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Here's recent history of the Fed’s policy committee and its Fed Funds rate. Next Fed decision is June 24/25.
Nation’s 4th worst dip in home affordability hits O.C.
July 2nd, 2008, 12:05 am · 49 Comments · posted by Jon Lansner/ocregister.com
An Orange County shopper with median income saw their financial ability to a buy home drop by 37.7% this decade, according to new math from Homes for Working Families and Economy.com. Not much help from price declines so far, we guess.
Of 40 major markets tracked, only shoppers in Miami (down 54%), L.A. (down 45%) and Philadelphia (down 38%) fared worse than O.C. in seeing their local income growth get outstripped by increases in the cost of acquiring a house between the first quarter of 2000 and 2007’s fourth quarter.
Tumbling local home prices did little to improve Orange County’s relative home affordability on a national basis. In 2007’s last three months, Orange County was still fourth-worst in this measure of affordability, behind San Francisco, San Jose and Los Angeles. Back in 2000’s first quarter, Orange County was only ninth worst.
The report says of U.S. home affordability …
The precipitate decline in home sales and home prices that began in 2007 might be thought by some to be a cure for the problems of affordability and the financial burden of ownership, and, indeed, it is the case that falling home prices directly improve the affordability ratio. However, to stop with that assertion ignores both the very real credit quality and financial balance sheet problems that working families currently suffer from and also the historical roots of declining affordability in a level of credit expansion after 1999. This expansion of credit coincided with a recessionary period in which median real income growth turned negative in the years 2002-2004, so it is no surprise that household finances were strained and have yet to recover.
To read the full report, CLICK HERE.
Other pricing trends …
- O.C. homes seen as 25% less unaffordable
- O.C. home affordability jumps in 2008’s first quarter
- SoCal home woes could mean 50% price drop
- O.C. homes seen as undervalued; 1st time since ‘03
- Chapman sees O.C. home price down 9% in ‘09
July 2nd, 2008 at 12:11 am
so its been said let it be written
the year that prices revert to— 1998
July 2nd, 2008 at 12:28 am
rants Says:
July 2nd, 2008 at 12:11 am
“so its been said let it be written
the year that prices revert to— 1998″
That’d be one heck of a price deflation.
July 2nd, 2008 at 6:16 am
Question:
If the long term average is supposed to be 6% real growth over the last say 50 years, what should the price of an OC home be?
My parents bought their home in SF in 1956 for $18,000. It is now worth approx $1.2MM. According to my trusty HP12C calculator, that imputes to an 8.41% internal rate-of-return.
A 6% return would yield a current price of $372K.
So there has to be a healthy addition for the runaway inflation of the ’70’s (and now for this year as well); 2.41% to be exact.
So for prices to fall back to “1998″ levels, you’d have to input inflation onto those numbers. Which is why folks are saying 2000-2003 price levels instead, is my guess.
July 2nd, 2008 at 6:20 am
What is shocking about the above computation is that close to $1MM of the $1.2MM price is due to inflation, not real return.
Yikes!
July 2nd, 2008 at 6:29 am
Marcia,
I think you’re correct….Inflation has always been a friend of real estate….I too believe something like early 2002 prices when the bottom comes. Unless something like real high interest rates hit & cause another drain. You know, like Carter caused @ 10 to 12% mort’s. Lots at work here?
July 2nd, 2008 at 6:51 am
this article fits my situation perfectly. priced out forever. darn should have listened to all those realtors in 2005. Now I can’t trust any realtor.
I can’t see how I can stick around the OC these days.
My advice to any realtor listening, please don’t try to do us any favors convincing the buyer where the market is or when the best time to buy is. If I was a realtor, I would be more concerned with helping buyer’s understand the contract or the process of buying.
What is the job of a realtor?
July 2nd, 2008 at 8:57 am
I went to the Stadium site and did not see any prices, just a statement about savings up to $125k. What is the asking $/sq. ft. , what are the HOA, and are there any special bonds (taxes).
