‘The Exuberance In Housing Is Ending’: California
Some reports on construction employment in California. “Construction hiring in San Diego bucked a statewide trend that saw a loss of 8,300 construction jobs in April from one month earlier. That comes on the heels of a loss of 9,400 construction jobs in March.”
“‘I suspect we’re going to lose a couple hundred thousand construction jobs over the next two years,’ said Christopher Thornberg, an economist with the UCLA Anderson Forecast. ‘The housing market is clearly braking right now. I think 200,000 might be conservative.’”
“Statewide unemployment rose a tenth of a point to 4.9 percent in April, while total payrolls fell by 2,600, the Employment Development Department said Friday. The month before, California lost 10,800 jobs, ending a streak of nine straight monthly job gains.”
“The Sacramento area defied the state trends. Unemployment fell a tenth of a point in April to 4.6 percent, as the region added 3,000 jobs despite a fairly weak showing from the construction industry.”
“Howard Roth, the state’s chief economist, acknowledged that the housing market is slowing, and it’s likely that California will see a dropoff in the construction industry regardless of the weather. Roth and others said they believe other industries will compensate for the slowdown in construction.”
“State officials blamed at least some of the two-month decline on rain. But that explanation did not quell concerns that the end of the housing boom was slowing California’s economy and could eventually spell trouble for the state government’s ambitious spending plans.”
“Economists said it was too early to tell whether California was an outlier or on the leading edge of a broader housinginduced economic slowdown. The state led the nation’s housing boom five years ago, so it wouldn’t be surprising if it led a housing downturn as well.
“Friday’s jobless report left little doubt that the exuberance in housing is ending. On the heels of a 20% drop in home-building permits in the first quarter, the state’s construction sector shed jobs in April, leading five sectors that reported losses.”
“Most economists had anticipated that job growth would begin slowing as rising interest rates and high prices cooled the housing market. But the declines came as a surprise. ‘Most of us thought that the minus 13,400 [in March] was a blip,’ said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.”
“‘What we’re looking at now is two months of small job losses,’ he said. ‘It’s unexpected. If any part of it is real, it’s a very serious signal. I think we’re into a slowing economy because people are getting more cautious in spending,’ he said. ‘They are facing higher interest rates. They are facing higher energy prices…. We’re moving into some head winds.’”
“In Southern California, the locales that saw the greatest job growth in the home construction boom are keenly feeling its falloff, said Lisa Grobar, an economist at Cal State Long Beach. In Riverside, San Bernardino and Ventura counties, construction employment grew less than 3% in April on a year-over-year basis, down from more than 9% a year earlier, she said. Orange County’s building job growth dropped to 3.5% in April from 7.3% a year earlier.”
‘California’s economy posted a net loss of 2,600 payroll jobs in April, with the construction sector shedding the most jobs over the month, the state Employment Development Department said Friday. April’s employment figures followed a revised loss of 13,400 payroll jobs in March.’
Considering the layoffs in the mortgage business and that most realtors in the state aren’t making sales, it looks like the RE related slowdown is here.
I will provide some personal observations which will throw some light as to what is about to occur in the Scal overall economy , which is mostly dismal. When out on business to the doubletree inn in Ontario May 19th. Very little activity, maybe I counted 1/2 dozen guests during the I hr i was there. I saw double that in employees and hotel maintenance workers during that time. I also went out to downtown Riverside at 4 in afternoon near the landmark Mission Inn. Went around the civic plaza and other areas of the dwtn and it was virtually empty of pedestrians. I counted maybe 2-4 families at the Famous Mission Inn hotel/lodge which easily has 100 rooms. Went around the immediate area of dwtn riverside and it was depressing. Aged declining residential neighborhoods, lots of 4-sale signs, evidence of infiltration of illegals and lower-class groups moving in, abundance of weedly lawns and dilapilated homes, lots of retirement homes and support services for the elderly, indicating that their boomer offspring fled this area, ad infinum, ect, All this indicates that at least in the Inland Empire the great consumer slowdown is in full swing(could also be the high gas prices). This is only two examples but i have noticed things slow in retail shopping malls and even discount stores all over the La Metro region last several months. If anyone on this blog has notices a slowdown in the local economy in their area recently please reply .
