects to me...the real problem is people making 150k buying 1M homes. That is a 6-7x multiple of income. To spend that much money on your house is so out of wack. Sure the zero down, 100% financing gave the rope so people could hang themselves...but it is amazing how much debt people are willing to incur. Leased cars, credit card balances so why not a HUGE mortgage...you can always extract equity right? The game will end because it has to...not supported by fundamentals...and oh by the way...all this is happening without inflation...hum????

Anonymous said...

I don't know anyone buying a house 6x7 times income. But I hear a lot about this in the press -it is a fashionable topic these days. Most of people I know bought very conservatively on the Westside especially recently max 3x income big downpayment a lot of cash reserves for houses in the 1-3 mln range. Sure there are some idiots there I just do not believe it is a majority- especially people with high incomes. It is easy to spread the gossip and paint a dark picture but then there is the reality.

And BTW. Just wait for inflation -it will catch up soon.

Anonymous said...

"I don't know anyone buying a house 6x7 times income. But I hear a lot about this in the press -it is a fashionable topic these days."

I'll prefer statistics over your anecdotes, thank you. Median income in LA is $55K give or take, median home price is $550K (oops, now 525).

Westside Bubble said...

They are sitting on the sidelines because they know there is a HUGE second, third, fourth leg down in the financing that facilitated more liquid trading of the illquid hard asset called 'real estate.'

Very interesting!

90402: Santa Monica
Median sale price
Sept. 2006 Sept. 2007 Change
$2,443,500 $2,975,000 up 21.80%

Manipulation of data. Picking up only these facts that suit the grand theory of total collapse of Westside real estate.


One month in one zip code of course doesn't establish a trend. If you look at my recent post of Melissa Data for 90402, yes, Sept. 2006 was lower than Sept. 2007. But the overall price trend appears to be falling. Well-priced houses still sell fast, but there's a rising inventory of ones that aren't selling.

Westside prices haven't fallen like other markets so far. But they sure did in the early 1990s, after less of a bubble than the current one.

Just wait for inflation -it will catch up soon.

In a decade? It took LA until 2000 to recover to 1990 prices, per Case-Shiller.

Anonymous said...

The mantra of this blog is that the 1990s will repeat themselves. If there is recession in LA -maybe yes.

Otherwise with no subprime and no foreclosures here lots of good jobs and inventory actually down from the last year in these best areas (believe it or not) why should they suffer -check the statistics.

1 percentile of 3 mln households in LA is still over 30,000 people making very serious money. Most of them either work or live in the best areas of LA and large percentage of top zip codes are on the Westside. Decent houses here for sale are counted in dozens not 100s. This is in the area with 0.5mln people and similar number of jobs. Looking on the median income is pointelss. Places like Compton and Watts have nothing to do with Westside. No one is "moving up" from there to here and most people living on the Westside have never in the lifetimes visited poorest areas of LA (sad as it is). Might as well count income in Tijuana, or Missouri, or Greenland. It has nothing to do with the high-end parts of LA.

If prices go down 80% in Compton (which maybe they should) they can actually move up here - LA is that segregated -again as sad as it is. So unless there is a recession hitting hard top jobs I don't see any evidence that 1990s are going to repeat themselves.

Good luck renting for the next 10 years and timing the market.

Anonymous said...

"Most of people I know bought very conservatively on the Westside especially recently max 3x income big downpayment a lot of cash reserves for houses in the 1-3 mln range."

Care to give some examples (not names but what the house cost, how much they put down, and what they make per year)? And you certainly know your friends' finances much more intimately than I do, because my friends (and most people in general) don't share any such data.

Anonymous said...

"Good luck renting for the next 10 years and timing the market."

I made the comment about the statistics, and FYI I don't rent. I simply understand that nothing has changed on the westside in the last 5 years to justify prices being up 120%.

Anonymous said...

Ah yes, the bubble in Santa Monica is unlike the bubble that happened in Tokyo. Of course the land here in Santa Monica is special. There is a fundamental reason why the value tripled in value overnight.

It was the same reason why it went through the roof in San Francisco.

They aren't making any more land.

Land is much more scarce here than in Japan. And, of course, look what happened there.

Anonymous said...

qqmzyvim"prices up 120%"

Inflation maybe 30%, $ down maybe 60% (not the world currency anymore), so actually prices may have gone up 20-30% higher than these 2 basic factors -here on the Westside mostly due to the severe shortage of decent houses where most of the good jobs are.

As for other areas where there no jobs and generally no one wants to live there- yes the increase was unjustified.

Sorry about the renting assuption.

Anonymous said...

BTW. Did prices go down in the 1990s in San Francisco does anyone have solid statistics for that ?

Westside Bubble said...

Did prices go down in the 1990s in San Francisco does anyone have solid statistics for that ?

According to Paper Economy's Case-Shiller graphing tool, San Francisco tracked the national index pretty closely, rising less and falling less than LA (but did fall a little).

Anonymous said...

If I were to make a guess- LA will be more like SF last time -it is all job loss dependent. Look at the drop in 2001 in SF (after dot.com crash). This time the jobs do not seem to be the factor in LA at this point so LA as a whole will mostly reflect composite unlike in 1990s.

