Hope in a bubble

Each Sunday, I check the weekly sales listings in the SF Chron to see how things are shaking in the ol' zip code. It's a not-bad way to gauge two things: how long a house stays on the market, and what it sells for relative to its asking price. It's also a fun way to keep up with the market: this house went on the market within days after we made the offer on ours, and it's now back -- all spruced up -- at a much higher price than in August. I'll be curious to see how it does this time.

Whether or not real estate investors are beginning to get burned is a growing story, I think. BW's "Bubble, Bubble, Then Trouble" (Dec 19, 05) provides a telling example:

Jim Williams, executive vice-president of the Northern Virginia Building Industry Assn., knew the "feeding frenzy" had gotten out of hand when a waiter in a restaurant he frequents confided that he had bought four houses on spec. "I'm sitting looking at him and thinking even with tips...he must be dying on the vine." Now, investors' scramble for the exits is creating problems for owners like Omar Singh, 29, owner of a trucking company in Herndon. His townhouse in Sterling has been on the market for $525,000 since October. He's hoping to hold out without cutting his asking price until April. But, he says, "I might not be able to."

Buying FOUR houses on spec? With what? Then again, I thought the same thing after reading "Buy, Borrow, Buy" in the Dec 9, 05 SFChron:

In the three years since Sacco and McCook put their faith in real estate, the couple have embarked on what might conservatively be called an E-ticket ride, pulling equity from appreciating properties to provide down payments for the next investment. They have bought eight vacation properties - four homes in Florida, three in California and 100 raw acres on top of a mountain in Lake County.

[...]

Sacco estimates that along with McCook's mother, who has been a silent partner, they've made $1.3 million since they began their buying spree, but all of this is still in equity on their properties. Their monthly reality is more sobering. They have $2.3 million in mortgage debt and negative cash flow that ranges from $5,000 to $15,000 monthly depending on the season.

So how do they pay the bills?

"We sort of count our equity loans as our income," she says, with the slightest wince. "If we had real jobs, we'd be fine, but we just need to get some money in. Some people call it a pyramid, but I don't like to think about it that way."

These sorts of investors are the people to watch as the market adjusts in 06, I think.

FWW, Behind the Mortgage's bubble coverage is very well done. After the jump, how some markets are heating up or cooling down, according to "The Ups And Downs of Home Prices" (BW, Dec 19, 05) ...

... so the good news is, Californians aren't completely hosed. Yet.

The way the numbers break down, we're looking at how much prices increased last year compared to how much prices have increased this year. So in looking at San Diego-Carlsbad-San Marcos CA, we see that prices jumped 25.9% in 2004, but only gained another 9.1% in 2005. The upshot? Prices rose but it wasn't a year-over-year gain.

In California, the markets that rose in 05, but not nearly so quickly as in 04, are as follows:

• San Diego-Carlsbad-San Marcos CA (home prices rose 9.1% in 05/ home prices rose 25.9% in 04)
• Santa Barbara-Santa Maria-Goleta (13.1%/ 28.4%)
• Salinas (19.8%/ 32%)
• Riverside-San Bernardino-Ontario (20.4%/ 29.8%)
• Oxnard-Thousand Oaks-Ventura (16.4%/ 25%)
• Bakersfield (26.8%/ 34/8%)
• Santa Ana-Anaheim-Irvine (18.5%/ 25.5%)
• San Luis Obispo-Paso Robles (16.3%/ 22.9%)
• Sacramento-Arden-Arcade-Roseville (20.5%/ 26.9%)
• Hanford-Corcoran (24.9%/ 30.3%)
• Los Angeles-Long Beach-Glendale (21.6%/ 27%)
• El Centro (28%/ 32%)
• Visalia-Porterville (29.9%/ 33/4%)
• Yuba City (24%/ 27.2%)
• Stockton (26.5%/ 29.3%)
• Fresno (25%/ 24.7%)
• Santa Rosa-Petaluma (19.7%/ 21.7%)
• Madera (26.4%/ 28.1%)
• San Francisco-San Mateo-Redwood City (17%/ 18.7%)
• Vallejo-Fairfield (22.6%/ 23.3%)
• Santa Cruz-Watsonville (19.3%/ 20%)
• Napa (21.6%/ 21.9%)

What I found a little heartening: the smallest gaps (i.e. the smallest slowdowns in growth) seem to skew northward, while SoCal is seeing some serious slowdowns.

There are also some markets where the year-over-year gain in sales grew, not narrowed. In California, these regions were:

• Redding (prices rose 27.3% in 05, compared to 21.7% in 04)
• Merced (33%/ 28.8%)
• San Jose-Sunnyvale-Santa Clara (22.3%/ 18.7%)
• Modesto (30.1%/ 27%)
• Chico (23.2%/ 21.4%)
• Oakland-Fremont-Hayward (23.9%/ 22.8%) (Yesssss! This is the region we fall into!)

I encourage y'all to take a look at all the data listed in the chart; it makes for interesting reading, if not a hint as to where the next overheated regions are.

Comments

[Alex S.]

Thanks for the kind words Lisa - that kind of charmed me.

[Roger]

Just sort of a side note - what I remember from my restaurant days is that most wait staff are just trying to scrape by, but a handful of them were already set for life, and just did it to meet people.

On a side note to the side note, tip well, people. It's not easy trying to make a living entirely off the kindness of strangers. Fast food workers at least get paid minimum wage and above - wait staff don't even get half that. I've even seen negative paychecks, after taxes. I wish I were joking.

[Kate]

This is completely anecdotal, but I am shocked, seriously, by the growth in home prices in Chico (my home town, and on your list of places that are continuing to grow). My dad just bought, and the prices he reported seeing were comparable to if not higher than what we paid in Sacramento. It's interesting to me how much the very marginal areas (Redding, Merced, Modesto, Chico) are booming; do people really want to live in California that badly? I guess we do. But those areas, if the market falls, could really, really fall. The economic base is just not that great, and these are not commutable distances from urban centers (3-4 hours from the Bay Area in many cases, 2+ from Sacramento).

Also anecdotally, I'm noticing a big slowdown here in Sacramento. Houses are just sitting on the market, even in the really desirable neighborhoods and even after dropping their prices. List prices are high, but whether the houses are selling is another story.