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.
There is only so much FacePlant stock riches to spread around, and when lockup ends there will be less.
CA is blessed with the dumbest legislators on the face of the continental US save maybe Illinois. Can’t wait for it all to implode on those fools and the huckster union retires with 6 figure pensions while 7-11 clerks pick up the tab. Gonna be quite a show.
As a 20+ year real estate appraiser, don’t make the mistake of being provincial and assuming your own development/neighborhood/city/county is the “market”. It’s not. Replicate it with 10-20 more anecodotes around SoCal at various price points and then make a conclusion.
CA as MI? It certainly appears to look similar with the boneheads running the place, but the state is more complex than that.
good point, Tony. but the entire Central Valley is in a Depression. the trend is not your friend in CA. it is a large and complex place, true, but Orange County is not immune to the state’s collective ailments. nice tax rates by the way, productive young people say, “keep the the change.” slow death is in motion and demographics are a bitch.
stay tuned, it’s coming. it will take a while, but from an objective look it’s clear. the same way a superior Navy and reserve currency keep the USA’s profligate ways “afloat,” so does the Golden State’s status of general awesome-ness.
but all good things propogated by feelings and weakness end.
i looked at moving my business to CA as my wife is a native and given my job’s mobility, we had a look.
non-starter. my attorneys got about 4 minutes in and the idea was terminated.
CA is a terminal short. it’s super resilient, but the business climate is astoundingly bad and getting worse. the patient is dead only the patient is too dumb to know it … or on welfare … or on meth. such a shame, what a waste of the most beautiful and pleasant place i’ve ever been. enjoy the weather, that’s what will eventually be left, nigh-nigh.
I’m a FLA resident. Just can’t take the summers there.
Cali was Field of Dreams; they built it and they came.
Now it’s more of “They paved Paradise, put up a parking lot”, but prices still reflect Paradise.
People here still pay an amazing percentage of their income to live here. Thus there is serious risk of real estate price changes to lag both the pace of change of the general price level (whatever that exactly is) and the level of change of national housing prices.
I don’t think I need to get 20 anecdotes to make the above statement. Between Mark Hanson, Doctor Housing Bubble, the above data, etc., my bias remains to taking the “under” on the Cali residential RE “recovery” right now. Now, I’ve been wrong many times…
FL summers suck. for me, and i’m a sweater, there are 4-6 months to be there at most. but the world’s biggest hitters are there, and it’s not a coincidence.
i want to live in CA but i won’t, even my wife who is savvy but not sentimental, looked at the workup and said, “not a f-ing chance. damn, that is sad.”
as i said, CA is a terminal short, the peeps there just don’t know it yet. and it makes sense, it takes more toughness to live in less pleasurable places.
I used to work for a Silicon Valley software company. As margins slimmed, prospects dimmed and revenue went to the dogs. They moved to Austin, TX where the taxes are low, politicians are friendly and the local DHHS doesn’t force you to pay for transgender sex change operations.
I live in the SF Bay Area. I see a natural outflow of middle class people taking jobs that pay nearly the same in other states with a much lower cost of living. In coming are well educated and skilled people who make high salaries, and, their servant class from Mexico. This is what people here want.
I own in the SFV and don’t understand why anyone would pay the current asking prices for the 55 year-old cookie cutter stock in my area outside of the excellent schools. No way I would move into my neighborhood at the current price levels. I can’t see these homes as attractive without another 15-25% fall in prices from the $450,000 range.
Yes. California is horrrrible. Please stay away. For all it’s faults, I still love it here. Mostly because of the diversity of people, thoughts, and opinions, and also because of its natural beauty and near perfect climate.
I’m up in NW Oregon and have noticed a steady migration of eco-friendly douche-bag Kalifornians moving in and trying to inflict their anti business bs on our local communities. You have f’ed up your state and now you come here to f ours up.
For those of you in Kalifornia, we like logging, fishing, and industry in general. If you don’t like industry, please don’t move here because it constantly rains and you will hate it.
We do have our fair share of politicians who believe in unicorns and pixie dust and are very willing to invest our tax dollars on things that really don’t pencil (solar, wind, light rail)
Having been based here … more or less, while also living, working & traveling about the world during my adult life, it easy to see how “special” California is.
The coastal climate has few peers. Locales such as mentioned by this articles author (Santa Barbara) have few peers.
Now some important realism.
1) Who the heck is left to buy super pricy Santa Barbara real estate unless there are WATERFALL price cuts.
2) The state and local government are living in a past dream world. As their borrowing capacity dries up then they will be yanked back into reality.
3) CA bashers …. so many of them. Yet look how many came to find work or vacation in the past.
California is like a pretty woman whose beauty has gone to her head. Now she’s past her prime. Suitors aren’t beating a path to her doorstep like they once did.
The future is very uncertain. To a large degree it depends on a change in attitude among its inhabitants. The welfare state has to end. The existing pensions HAVE to be cut.
This will happen one way or other. Either ‘gracefully’ or ugly, but it will happen.
The money simply is no longer there.