Peter, I posted about this a couple of weeks ago. Ben used it as a “weekend” post. Yes, it was noted that there was a slowdown (I was mostly refering to malls) in retail. Some areas saw rather significant declines, and others say the party is still going in their areas.
Thanks for your post. The anecdotal stories/evidence on this blog are priceless, IMHO.
Duh!! Did these people just fall off the turnip truck yesterday???? My husband and I have been saying this for the past two years!! Are there really so many foreigners here that most people don’t realize this??? It’s truly amazing to me how stupid people are! We are predicting a recession this fall followed by the state going bankrupt in the future. We are renting and waiting to buy for at least a year or two.
You definately have the right idea, I think your patience will be rewarded(with a less expensive house). I think it will take a little longer for this thing to really unwind into a recession though. This country is more willing to mortgage its future to prevent an immediate recession than we were in the 60’s or 70’s as evidenced by Greenspans stunt with interest rates that caused this whole mess. So although I believe it will take longer to manifest, it will be alot worse than it should have been due to all the debt and fraud in the system which has been propping it up.
My feeling is we will really start seeing declining prices and panic selling in 2007. By the end of 2007 we will see a “very bad RE market” in many places. In 2008 it will hit the fan, falling prices, foreclosures and of course if you are like us patient bubble watchers, some great buying opportunities. But be patient, save your money, in a bad market,”cash is king”, you will not believe some of the deals you will see.
Some food for thought w.r.t. the State of CA going bankrupt - we’re currently seeing some of the largest tax revenues for the state in the history of the universe [link]. Of course, that doesn’t mean that the legislature will save any of the income, but personally I think CA is a looooooooooooooong way off from the financial peril you proclaim.
Housing will (hopefully) take it in the shorts and hard, sooner than later, but I wouldn’t at all be surprised if prices just stagnated for a decade or more.
This is due to the property tax well that is currently drying up as sales plummet statewide. The future will see not only sales volume, but prices as well, decrease. I do not think the current tax windfall is enough to put much of a dent in the debt that this state has run-up; and prospects of future tax windfalls are slim, especially considering the economy’s current dependence on construction/RE (since 2000). JMHO.
One more anecdoctal example of how fast fiscal surpluses can disappear - it wasn’t long ago the federal government was running pretty impressive surpluses. Now we’re going into the red to the tune of 3/4 of a trillion a year. I wonder if the tax surge has a double negative effect: first it induces more spending but it then also readjusts future revenue estimates. Legislators might be quick to adjust the revenues up but I hardly doubt they would be so quick in readjusting the revenues downward.
yeah the legislature will spend all the money. good thing we have a conservative governor.
You mean the one who proposed 7.5 Billion in Public works spending?
Not very conservative.
I am in the same boat down here in San Diego, it will be interesting to see what happens. The majority still thinks that real estate is a great investment. Once that mentality changes though, look out below.
Here is an article from this morning’s OC Register about the slowdown in the rate of job creation in OC. The Economist is shocked at the numbers and does not want to believe them.
http://tinyurl.com/rdtdk
I wonder how many illegals are laid off but not reported in government figures? I’m sure this will further exasperate the labor situation.
Good point. That entire underground economy is getting a double whammy. Implosion of the Housing related jobs and potential immigration hassles. I think it was someone on this blog who also pointed out that when the undocumented become documented the higher costs will bubble up (I just had to use that term there) to landlords and add to any expense related woes they already have.
In so many ways this is becoming even more of a perfect storm every day.
Hey, what do you know. Last year a local OC economist (I forgot which one)said house prices were justified due to the booming job market. It looks like the RE guys are running out of reasons for RE prices to be where they are-supply and demand,no-job creation,no-what else can they say to keep it going.
Hey people ,doesnt it feel good when it turns out you were right?
