Orange County Register

The lack of significant capitulation in the higher end markets suggests that we have a long way to go before we reach equilibrium. A bit more time to wait until the other shoe drops.

lee in irvine says:

Many factors contributed to The Great Housing Bubble, but the number one element was without a doubt, the shenanigans on Wall Street. Forty to one (40 to 1) leverage on Wall Street provided the path, fuel and depth of this bubble, and with the debacle of the finance sector and how it has impacted the entire U.S. Economy, it’s safe to say, it ain’t coming back anytime soon.

Per DataQuick, Single-Family Median Home Price:

2006

$690,000 = Feb ~ Watts 15% “In The Bag” for SFH
$695,000 = Mar
$705,000 = Apr
$705,000 = May
$700,000 = Jun
$699,000 = Jul ~ Watts revises forecast to “11%” for SFH
$685,000 = Aug
$680,000 = Sep
$665,000 = Oct
$660,000 = Nov
$665,000 = Dec

2007

$675,000 = Jan ~ Watts forecast “7%” SFH
$675,000 = Feb
$695,000 = Mar
$720,000 = Apr
$695,000 = May
$734,000 = Jun ~ Peak of O.C. Housing Bubble
$718,000 = Jul
$710,000 = Aug
$655,000 = Sep
$650,000 = Oct
$655,000 = Nov ~ Roger Rabbit “decline is DECELERATING”
$600,000 = Dec

2008

$583,250 = Jan ~ Watts declares “Pent up Demand”
$575.000 = Feb
$570,000 = Mar ~ Thoughtful declares “bottom”
$555,000 = Apr
$537,000 = May
$550,000 = Jun ~ Watts apologizes “I Got it Wrong”
$515,000 = Jul
$500,000 = Aug
$480,000 = Sep
$480,000 = Oct
$470,000 = Nov 7
$455,000 = Nov 14 ~ New Low

So far, per DataQuick, this loss represents a $279,000 decline in single-family home prices from the temporary, June 2007 high. And the beat goes on … and on … and on!

bloodinthestreets says:

In the meantime, we might take Dan’s suggestion: and continue to hope for the best. All this . . . . this news just gets people worried unnecessarily. The doom and gloom projections . . . serve no purpose . . . . and really just come from people who are always this way.

But wait:
” U.S. employment fell 533,000 in November ” .. . Gasp !

Con: Alternatively, we could take action to alert family, friends, work mates … that they should take a new cautious tact for finances in the coming months . . . but do it with a reassuring smile and a slathering of ‘hope’ too. You might try to discuss the issue of “what to expect during a depression”, or “why assurances that we’ll never have another economic depression are unfounded”.

Lee, numbers?

(I predict 400k SFR by middle March).

lee in irvine says:

Blood-

I try to post the numbers, and the Blog keeps dumping them.

lee in irvine says:

Per DataQuick, Single-Family Median Home Price:

2006

$690,000 = Feb ~ Watts 15% “In The Bag” for SFH
$695,000 = Mar
$705,000 = Apr
$705,000 = May
$700,000 = Jun
$699,000 = Jul ~ Watts revises forecast to “11%” for SFH
$685,000 = Aug
$680,000 = Sep
$665,000 = Oct
$660,000 = Nov
$665,000 = Dec

2007

$675,000 = Jan ~ Watts forecast “7%” SFH
$675,000 = Feb
$695,000 = Mar
$720,000 = Apr
$695,000 = May
$734,000 = Jun ~ Peak of O.C. Housing Bubble
$718,000 = Jul
$710,000 = Aug
$655,000 = Sep
$650,000 = Oct
$655,000 = Nov ~ Roger Rabbit “decline is DECELERATING”
$600,000 = Dec

2008

$583,250 = Jan ~ Watts declares “Pent up Demand”
$575.000 = Feb
$570,000 = Mar ~ Thoughtful declares “bottom”
$555,000 = Apr
$537,000 = May
$550,000 = Jun ~ Watts apologizes “I Got it Wrong”
$515,000 = Jul
$500,000 = Aug
$480,000 = Sep
$480,000 = Oct
$470,000 = Nov 7
$455,000 = Nov 14 ~ New Low

So far, per DataQuick, this loss represents a $279,000 decline in single-family home prices from the temporary, June 2007 high. And the beat goes on … and on … and on!

lee in irvine says:

Quick Note to all potential Orange County home buyers. Do not consider to purchase a home in the (still) vastly overpriced Orange County. Wait until the sellers drop the prices back to 1998 values. In the mean time, join me and other bears as we watch the fireworks go off.

