Yes, decline is impossible in SoCal

[kev374]

Everyone wants to live here, people are rich, money is flowing from China etc. etc. so a decline is impossible!!!!! YAY!

Why speculate when you can actually SEE what is happening out there with the listings eh?

Latest suspect in hotwater:
24975 ACACIA LANE, Laguna Hills, CA 92653
MLS: S481222
3bd/2ba – 1,790 sqft
Original purchase price Apr 2005: $520,000
Current list price: $485,000
NET LOSS after 6% comissions/costs assuming full offer: $70,000
Price per sqft: $270
Nominal decline from Apr 2005: 6.7%
Inflation adjusted decline from Apr 05: 13.7%

Days on market despite cuts: 40 and counting

And we’re just getting started folks. I monitor listings practically 3 times a day and the must sell inventory is increasing dramatically. I extremely optimistic of at least a 10% drop by end of year.

As Rich mentioned in his interview, I don’t think the currently published median price is indicative of the state of the market. Some of these properties have severe price reductions and yet nobody is touching them. Example is as above, even at $270/sqft nobody wants it.

With the absence of speculation that properties are going to appreciate strongly there is no interest, the house is just a huge liability 😉

[kev374]

Also like to mention that the KEY factor that drove the boom was buyer *PSYCHOLOGY*. The belief that buying a home was the key to wealth, that homes would appreciate strongly, that if they don’t get on the bandwagon the road to wealth will be missed.

Today the psychology has completely changed 180 degrees. With all the problems with subprime, foreclosures and the proof that houses are dropping the value nobody wants to be a pay such a HUGE premium to assume such a big liability. Add to this the credit crunch and it spells disaster for home prices as we go forward.

The ONLY people who believe the housing drop will be minimal are the homeowners because they are in DENIAL. But homeowners are not the ones who set price points 😉 It’s the BUYER sentiment that matters. What homeowners think is totally irrelevant.

[no_such_reality]

Bleech, a circa 1975 fixer for $485K, egads. I’m claustrophobic looking at the photos, what are those ceilings, 7 foot?

It’s worth half that and then you still need to back out the upgrade costs you’ll have to do.

[bubba99]

“Also like to mention that the KEY factor that drove the boom was buyer *PSYCHOLOGY*. The belief that buying a home was the key to wealth, that homes would appreciate strongly, that if they don’t get on the bandwagon the road to wealth will be missed.”

I could not agree more with the above quote, but when we look as to (Why do buyers believe housing is the key to wealth?) Then we see the shadow of the Federal Reserve Bank. It was insanely low interest rates that drove the prices so high – and the FED is not done yet. Buyers of FED debt are getting only about 4 to 5% on their money while the dollar has devalued by 8.75% since just last July. The Euro deposit rate in London is 5.32% The FED should be raising rates to stop the freefall of the dollar, but they are not. The European investor is getting a negative 3.5% return on US dollar investments.

IMO the FED is trying to hold off on any housing collapse even at the risk of the dollar. Prime is 5.25% and 30 year mortgages are still in the 6% range. 30 years of potential inflation is carrying only .75% premium over short term money. This is not as insane as the inverted yield curves (long term money cheaper than short term) we had in 2002, but still fundamentally unsound economic policy.

We know that significant price drops in real estate will trigger trillions of dollar losses in FDIC banks. The FED will fight this all the way down. Now that M3 money supply is hidden from public view, the FED can create dollars without any public outcry. They added 1.2 trillion in 2006 without so much as a footnote. The days of 2% mortgage money could return.

[Cow_tipping]

A 2% mortgage = -3% inflation. AKA deflation. Now that means everythign including rents will ahve to drop 3% YOY.
Printing notes causes inflation, so I dont see how adding 1.2 trillion = deflation.
Inflation has been artificially kept low due to china and other factors. House prices have been artifically pushed up due to low interest, high demand for bonds also from china and wild speculation and funky loans.
The trend is towards a reversal to normal. 10-12% interest rates, 5-6% inflation a fall in house prices and a rise in rents. In 10 years we’ll be balanced again and probably house prices of today will be back in nominal numbers.
Cool.
Cow_tipping.

[cashman]

I don’t think the psychology shift has happened yet. I read an article recently that says only 1 out of 9 Americans believe housing is a bad investment right now. We have a ways to go if that’s true.

[PD]

Psychology hasn’t shifted yet for the masses. I was at a party last weekend and talked to two people about real estate. One person claimed that real estate has never gone down in value close to the beach in LA (therefore it is a safe purchase now). Another person made the comment that anyone who wants to live in the Phoenix area better hurry up and buy now before prices go up any more. I responded that prices were going down in Phoenix and that the inventory was huge. He looked at me like I deserved an award for idiot of the month.

[kewp]

“I read an article recently that says only 1 out of 9 Americans believe housing is a bad investment right now.”

What a great metric! I’ll buy when it’s 8 out of 9.

[eccen in esc]

eccen in esc

PD you are absolutely correct about the masses. They just haven’t caught on yet or are in denial. They gather bits and pieces from the media that makes it sound like things are fine. They don’t read Piggintons so they are just in the dark. This is just human nature – follow the herd. Realtors know but try to pretend it’s fine. They have to. It’s their livlihood. I guess that’s why they just keep pricing new listings so high. I have been watching Valley Center. I too, am looked at like I’m a loony whenever I voice my opinion on the market. And friends and relatives think I’m nuts for selling my house.

[bubba99]

But the -3% we should have seen with the inverted yield curves never manafested itself. All the deflationary pressure was eaten by foreign investors – as they continue to accept negative returns on their dollar investments. Housing and rents stay disconnected from economic fundamentals, and if they return nominal levels – housing crashes and the banks go with it.

The deflation is in the dollar, but not at home. The 6-10% inflation that should be – isn’t yet. Creating new devalued dollars causes the dollar deflation that China, Mid East, and Europe are eating.

[Author]

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