The boom in Scal Re contruction last five years has been fueled by contruction contractors using independent subcontractors who use illegal alien crews. Often these subcontractors, who may themselves be illegal aliens, will employ gangs of off-the -street illegals from the local home depot and pay them cash. In this way much of the labor in construction and other Independent contract work in Scal goes unreported in the labor stats. Plus the big-name general home improvement/tract developer puts the onus to file all necessary state and federal taxes upon the Independent subcontractors thru the use of independent contracter agreements. this is an almost foolproof way for all parties to avoid paying state and federal mandated payroll tax deductions for it’s employees, since under the I/c agreement there are techically no employees but I/C’s/small Business Owners doing most of the on-site construction work. And often no provision for Health insurance or disability insurance plans so that if the Illegal gets hurt on the job he will be sent to the nearest local hospital ER for treatment and the state/taxpayers ends up incurring the cost to treat the illegal injured on the job.
There will be massive slowdowns in RE construction over next several years especially in such areas as the Inland empire where construction-related jobs account for almost 1/2 of all the new jobs created last five years.
Not only in Residential tract home but in Commercial RE: look for a lot of abandoned, unfinished or unleasable commercial buildings and projects all over the IE next 2-5 years
excellent post…thanks. same here in AZ.
Sorry, no distress yet. I’ve been closely watching the Notice of Trustee’s Sale counts for Maricopa County (Phoenix) over the last 17 months. The market is slowly turning down because of massive increases in inventory and YOY sales declines, but the distress hasn’t started yet. The number of TS notices has been relatively flat, approximately 650 to 750 per month.
This slowdown is causing a small number of layoffs, but nothing substantial enough to make the foreclosure numbers move. Impending ARM resets and rising interest rates may prove to be the leading cause of an increase in foreclosures, and I suspect that the same applies for California. In other words, the real distress in the market will begin as a result of ARM resets that begin in 2007.
As for Arizona, when the foreclosure count doubles to 1500 per month, the crash will have begun, and prices will drop by 60% to 80% from 2005 highs. (Unless, of course, the Fed drops rates to 1% and prices double as a result of global currency hyperinflation.)
I just paged through some March trustee deeds in Maricopa and I didn’t see a single deficiency: the lenders all got out unscathed. My sampling was by no means scientific, but I figured I’d find at least one upside down sale in the dozen deeds I looked at and I didn’t find any. Interesting. When the momentum breaks to the downside, however, look out. I can’t imagine anybody using cold hard cash to buy properties whose prices might look attractive today, but might be dropping 20%+ a year for the foreseeable future. That ought to make Trustee Sales interesting.
I completely agree except take your description and multiply it by about 100,000 job sites across the U.S.A. and I think you begin to feel the gravity of the situation.
“Roth and others said they believe other industries will compensate for the slowdown in construction.”
As the Real Estate sector implodes and drags down the rest of California’s economy with it, coupled with outmigration and stagflation, I’m curious as to just what industries are going to mitigate 200,000+ job losses?
There are only 2 people on the face of the earth that I would let invest my money…#1 is myself…#2 is Jim Rogers…..
On Fox this morning Jim said that the housing market is in for a 5 year meltdown…
excpt shorting FNM is not cool- it will and is getting gov bail $
I agree totally about a Fannie bailout ala Chrysler. I would be careful shorting anything RE related because the JPM-PPT will continue to funnel 401k money into the losing RE market in an attempt to stave off a complete implosion. Plus the Fed will be pumping liquidity (inflation) into the system like there is no tomorrw and for good reason. If they don’t print and pump then the whole system will seize up and then there will not be a tomorrow. In the end, the 401K’s will go the same way as their RE equity. It’s diabolical but the sad truth is that Americans’ have been defrauded by their own government. Last night I saw a PBS documentary (leftist filter required) talking about the demise of defined benefit retirement plans and the narrator mentioned that babyboomers have on average $26,000 in their 401k; that they are relying on real estate for retirement. Yeah…real estate will get you through your elderly years…NOT!!!