I keep hearing about “fire sales” on prime real estate but I have yet to actually see one. To me a fire sale would be $200/sq ft or less for a remodeled 2000 sq ft SF in LN, DP, SC, or a similar area.
July 2nd, 2008 at 9:08 am
You are right meltdown. The little 535 sq. lofts are going for 454/sq.ft.
The cheapest per sq. ft. are the 2 bedrooms 1,062 for $320/sq.ft. but if you look at the price list there are others that are the same size and floor plan going for more than 100K more, I imagine this “cheapest” condo is not in the best part of the building.
I think this type of living can be enjoyable to most….it is a change for certain. More of this type of buildings will be built in the future…but it still has to be affordable.
I think prices for condos need to be under $300 a sq. ft. to be considered affordable for most…that is just a fact of life. Since you have no garage and are living in a multi-story building. You can rent an apartment that is just as nice for far less than what they are charging and this is a drastic drop in prices….imagine those that paid 500K + for a 2 bdrm that is just a walk-in closet over 1,000 sq. ft.
July 2nd, 2008 at 9:39 am
So rants believes the OC median will bottom out at $217,000…. because that was the median at the END of 1998. Interesting… that would put the median home price at less than 3x median income if we assume the median OC family makes $75,000 a couple years from now. Even during the 80’s the price/income never dropped below 4x, so maybe he thinks we’ll get back to 1950’s or 60’s fundamentals when OC was largely an orange grove. Makes sense… things haven’t changed at all since then.
I was down at PCH & Huntington the other day and they have sign warning of a “tsunami zone”. Maybe rants saw that sign and his theory is based on a tsunami wiping out OC.
July 2nd, 2008 at 9:44 am
haha good post liar loan.
July 2nd, 2008 at 9:45 am
…………………. i believe rants projections…. are based on the second coming of the great depression…………
………… if credit markets completely fall apart and cash is required to buy a home (not just income)………. projections like that would come true…………
i would peg the bottom median somewhere around $360-380K personally……. that is based on income fundamentals
July 2nd, 2008 at 10:55 am
As residents of Orange County we must understand we live in an area either blessed, or more recently plagued by market volatility. When things are good, they are real GOOD; conversely when things go bad, we get the worst of it. Its hard to pick a bottom here with so many fundamental issues we are dealing with. I view this period more of a gradual recession that will take some time to correct and repair itself.
July 2nd, 2008 at 11:07 am
mav-
It won’t happen. All the lenders have switched to FHA lending and that will be the norm for some time to come. FHA = The New Subprime.
As for the second Depression, rants is a wishful thinker. There are a whole host of factors that have changed since the 20’s and 30’s. One of the things rants conveniently ignores about his beloved gold standard is that it helped push the world economy into Depression the first time. With the fiat currency we currently use, banks and individuals can’t afford to hoard dollars because the Fed can just issue more dollars. Back in the 30’s people could hoard gold (think bank runs) in effect cutting off the money supply and drying up world liquidity. With the FDIC in place and fiat currency, you no longer would have 1929 style bank runs putting pressure on the entire economy. This is what the Fed was worried about with Bear Sterns and why they facilitated the deal with JP Morgan. It kept the creditors and debtors associated with Bear from panicking and causing a worldwide meltdown… sorry rants.
July 2nd, 2008 at 11:18 am
Liar Loans….. I believe you are assuming a number of things…..
fist you are assuming that FHA lending can not get tighter than it is already……….. I believe that is a bad assumption……….
you are also assuming that the rest of the world is going to be willing to hold US currency and US investments………… as currency gets printed to try to fuel inflation……… I think this is also a bad assumption………
I believe we are entering a deflationary spiral that will involve tighter credit, higher interest rates, and less jobs…….. I will let the economist debate whether it compares to the great depression…..
July 2nd, 2008 at 11:20 am
……….. I am talking deflation of anything tied to credit…… deflation of domestic assets like real estate………………. global necessities like food and oil will inflate………… fueling the deflationary spiral of domestic assets tied to credit…….