Of course if there is a major recession (much deeper than the one in 2001) it will be different but this time before elections since this is a national problem now and much more severe in other parts of the country than here -they will just print more money to deal with this problem. They have already indicated that by lowering the interest rate.

Anonymous said...

"last 5 years to justify prices being up 120%."

BTW. Price of gold went up
from 310$ to approx 750$ in this time approximately 140%. Is there a justification ? Is it going ot crash, maybe - who knows.

So the median house in LA is actually cheaper in terms of gold right now.

Anonymous said...

How about giving some examples of your well-heeled friends and their gobs of money that you mentioned before?

Anonymous said...

"This time the jobs do not seem to be the factor in LA at this point so LA as a whole will mostly reflect composite unlike in 1990s."

Jobs aren't a factor YET, and yet things are already bad. Doesn't seem to support your position.

Anonymous said...

"Jobs aren't a factor YET, and yet things are already bad. Doesn't seem to support your position."

Glass is half full or half empty.
Ona can say that because there are no job losses (and you do no know for sure there will be) it will not be as bad as last time in terms of price declines -with the exceptions of subprime funded areas.

Just call me Maria said...

There aren't many of us, but some of us DO have the proverbial 20% down, steady jobs with adequate pay and good credit. I don't personally know anyone with a house 6x- 7x salary, but I do know at least 4 couples who are now sitting on big cash from the sale of their last home and who are waiting like us to buy in better neighborhoods.

Anonymous said...

Not good friends -just known purchases and estimating average income in professions. The mortgage details even including interest rates and amounts can be found via www.titleprofile.com

Example house for approx 1.6 mln income over 400k (typical in the profession) and mortgage for approx 1 mln. Numbers blurred to protect identity :-). I agree this is not scientific but I do not know of any subprime single family house purchases in these areas. There maybe some of course but I truly doubt considering the type of people purchasing properties in these parts of LA. OK - maybe a few deliquent realtors :-).

Anonymous said...

"There maybe some of course but I truly doubt considering the type of people purchasing properties in these parts of LA."

Ever heard of Alt-A?

WarChestSM said...

I agree with the gold and inflation comments. Oil is hitting all time highs but it is not that expensive in gold terms. It is just the dollar that has sucked for a long time now.

However, I do not think that will save housing on the westside.

A tremendous amount of the job growth for high paying positions took place in real estate related positions. Realtors, mortgage brokers, builders, etc. These areas are now shedding jobs and those who are able to stay in these fields aren't making as much.

Also, people aren't paid in gold. Business owners and high end execs may be able to cope with inflation better than typical wage earners, but we have not entered some new paradigm here. It would be contradictory to say that on one hand, westside housing is safe because jobs are still abundant, while on the other hand saying that jobs (and the income that they produce) don't really matter because of inflation, a weak dollar and foreigners.

From late 1990 to mid 1992, the dollar index was in the low/mid 80s and right now we are in the high 70s. So the buck was pretty damn weak during a portion of the past collapse and you didn't see housing saved. It was also low in the mid 80s all through 1995 and 1996.

Anonymous said...

Alt-A

Heard something why would someone with big downpayment and excellent credit need these kind of substandard loans. I just dont see why anyone in this country could not be able to have the top credit score unless they simply lack any brains.

Even jumbos now-despite the whole press coverage are still easily available at close to 6.5% fixed for 30 years and 6.25% fixed for 15 years for credit score > 700 That is BTW a very low credit score. I don't know how a responsible person can have such a low score. If you pay your bills on time on a couple of credit cards in no time you have score 750 or higher. After tax write-off it is essentially 3.5% mortgage rate -still very cheap money.

I agree there may be few deliquent realtors :-) but that's not all there is on the Westside.

Anonymous said...

Oil has tripled in value since 2002 US should be able to afford 3 times less oil but -instead prints some more money and buys it. Is oil going to go down because US cannot afford it ? Think about housing in these terms.

NeedleBrain said...

The improvement in housing stock (i.e. speculative McMansions replacing tear-downs in 90402 ) accounts for much of the perception of increasing prices in 90402. I would guess that at least one out of three (1/3) sales in 90402 is a McMansion. It only takes one per month to skew the numbers, because the indexes do not take into account the costs of improved construction.

In other words, the increasing prices in 90402 do NOT actually or accurately reflect increases in general Real Estate values in 90402 because the perception of price increases is attributable to the significant investment in new construction.

To make it even simpler (so that a RE agent can perhaps understand): a $2.4 million house that has $500,000 buried in the yard is worth $2.9 million, but another $2.4 million house without the buried treasure is "worth" only $2.4 million.

That is today, before prices fall a good hard and fast 30% in the next year.

It is like comparing apples to oranges or tear-downs to spec houses. Hard to do unless you know the area.

However if you take a gander at 90402 right now, you will see construction on almost every block. Oddly the cost of that construction should actually increase the prices more than the $550 k i9ncrease in the statistic.

Go figure...

Anonymous said...

This is from the Wachovia conference call today as reported by Calculated Risk's blog:

"It's interesting to note here that problems in these markets, really for all lenders seem to be across the board without originating FICO, the type of loan or the property."

Of course they did follow this up by saying that "Santa Monica, and especially 90402, is different."

Anonymous said...

where are today's comments