This truly is the perfect storm that is about to unleash itself. The next decade ain’t going to be pretty.
The department’s monthly report shows a continued cooling of the county’s year-over-year job-growth rate, which had previously declined from 2 percent in January to 1.8 percent in February to 1.6 percent in March….. On a brighter note, Orange County’s unemployment rate fell to 3.2 percent in April
Analogy:
There have been reports of sharks in the area, and officials expressed some concern due to a recent attack, although the reports have indicated the belief that the sharks were no longer in the area…… On a brighter note, the weather is beautiful and beach goers are really looking forward to a great w/e relaxing at the ocean.
Play JAWS theme……
Ya ever see a shark Chiefy? He got black eyes, lifeless eyes, like a dolls eye, and when he comes at cha, he doesn’t seem to be livin’…utill he bites ya. And those eyes roll over white and ya hear that high pitched screamin’ and the water turns red and they come in and tear ya to pieces. I’ll never put on a life jacket again.
We need a bigger boat.
We need a bigger mortgage.
Just when you thought it was safe to get in the water, I mean, to buy a home……
Cage goes in the water, you go in the water. Shark’s in the water. Our shark.
Farewell and adieu to you, fair Spanish ladies. Farewell and adieu, you ladies of Spain. For we’ve received orders for to sail back to Boston. And so nevermore shall we see you again.
Anyone know how many people were laid off in So Cal during the last downturn that was blamed on the Defense industry layoffs? Too often I hear people shrug off the last RE decline because it was all due to those layoffs, but maybe we’ll see a similar magnitude this time due to all RE related professions getting axed.
I don’t know the exact numbers but I do remember here in San Diego that it was substantial. General Dynamics had a huge multi-story facility in Kearny Mesa that employeed thousands and it was razed to the ground. It’s land is slated to be a mall/commercial center.
I don’t know the exact number of people laid off back in the 90’s, but I am pretty confident that locally it was nothing even close to 200,000. I do not think there are that many aerospace jobs here currently.
Same happened to Macdonnel douglas plant in Long beach(now Boeing-northrup).it is now almost completely shuddered and empty. There are defense-related/aeroplant operations scattered here and there throughout SCal, mainly in Southbay and in westminster and Huntington beach but they comprise a minimal jobs percentage in Scal. there are probably more illegal alien fruit peddlers than Boind/northrup employees in LA basin.
after gop losses congress MIC/defense jobs will get cut too
I often hear that crap from the MSM that Scal Jobs sector is more”diversified” and less dependent upon any single jobs sector such as Defense so that Scal RE will not suffer such a bad RE downturn. This is the usual LAtimes,NAR, car propangandistic load of crap put out to prop up the SCal RE complex. As a matter of fact, here is how Scal jobs is more diversified: 80% low-level service sectors such as restaurant, tourism and hospitality-real high-paying sectors! 40% of all new jobs created since 2000 related to RE sales or construction, which will disappear over next several year, No large-scale basic manufacturing at all in Scal( it’s all in China), Lots of trucking and warehousing jobs(can a warehouse worker afford that $500,000 med LA home?, Lote of illegal alien fruit peddlers and slave-wage garment workers, Asian-owned Mom and pops all over, ect.
This time around it will auto sector and RE sector job losses.
The auto sector is poised for a beating.
Nissan is moving their Corp HQ from Gardena to TN. 2,000+ jobs GONE. The move will be complete by 9/06.
The other auto companies with exposure in So Cal are ALL of them.
Honda - NA HQ Torrance
Toyota - NA HQ Torrance
Hyundai NA HQ - Fountain Valley
Kia NA HQ - Irvine
Ford Premier Auto Group (Volvo, Land Rover, Aston Martin, Jaguar, Lincoln) - Irvine
Mazda NA HQ - Irvine
Daimler Chrylser - Irvine
Lexus - Irvine
Kawasaki NA HQ- Irvine
Yamaha NA HQ- Cypress
Mistsubishi NA HQ - Cypress
I am sure that I forgot others but you get the picture.