July 2nd, 2008 at 11:25 am
Congressman Ron Paul
U.S. House of Representatives
September 10, 2002
ABOLISH THE FEDERAL RESERVE
Mr. Speaker, I rise to introduce legislation to restore financial stability to America’s economy by abolishing the Federal Reserve. I also ask unanimous consent to insert the attached article by Lew Rockwell, president of the Ludwig Von Mises Institute, which explains the benefits of abolishing the Fed and restoring the gold standard, into the record.
Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve’s inflationary policies. This represents a real, if hidden, tax imposed on the American people.
From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial “boom” followed by a recession or depression when the Fed-created bubble bursts.
With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America’s exports or the low rate of savings should be enthusiastic supporters of this legislation.
Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of the special interests and their own appetite for big government.
Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.
In fact, Congress’ constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation’s founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy.
In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans’ standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.
WHY GOLD?
By Llewellyn H. Rockwell, Jr.
As with all matters of investment, everything is clear in hindsight. Had you bought gold mutual funds earlier this year, they might have appreciated more than 100 percent. Gold has risen $60 since March 2001 to the latest spot price of $326.
Why wasn’t it obvious? The Fed has been inflating the dollar as never before, driving interest rates down to absurdly low levels, even as the federal government has been pushing a mercantile trade policy, and New York City, the hub of the world economy, continues to be threatened by terrorism. The government is failing to prevent more successful attacks by not backing down from foreign policy disasters and by not allowing planes to arm themselves. These are all conditions that make gold particularly attractive.
Or perhaps it is not so obvious why this is true. It’s been three decades since the dollar’s tie to gold was completely severed, to the hosannas of mainstream economists. There is no stash of gold held by the Fed or the Treasury that backs our currency system. The government owns gold but not as a monetary asset. It owns it the same way it owns national parks and fighter planes. It’s just another asset the government keeps to itself.
The dollar, and all our money, is nothing more and nothing less than what it looks like: a cut piece of linen paper with fancy printing on it. You can exchange it for other currency at a fixed rate and for any good or service at a flexible rate. But there is no established exchange rate between the dollar and gold, either at home or internationally.
The supply of money is not limited by the amount of gold. Gold is just another good for which the dollar can be exchanged, and in that sense is legally no different from a gallon of milk, a tank of gas, or an hour of babysitting services.
Why, then, do people turn to gold in times like these? What is gold used for? Yes, there are industrial uses and there are consumer uses in jewelry and the like. But recessions and inflations don’t cause people to want to wear more jewelry or stock up on industrial metal. The investor demand ultimately reflects consumer demand for gold. But that still leaves us with the question of why the consumer demand exists in the first place. Why gold and not sugar or wheat or something else?
There is no getting away from it: investor markets have memories of the days when gold was money. In fact, in the whole history of civilization, gold has served as the basic money of all people wherever it’s been available. Other precious metals have been valued and coined, but gold always emerged on top in the great competition for what constitutes the most valuable commodity of all.
There is nothing intrinsic about gold that makes it money. It has certain properties that lend itself to monetary use, like portability, divisibility, scarcity, durability, and uniformity. But these are just descriptors of certain qualities of the metal, not explanations as to why it became money. Gold became money for only one reason: because that’s what the markets chose.
Why isn’t gold money now? Because governments destroyed the gold standard. Why? Because they regarded it as too inflexible. To be sure, monetary inflexibility is the friend of free markets. Without the ability to create money out of nothing, governments tend to run tight financial ships. Banks are more careful about the lending when they can’t rely on a lender of last resort with access to a money-creation machine like the Fed.
A fixed money stock means that overall prices are generally more stable. The problems of inflation and business cycles disappear entirely. Under the gold standard, in fact, increased market productivity causes prices to generally decline over time as the purchasing power of money increases.