Many factors contributed to The Great Housing Bubble, but the number one element was without a doubt, the shenanigans on Wall Street. Forty to one (40 to 1) leverage on Wall Street provided the path, fuel and depth of this bubble, and with the debacle of the finance sector and how it has impacted the entire U.S. Economy, it’s safe to say, it ain’t coming back anytime soon.

My predictions for Orange County single-family home prices:

$460,000 ~ Year End 2008
$435,000 ~ April 2009
$415,000 ~ July 2009
$400,000 ~ Oct 2009
$385,000 ~ Year End 2009
$370,000 ~ April 2010
$355,000 ~ July 2010
$345,000 ~ Oct 2010
$335,000 ~ Year End 2010

If my prediction becomes true, on New Years Day 2011, there will be a loss of $399,000 (55%), in single-family home prices from the June 2007 high. But unfortunately because our housing problems are so extreme, the pain will not be over. We will almost certainly overshoot all fundamental support levels, and keep sinking. I also project that a bottom in sinking home prices will not occur until sometime around the summer of 2012, and home values will not start appreciating greater than the rate of inflation until the end of the next decade.

The people that suggest my prediction is outlandish, or cannot happen, should be completely disregarded, because they never thought this bubble would blowup in the first place. So called “professionals” like Gary Watts, ignored key fundamental support levels, like income multiples, rent to own ratios, loan to value, and debt to income. These people simply have no credibility. They have been trained to believe that the most basic fundamental, ONE’S ABILITY TO REPAY the loan, is irrelevant.

poneeboy53 says:

Still 2610 potential knife catchers. Why so many would buy during this time is beyond me. Great Deals? Thinking prices wont drop much further? I know that there will always be some people who need to buy based on family/life/job changes but 2600.

Jimmy2 will be happy becaue his beloved CDM gained value. I guess I missed the boat on that one when I was just getting out of high school in 96.

they are down says:

Oh my, that’s a $15,000 loss in only 7 days. $2,142 per day of lost equity.

lee in irvine says:

Per DataQuick, Single-Family homes in The OC, have now declined 38% from the all-time high set in June of 2007.

My-My, I knew this would be bad, but I didn’t expect this much velocity to the downside.

My Prediction may be too modest.

mav says:

http://query.nytimes.com/gst/fullpage.html?res=9803E6DB1239F93BA35751C1A962958260

it boggles the mind…..
to think….
this hasn’t even happen yet….
———————-

ORANGE COUNTY’S BANKRUPTCY: THE OVERVIEW; Orange County Crisis Jolts Bond Market

By FLOYD NORRIS
Published: December 8, 1994
The sudden plunge of Orange County, Calif., into bankruptcy shook the market for public borrowing across the country yesterday, threatening to make it more expensive for many localities to borrow. It also left some Wall Street firms facing the potential of big losses.

poneeboy53 says:

lee,

Remember when the bulls were saying that anyone saying that prices would fall to these current (2003 pricing) levels were doom and gloomers and unrealistic.

Rants is looking more brillant everyday with is 1998 pricing. We are getting there fast then I ever thought.

dafox says:

it will be interesting to see if the comment made by the redfin ceo has any validity to it:
As the stock market wiped out prospective down-payments, tours and offers dropped 30%. Transactions that were done came undone. October will still be pretty good, then we’re headed for a big dip.
http://blog.redfin.com/blog/2008/10/a_very_tough_day.html

ReloMan says:

According to HUD (http://www.huduser.org), OC median household income is estimated at $84,100, That seems high, but would put the housing ratio at 4.9.