I failed to mention outsourcing, the exodus of companies to other states, and imigration.
I’ll keep my job” siad the gov economist
no matter how off they are.
what will take the place of 10% of national RE employment ?
Wanna see illegals go back to MX? The drop in construction spending is the #1 way to accomplish that!
I doubt that will do much. Don’t the illegals get free rent (section
and free food (WIC) here in California?
I dont know how that smiley got in there. I meant section 8.
But seriously, I’m just worried about what all those housewives of the OC will do when the demand for mortgages drops to nothing…
Stand in line with Suzanne ???
The scripts for Desperate Housewives have to go into rewrite. A couple of them heading back to work or their homes will going into foreclosure.
Have actually visited a few of those pricy McMansions in rancho San Margarita and coto de caza, which I heard was the burb where OC housewives was filmed). Went to deliver some boxes of legal/mortgage documents to a home in an exclusive coto de caza cul-de-sac and, Lo, a young photogenic housewife(divorcee?) was there at about 2-3 in afternoon to receive thr documents. Those homes average a million dollars along that block so I assume that she made her living either as some kind of RE invester/agent or else she had a hubbie who made a ton of money alowing here to be a stay-at-home housewife( there were kids there).
Coto de caza and dove canyon have to the safest eclosed Burbs on the planet: each is accessible only from a single guard-shack gated entrance and require car-stickers and they register your name and auto. The Ultimate planned community, safe to the point of boring, unless you enjoy accessible wilderness nature parks and trails at your doorstep.
and mountain lions with a eye on your kids.
That story about the lady hiker/jogger who was attacked and mauled by a Mountain Lion in the Casper Wilderness in Clevland forest still reverberates in everyones mind. This is my advise: carry a big-heavy walking cane or any heavy stick you can pick up off the ground. If you are a jogger, then a light metal pole. Have hiked/backpacked all over Scal mountains on hundreds of trails and never had a Mt lion or bear sighting. Hiking with steel-toed boots would be an additional weapon. Funny note: have seen Female Walkers/joggers in Some of the rougher districts in LA carrying sticks or poles, I always wondered if they were for defense against Vicious stray dogs or Human predators.
A woman in San Jose’s Almaden area was at the kitchen sink looking out the window just in time to see the family’s large dog being carried off by a mountain lion as it jumped to the top of the fence paused momentarily before descending the other side and disappeared into the wooded hills. The kids were in school.
That is the point with mountain lions.
You never see them until they have latched onto your or your kids throat.
You might be able to fight it off but the odds are low if the cat has a jump on you.
I would be interested to see some type of side by side comparison of the employment figures of the defense/aerospace industry in the early 90s vs. the housing/construction/financing sectors in the last 6 years.
From the reports that I could find it looks like there were around 517,000 Aerospace jobs in California in 1989. 172,000 of which were not employed in that industry in 1994.
Smells like late 1989. Or late 2000.
We are just beginning to see the first published evidence of job losses and slowdowns. But it won’t lead to a recession, of course. “It’s different this time”.
I am an international property banker, and a qualified Chartered Surveyor working for one of the largest banks in the world in the UK.
I read this blog with a fascination bordering on ghoulish and recommend it to many high level international investors.
So I thought I might give something back, and that my personal contribution might be to summarise the view from here as well as to compare the US market to others around the world.
Now it seems to me that there are a few key worrying factors in the US, which are well discussed on this forum.
Firstly, there is the use of equity release to boost disposal incomes – this can work, particularly for the release of cash for retirees with very significant proportions of equity in their homes - but markets down as well as up, so there has to be a significant equity margin, and the repeated release of equity at high leverage is unsustainable.
Secondly, there is the use of derivative/interest only mortgages – both discounted start and rolled up mezzanine. These are a ticking time bomb waiting to go off in the US market. This is because when they are combined with an increasing interest rate environment, they trigger significant defaults. Interest only mortgages also provide the highest leverage to the most short sighted.