In 1967, Alan Greenspan once wrote an article called Gold and Economic Freedom. He wrote that:
“An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense–perhaps more clearly and subtly than many consistent defenders of laissez-faire–that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. . . . This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”
He was right. Gold and freedom go together. Gold money is both the result of freedom and its leading protector. When money is as good as gold, the government cannot manipulate the supply for its own purposes. Just as the rule of law puts limits on the despotic use of police power, a gold standard puts extreme limits on the government’s ability to spend, borrow, and otherwise create crazy unworkable programs. It is forced to raise its revenue through taxation, not inflation, and generally keep its house in order.
Without the gold standard, government is free to work with the Fed to inflate the currency without limit. Even in our own times, we’ve seen governments do that and thereby spread mass misery.
Now, all governments are stupid but not all are so stupid as to pull stunts like this. Most of the time, governments are pleased to inflate their currencies so long as they don’t have to pay the price in the form of mass bankruptcies, falling exchange rates, and inflation.
In the real world, of course, there is a lag time between cause and effect. The Fed has been inflating the currency at very high levels for longer than a year. The consequences of this disastrous policy are showing up only recently in the form of a falling dollar and higher gold prices. And so what does the Fed do? It is pulling back now. For the first time in nearly ten years, some measures of money (M2 and MZM) are showing a falling money stock, which is likely to prompt a second dip in the continuing recession.
Greenspan now finds himself on the horns of a very serious dilemma. If he continues to pull back on money, the economy could tip into a serious recession. This is especially a danger given rising protectionism, which mirrors the events of the early 1930s. On the other hand, a continuation of the loose policy he has pursued for a year endangers the value of the dollar overseas.
How much easier matters were when we didn’t have to rely on the wisdom of exalted monetary central planners like Greenspan. Under the gold standard, the supply of money regulated itself. The government kept within limits. Banks were more cautious. Savings were high because credit was tight and saving was rewarded. This approach to economics is the foundation of a sustainable prosperity.
We don’t have that system now for the country or the world, but individuals are showing their preferences once again. By driving up the price of gold, prompting gold producers to become profitable again, the people are expressing their lack of confidence in their leaders. They have decided to protect themselves and not trust the state. That is the hidden message behind the new luster of gold.
Is a gold standard feasible again? Of course. The dollar could be redefined in terms of gold. Interest rates would reflect the real supply and demand for credit. We could shut down the Fed and we would never need to worry again what the chairman of the Fed wanted. There was a time when Greenspan was nostalgic for such a system. Investors of the world have come to embrace this view even as Greenspan has completely abandoned it.
What keeps the gold standard from becoming a reality again is the love of big government and war. If we ever fall in love with freedom again, the gold standard will once more become a hot issue in public debate.
July 2nd, 2008 at 11:38 am
mav-
You’re correct that the FHA has the ability to tighten standards. I have no way of predicting their future course, but Congress has spent the past 6-8 months loosening FHA standards for the time being. I think Obama has a good chance of getting elected, so with Democratic control I don’t expect standards to tighten.
The problem I see with other countries dropping the dollar as a reserve currency, is their inflation is so much worse than ours. China’s inflation is in the neighborhood of 10-12% and Saudi Arabia and other oil producers have inflation in the 20-25% range. By comparison, our currency is still seems like gold to them. But suppose they start dumping dollars, it would still be in managable chunks and the Fed would deal appropriately by raising rates.
July 2nd, 2008 at 11:49 am
………………Liar Loan…………. I take one issue to your point……….. much of the global inflation is driven by rampant growth………. while our inflation is driven by currency destruction without real growth……….
the auto makers and financial companies are tanking……….. government tax collections will go down………… this all points to an ugly start to job cuts………….. it looks like the beginning of very bad times for the US……. I don’t think Obama or anyone else can do much to stop the train wreck…….. it’s a necessity for the US to de-leverage itself………
July 2nd, 2008 at 11:56 am
I truly feel sorry for all those SUV owners out there. It must be painful. Ouch!!!
July 2nd, 2008 at 12:28 pm
well, Paulson knows that the worst in housing is yet to come.