Anyone have info on what the lowest income/median home value has been in OC for, say the last 20 years? http://www.irvinehousingblog.com has it at 4.8 in 2001. 30 year FRM at that time were around 7.25%.

they are down says:

Years ago when my husband and I were talking to my father-in-law about what was going to happen, he said we were nuts. He said that house prices wouldn’t drop more than 12% to 14%. He said anything else would be “catastrophic”. It’s nice to prove an in-law wrong!

lee in irvine says:

My (*updated) predictions for Orange County single-family home prices:

$450,000 ~ Year End 2008
$425,000 ~ April 2009
$405,000 ~ July 2009
$395,000 ~ Oct 2009
$375,000 ~ Year End 2009
$355,000 ~ April 2010
$335,000 ~ July 2010
$315,000 ~ Oct 2010
$295,000 ~ Year End 2010

(*It was necessary to up my prediction, due to me underestimating the sheer tenacity of this meltdown with regard to the financial industry)

If my prediction becomes true, on New Years Day 2011, there will be a loss of $439,000 (59%), in single-family home prices from the June 2007 high. But unfortunately because our housing problems are so extreme, the pain will not be over. We will almost certainly overshoot all fundamental support levels, and keep sinking. I also project that a bottom in sinking home prices will not occur until sometime around the summer of 2012, and home values will not start appreciating greater than the rate of inflation until the end of the next decade.

OC Commuter says:

they are down, when my wife and I first got married in 2005, my father-in-law kept pushing us to buy a house. I told him that it was crazy to buy at that time, but he didn’t think that prices would fall. Up until 2007, he would show me real estate listings. He has since stopped talking about real estate.

Now we’re planning on having kids and my wife wants to buy a house. We have a 6 -igure downpayment, make well over 6-figures a year, have no debt, own our cars, and have secure jobs. I don’t know how much longer I can hold out. I still think it would be crazy to buy now or the near future.

ReloMan says:

Lee,

Thanks for the prediction.

What do you predict the median household income, interest rates and unemployment ratebe by 2011? If the price does drop to $295,000, incomes also drop and rates are low, should make it easier for employers to recruit, once the economy turns around in a few years.

they are down says:

December 5, 2008 at 10 pm

OC Commuter, my husband and I were married in 2005 as well. I hear you on being pushed to buy back then. My father-in-law now says we were smart to wait. We want to buy so bad as well, we feel like we have been patient and waiting so long. But we also think it would be a mistake to buy right now. If you and your wife can just try and hold out one more year, I think it will be really worth it. But I know it’s hard to wait and feel like you are putting your life on pause…

Crystal Balls says:

December 5, 2008 at 3 pm

I predict Lee will be so wrong he won’t have the courage to show up on this blog. Single family home prices in 1998–relatively near a bottom at that time were around 265,000. Why not show us the math behind your predictions? Dazzle us all with your insight!

Tom M says:

December 5, 2008 at 3 pm

You tell’em Mr Balls. The Bottom will be at least 265,001.00

mav says:

December 5, 2008 at 3 pm

Crystal Balls,

I imagine the math behind those predictions look something like this:

DOW below 6000
Unemployment in the OC: 10-12%
OC Declares Bankruptcy
15% of mortgages in foreclosure

……. or can i sum it up with one word: deflation

who am i kidding
your are right crystall balls
it’s impossible

rants says:

December 5, 2008 at 4 pm

hey blogger why dont you post where the
majority of the sales were and how many homes
were sold in the zips that went “up”? or is that a big
secret ?

Spam says:

December 5, 2008 at 6 pm

Hey Rants its on Dataquick.

Hey Crystal Balls did you advise anyone to buy 18 months ago and help them lose a quarter million?

BR says:

December 5, 2008 at 6 pm

Case-Shiller futures for Nov 10 are in the ballpark of Lee’s numbers.

Helen Highwater says:

December 5, 2008 at 6 pm

Hey Lee,
It looks like you may get aced out by the Chinese.
http://www.ft.com/cms/s/0/582d470c-c307-11dd-a5ae-000077b07658.html

Brain says:

December 5, 2008 at 7 pm

Helen

So certain are you? Chinese stock markets are down by 60% this year.

Per your article: “The US market absolutely terrifies me,” said one Shanghai-based real estate executive.

And: “Unless these people need a house in the US to live in, this is senseless,” said Yi Xianrong, a real estate expert at the Chinese Academy of Social Sciences.

And this: Restrictions on taking money out of China would be an obstacle, he added, but some potential investors had an overseas connection such as a foreign passport that would make it easier.

There were only 300 people who even expressed interest. Out of a nation of 1.5 billion people. How many of those 300 are serious? How many of the serious will actually move to buy? HOw many of those moving to buy will actually bypass these restrictions?