Thirdly, there is the over development of certain sectors in some markets. Oversupply leads to falling prices. It is, as you guys call it, “Economics 101”.
Finally, and moving slightly more macro-economic, there is your balance of payments deficit. With the lack of control over the export of cash and import of goods, the US economy has weak foundations, as evidenced by the weakness of the dollar, even in the face of rapidly increasing interest rates. It is a bit surprising that this has taken so long to emerge. Certainly it’s a good thing it took a while – at least Japan and Germany are more in a position to take up some of the slack.
So what about the rest of the world? Well in the UK, we have very high house prices, but we have a somewhat more stable currency and low inflation environment. We also have a much greater proportions of fixed rate mortgages and the majority of mortgages are repayment. There are areas which are overpriced, but where I once predicted a crash, it is looking increasingly likely that house price inflation will drop to below earnings inflation, allowing a softish landing. In the micro market of London, we also have the Manhattan effect of Russians, Chinese and Middle Easterners buying aggressively, and this is creating a ripple effect outwards.
In addition, whilst we have equity release in the UK, it is nowhere near as prevalent and whilst our UK newspapers bemoan our lack of savings, they do exist. As a UK banker, I can certainly confirm that our lending policies are pretty tight. Looser credit policies usually come from new entrants or those aggressively chasing market share, but our regulator is pretty firm about keeping them sensible.
Again, comparing with the UK, approximately 30% of our lending is interest only, and even some of that has linked non-standard repayment products. We certainly don’t have rolled up mortgages. There lies disaster.
How about Spain? A massive proportion of the country’s GDP is based on construction, and there is a massive amount of building going on. It looks like it may all end in tears, and the problem is that when it starts going wrong, their crash will feed on itself.
Germany? Dominated by the rented sector, and with many huge US investment banks moving into the market expecting to convert the Germans to a house owning culture and make massive profits through breaking up portfolios by selling to occupiers. I think they’re wrong.
Japan? Fantastic place. They are about to reap the benefit of a lengthy recession, with latent growth coming through. Their problems are more demographic than anything else and they have the distinct advantage of having a massive savings ratio.
So what’s going to happen? I think you have real problems approaching in the US (note that my bank’s research department disagrees), especially if consumer spending drops rapidly due to higher rates, falling house prices and tighter lending policies. After all, there are no savings provide a parachute.
From a banking perspective, it is interesting that the US is likely to opt out of Basle 2 (the new international capital adequacy regime for banks) for it’s domestic banks. This is a clear illustration of the fundamental weakness of the fragmented banking market in the US, with poor risk management and the lack of spread of best practise risk assessment.
This has manifested itself with lax lending policies and a “make hay while the sun shines” attitude, rather than looking to the longer term. The inherent trust in the Federal government to bail out failed banks has led to complacency and, ironically, kept the US banking sector from being exposed to true market forces.
Maybe increasing default rates will result in consolidation and more robust risk measurement and management. Or maybe not.
With kind regards,
Loafer
Wow — Thanks for sharing your impressive wealth of knowledge! Would you (or anyone else who is familiar with them) mind briefly defining these terms?
discounted start?
rolled up mezzanine?
Best regards,
GS
Guesses:
“Discounted start” = I/O ARMs, or Pay Option ARMs? (Don’t need to start paying off principle or even the full interest bill for five or so years…)
“Rolled up mezzanine” = piggyback loan? (e.g., 80% first mortgage + 20% second = 100% financing)
Discounted Start is a low introductory rate, which loses the bank money in the short term, and then steps up to a normal rate after a couple of years.
Rolled Up Mezz is high leverage, high risk debt where the interest is too high to be affordable, so some of the cost is paid and the rest is added to the loan balance. To be honest, mezz is, strictly speaking, a second charge debt, rather than a first charge mortgage, but it is a phrase which accurately reflects the risk in this case.
Regards,
Loafer
“Interest only mortgages also provide the highest leverage to the most short sighted.”