July 2nd, 2008 at 12:57 pm
I agree that we will continue to see price declines, but peak decline has occurred. Exception would be this winter where we might see a 2-5% drop, but no one can say for sure because we are unable to forecast exactly what the volume will be.
Please keep in mind that the banks are doing the same exact thing that an equity seller would do - look at the market, determine the price point, and list the property there. Even at auctions the banks are putting the properties up with reserves (and at auctions they are often passing along any back taxes due to the buyer).
Again, please show me 1 or 2 true REO fire sale prices on a SF to convince me my reasoning is off base.
July 2nd, 2008 at 2:29 pm
I am an Indian and I say you guys are rubbish. I want to buy a house in my native country…. who cares about USA. It is for dumb blondes and fat boys only!..
July 2nd, 2008 at 3:18 pm
This will be interesting. I just do not think that banks will dump and run, so I am expecting to see some pricing stability. I also do not think that interest rates will increase significantly anytime in the near future.
My bet is that interest rates will only jump significantly after the majority of REO is through the system. The banks are already bleeding from 1-wrist, raising interest rates would be like cutting the other one.
July 2nd, 2008 at 3:19 pm
active buyer = active realtor
the peak decline has occured- say what
please dont listen to anyone- like a realtor-
who couldnt see what was happening in
the first place- but will now give their biased
opinions on the state of the market- they have
no clue as to whats transpiring right before their
eyes– and they have no shame either
July 2nd, 2008 at 3:20 pm
25% off peak is not fire sale price……
when we are at 40% off peak…… that will be closer to fire sale price…..
personally…..I would have to officially call 50% off peak fire sale price………
…………………. other than that, most of what you say is pure fantasy……. you should be named “wishful debtor” or “depressed bagholder”….. not “active buyer”……..
………. LMFAO…… we have already seen the peak declines………. wow, stick you head in the sand deeper……… this disaster is just starting…….. the banks barely know how to deal with this yet…. and are still in damage control mode…….
July 2nd, 2008 at 3:25 pm
I recently read a change in underwriting detailing safe guards against buy and bail events - now you can not purchase a 2nd home unless you can prove you have the income to pay both mortgages. Before you could say you were going to rent one of the properties and that amount would be included as part of the income evaluation for the loan - not the case any more.
I am surprised people got away with this for as long as they did. I will look for the link.
July 2nd, 2008 at 3:28 pm
rants I’m not a realtor, just an investor looking for the fire sales.
July 2nd, 2008 at 3:37 pm
mav - you need to be more specific - what am I saying that is more fantasy than anything you are typing out.
I thought the idea here was to share ideas. Sure I like to play with RE, but I am in pretty good shape - I saw what was happening and sold my most valuable RE (Santa Cruz coast) in late 2006 and early 2007 that I picked up as rentals in early 95. I own my house out-right in a very nice zip, and have a couple of properties that are giving me postive cash flow - plus I have a regular engineering job.
But I guess I really have no idea how to read the market, and have just been plain lucky.
July 2nd, 2008 at 3:59 pm
When we have 25 percent unemployment that is when we can start talking about the great depression!
July 2nd, 2008 at 4:59 pm
rants should change his name to Grizzly.
Ninja: Regarding buy and bail, that is called karma for the banks who loaned money to clowns without verifying anything except a DL at closing.
rants: just cuz someone disagrees with you, ahhh nevermind. you are just very stubborn and do not only see the glass as half-empty, but there is no glass at all and water is leaking everywhere.
bubbs: don’t feel too sorry for that family in the suv, it is better than buying two cars to haul the family around in. simple economics.
Going back 15 years, many zips are at the median with 5% annualized returns…I think we will dip below these levels to counter the extreme growth experienced over the boom years…but it is still SoCal. And not the IE SoCal.
July 2nd, 2008 at 6:18 pm
hey gilligan better tell the stock market to
quit lookin at that half full glass… after
falling the most in any june since
1930- it got slammed again today WHY?