How’s the California housing recovery?
I’ll begin with what I observe locally. Here in Santa Barbara, I do not see upward price pressure on housing. The 19-home community in which I am renting this season has at least six renters. It appears that investors (a married couple, both attorneys) now comprise at least 1/3 of the owners here. Rents are static. Home sales are infrequent but a sale that just now closed was at more than 20% below initial asking. Given that the owners had already moved out to a retirement home and both they and their realtor knew the market very well, this is a sign of weakness. The most recent sale was over a year ago. It was a smaller home in worse condition, but it sold at about a 14% higher price. When further adjusted for lower mortgage rates/interest rates, the “real” price drop was even larger than that.
About 10 miles down the road, a new development on converted agricultural land began selling informally last November. The grand opening was in May. This is a 73-home (final plan) development sponsored by two owners, one of which is CALPERS. (Bet you didn’t know that CALPERS has diversified.) The homes are, as they say, very well-priced. They are priced comparably to used homes of similar house and lot size in the area– but they are new. Back in the day, there would have been an iPad-like frenzy to get at this development if it were such a “bargain”. The nearby area is decent. One can walk to the beach. The climate is superb. Yet they have only sold nine homes. This is not a disaster (yet), but given this is a small development with almost no new competing new-build developments, I’d have thought that by now, there would have been more “pent-up” demand demonstrated by qualified buyers.
Unimpressed with the “recovery” that housing stock buyers, some bloggers and much of the MSM see is the consultant and occasional blogger, Mark Hanson. Here is his summary comments from an important post he made a few weeks ago titled The Housing “Supply” I See…a Decade Worth to Work Through:
Based on 4.6 million sales per year — of which roughly 1.25mm per year are REO resales and short sales — then the supply below will take well over a decade to burn through at a 75% rate. Coincidentally, this turns our housing crisis into a 15 to 20 year events, which is just about the exact amount of time Japan’s housing market took to de-lever…
…This is big trouble.
He is a first-class analyst who apparently makes a good living as a consultant.
So far as California itself, I mentally gave up on the current lawmakers’ prudence when they decided to greenlight the first stage of the LA-SF bullet train. This segment will cost billions and be, basically, connecting nowhere with nowhere (that is, “nowhere” on a public policy/must-have mass basis). As usual, the monthly income for the state disappointed (LINK):
State Controller John Chiang today released his monthly report covering California’s cash balance, receipts and disbursements in July 2012, showing that total revenues were $475 million below projections contained in the 2012-13 state budget.
“Revenue collections were disappointing for the month of July,” said State Controller John Chiang. “However, because spending appears to be tracking and the funds that the State depends on for liquidity are performing well, California’s cash outlook remains stable.”
Personal income taxes in the month of July rose $12 million above (0.4 percent) projections, while sales taxes were down -$295 million (-33.5 percent). Corporate taxes were up for the month, coming in $57.1 million (27.4 percent) projections…
The State ended the last fiscal year with a cash deficit of $9.6 billion. As of July 31, that cash deficit totaled $18.0 billion, and is being covered with internal borrowing (temporary loans from special funds).
Note that per the actual report of Controller John Chiang, the reason that corporate taxes were “up” was due to diminished refunds, not increased revenues.
A sales tax decline of several hundred million dollars in one month is 100% consistent with the ECRI view that that U.S. has entered a new recession.
One more thing. California’s most famous exports these days are Apple products. The company’s earnings estimates have been cut lately for this fiscal year and next. So have estimates for Intel and a variety of Internet companies. California relies on tech-related spending and capital gains for a significant part of its economy and governmental receipts. The trend may not be California’s friend in tech right now.
I went to college in Ann Arbor as an out-of-stater at the U. of Michigan when Detroit ruled the global automobile roost and few had heard of Toyota or Honda. The state was so rich that tuition was subsidized for us non-residents. Soon enough, autos began their multi-decade decline, as did Michigan in many ways. Tech might end up being the new autos, and in any case, California is looking to me like the next Michigan.
The mini-boom in Silicon Valley/Bay area real estate may not be a harbinger of a spreading boom. It may be a somewhat isolated phenomenon due in part to what I have called for some time Internet bubble 2.0 and the insane IPO pricing that has been foisted upon the unwary public.
More price-cutting in California real estate, including in the San Fran/Palo Alto area, may lie ahead.