This is only a problem if lenders do not properly underwrite risk. Too bad underwriting standards have been completely abandoned in order to keep the lending bender going for a little longer before the worst hangover ever in US RE market history hits on the morning after…
Thanks for the informative post.
Any thoughts with respect to if and/or when the purchasers of mortgage backed securities will decide to stop buying? It seems to me that much of the problem with loose lending standards relates to the fact that the entities that make the loans do not hold them and, therefore, do not have an incentive to use reasonable underwriting standards. At some point, I would think that the MBS purchasers would stop buying.
IMHO they won’t stop buying, it is just that the spread will have to increase to continue to attract them (in much the same way as the Fed is putting up rates).
As defaults rise, investors will realise the risks.
Mind you, don’t forget that those in the AAA tranches are very unlikely to have a default on their paper due to the structuring.
Regards,
Loafer
Does the UK have an equivalent MBS/CDO market to “offload” poor quality mortgages?
Yes, although less developed.
Don’t forget that RMBS is not there as a way of offloading rubbish - the rating agencies keep a close eye on the quality.
RMBS, CMBS and CDO structures are there to get assets off a bank’s balance sheet - we want to make money from the fees, not from holding low margin debt…! It’s all about return on regulatory capital (hence my comment about Basle 2), and fees and skim on MBS are pure profit.
Regards,
Loafer
Thanks
Wish we had rich Russians, chinese and middle easterners buying up homes here in US(the Manhatten effect) but instead all we get is a flood of impoverished Latino illegals who do not bring cash to invest but certainly drain it out of our economy. It should be the policy of the US to encourage investing of homes in the US by US dollar-rich oil moguls from Middle East and Russia but the US has a distrust of middle easterners investing in anything in the US(Dubai ports)and also probably the Russian and chinese are not trusted as well. This type of foreign investment would probably only benefit the expensive Coastal properties here in California but would not affect prices for the vast majority of homes away from the coast, which are really in serious risk of a RE Meltdown from the factors you laid out.
What about the famous quote from Scary Gary “IT’s in the bag” Watt? What about the 15% in perpetuity appreciation he promised I banked my entire financial future on his great insight and wisdom. Now, what will I suppose to do? A big mortgage, no 401K, no savings, 3 Hummers, 2 boats, 10 ‘undocumented’ workers cleaning my 3500sqft McMansion in the OC. And a big BMW payment. That appreciation was going to HELOC me for safety the rest of my life. Where can I find that man?
Go on craigslist for Los Angeles and type in the word “desperate”. Some guy in East LA (talked to him yesterday) can’t afford the payments ($2700/mo.), and is desperate to sell for what he owes ($394,000) to save his credit. Apparently his friend, a flipper, used this guy’s good credit to buy this house, to rehab and flip it, but ran out of money, and now this dude is left holding the bag. But please, don’t make fun of him, I actually kind of felt sorry for the poor FB.
I think it’s listed for $410,000 on CL.
Bubblefucius say:
Flipping house like kick in scrotum. Both painful with you left holding bag.
That is funny!
Btw, “for sale” signs seem to be springing up like weeds in front of condo buildings all around this area (Sherman Oaks/N. Hollywood/Valley Village).
looks like there aren’t enough Media Moguls and rich hollywood producers and actors/actresses to keep the bubble up in That area.
Did you know 1.3 mil homes in Irvine are “perfect for young couples?” I’m serious, this was the story in the New Homes section of the LA Times today. I’m going to be sick.
Lots of incentives in La Jolla, Inland Empire. Nothing good in the OC even on the horizon. I need some confidence boosting, guys.
Patience, Patience Patience.
Calculated Risk did a piece on when the bottom was reached in RE.
For Socal it was 26-30 months after the peak was recorded. Chill and don’t blink and jump in too early.
IIRC, peak (price) was like Q3 1991, bottom was like 1995. well over 3 years.
There will be a ton of builders incentives to purchase all those tracts springing up all over the Inland empire. Honestly, this should be a big RE story but it gets never mentioned in the MSM press about the massive resdiential building boom occurring in the IE. Norco and Mira loma(north of corona off I-15 exit sixth to hammer, then north) has large tracts selling now( ugly cheap cookie-cutter lookalike townhomes,SFunits). Large tracts going up or available in the 15/215/30 triangle(rialto.n.Fontana/Northwest SBern/NE rancho cucamonga):Tons of development in Temecula valley alongthe 15 between corona and lake elsinore:. And certainly massive built-up of tracts in victorville, apple-valley,banning, hemet, coachella valley, ad infininum, ect ect. The Entire IE is exploding with new homes , Problem is:no one wants to live there or they regret it once they do buy a home there. Get a taste of the horrific traffic logjambs going out to your job in the Oc or LA from the IE and it’s no wondewr that listings are piling up all over the IE. Here will be the biggest RE Meltdown in SCal, to rival Phonix or South Florida.
“‘I suspect we’re going to lose a couple hundred thousand construction jobs over the next two years,’
I wonder when this is going to start in Vegas.
I look for signs of employment slowdown in Vegas and see nothing. Until the economy tanks and Vegas starts suffereing from the consumer no longer spending so freely, its going to be a long slow decline.
Simmsays…
http://www.americaninventorspot.com
“I suspect we’re going to lose a couple hundred thousand construction jobs over the next two years,” said Christopher Thornberg, an economist with the UCLA Anderson Forecast. “The housing market is clearly braking right now. I think 200,000 might be conservative.” Thornberg added, however, that the state’s economy isn’t likely to suffer severe damage from this slowdown.
“Keep in mind that even with a loss of 200,000 jobs, we’d still have more construction jobs than we had in 1999,” he said. “So it would be a return to a normal employment pattern.”
First the Anderson School forecasters were early with their dire warnings about the unsustainable overvaluation of RE, and now that the market is clearly tanking, they are pulling their punches. I find Thornberg’s assertion that 200K or worse lost construction jobs will be “no big deal” for the mighty CA economy to be entirely unconvincing. What other sector does he believe will replace all these lost construction jobs? Does he think that there will be no related loss of jobs in the mortgage lending sector or real estate sales sector? What about retail, which has been the ongoing beneficiary of the great housing-ATM-financed consumption boom?
And what about house prices, themselves? We already have an inventory flood, which only bubble-heads, Realtors (TM), and would-be sellers seem to have noticed thus far. Cagan estimated that 29% of new buyers *nationwide* last year are underwater; what will happen to all these folks when the fact that prices are falling comes to light (as it already has on this forum with Ben’s recent posts)? What happens when all those who lost their jobs consequently can no longer pay their mortgage and their home-equity loans and their car loans and their student loans? It sounds like the inventory flood will morph into a hurricane storm surge before the down phase of the cycle ends, and I do not see how this will not take down retail and send many households into BK, and feed back further into lower RE prices, slower sales, and more lost jobs in RE construction, lending, and sales.
But perhaps I am overly pessimistic? Please explain why Thornberg is right, and we have nothing to worry about, so I can stop worrying about this scenario which keeps haunting me…
I hate to say this but what Thornberg is saying is one of the stupidest things I have ever heard. I guess California is a vacuum and the loss of 200,000+ jobs has no impact on anything else in the state. The crux of the argument for a soft landing is that the economy is growing fast enough to absorb a downturn in RE. Given that RE related jobs account for about 40% of job growth in CA, the soft landing assumption is flawed to the point of absurdity.
This is how the Scal economy will, as thornberg says, absorb those 200,000 lost construction jobs. There will be built all over Scal 2 thousand more fast-food stops and 3000 more mini-malls so that all those laid off in RE and construction will end up employed as fast-food workers and retail shop workers/managers. Really all ypou see around the “diversified Scal economy are zillions of franchised or Mom and pop retail/food shops/cell phone retailers/donut shops/coffee franchises/discount 99cents stores,pizza shops/ad infinum ect. This is where all those soon to be unemployed Re agents will end up, as managers of a local franchise outlet near you.