We aren’t getting aced out by the Chinese. What a freaking misleading headline.

lee in irvine says:

December 5, 2008 at 7 pm

“If the price does drop to $295,000, incomes also drop and rates are low, should make it easier for employers to recruit, once the economy turns around in a few years.”

Reloman-

Excellent point, and it is part of the migration cycle.

JMO:

I believe OC is still at the very top end of net outflow migration. Incomes in OC are gonna decline due to all the white collar jobs that are now evaporating. Rents for SF homes will be the next step down, in a significant way. It seems like every possible metric I imagined is happening worse.

I do feel very sad for some of the people that were suckered into believing this ponzi scheme was sustainable, but it’s part of the economic cycle. They will have an opportunity to rebuild. A lot of them will move out of OC.

OCTrojan says:

December 5, 2008 at 7 pm

Life is good in OC, as long as you keep your wits about you when it comes to real estate. Timing is everything - don’t be the last to the party or you end up with clean-up duty.

Eat it in the OC says:

December 5, 2008 at 8 pm

OC commuter: My wife and I are in the same situation. Here’s our plan: Make a map of OC with good school districts outlined and take into consideration commute times etc and then survey these areas for price deceleration (i.e. Time on market, price reductions, low sales rate etc = distressed homes/foreclosures). Focus on homes that are at least 10-15% ABOVE what you’d be able to afford now, because in 6-9 months those homes will be within your range. You are probably not going to purchase the homes you see today (possibly but not necessarily) but rather your are surveying neighborhoods for their quality and seeking to maximize your purchasing power. Above all: Purchase what you WANT and only buy something you are prepared to live in for 5-10 years (no condos or townhomes), and, lastly, buy something that you’d want to buy 5-10 years from now! Only homes with good a location, amenities, upgrades or whatever. But you want to be moving in saying to yourself that you’d buy this home now or 10 years from now even if you weren’t buying it today.

PS: ONLY BUY A HOME IF YOUR JOB IS SECURE, VERY SECURE.

shockg says:

December 5, 2008 at 9 pm

Lee (Nostradamus) How many times are you going to say the same thing???

own_home says:

December 5, 2008 at 9 pm

Lee,
you revised yur prediction based on the new economy
who knows, the prices may stabilize much quicker after the new president takes office.

Price of Bad Tidings says:

own_home Says:
December 5th, 2008 at 9:59 pm

“Lee,
you revised yur prediction based on the new economy
who knows, the prices may stabilize much quicker after the new president takes office.”

Or they could continue to deteriorate like fundamentals dictate.

rants says:

December 6, 2008 at 12 am

just like exercise and vitamins part of my daily routine
is reading mr mortgage’s blog– I highly recommend it
for those that want fact based information on the mortgage
and housing markets– mr mortgage- the real “no-spin” zone-
if you havent already- check it out

http://mrmortgage.ml-implode.com/

ReloMan says:

December 6, 2008 at 1 am

Lets see. With the current estimate median income in OC, you could purchase for about $380000, 20% down at current rates for 30 FRM. Little cash, go FHA and purchase for $330000. Total payments for both around $2100/month.

Lee, the question still remains, how far do you expect the median income will FALL between now and the beginning of 2011?? Your prediction of $295000 would suggest either 1) Median Incomes would drop by $20,000 or 2) Interest rates will be rising shortly and dramatically or 3) a combination of both.

Please clarify what numbers you are using? Many thanks.

own_home says:

December 6, 2008 at 7 am

home owners,

just relax. more jobs are on the way
http://www.reuters.com/article/newsOne/idUSN0545867820081206
prices will stabilize by early 2009.

Lee in irvine and other bloggers will revise their predictions. dont be scared by them.

Bill says:

December 6, 2008 at 7 am

Pros Say: Obama’s Plan Won’t Rekindle Economy

http://www.cnbc.com/id/27922690

Business and economics historian John Steele Gordon says the discussion of infrastructure investments and government programs rings familiar.

“That’s the standard remedy for this illness,” he said.

Gordon argues it isn’t. “It’s going to take a long while to plan it and decide who gets what and where and how and when.”

He said the New Deal didn’t end the Great Depression, World War II did.

He says changing light bulbs and painting schools won’t provide a quick fix.

Eat it in the OC says:

December 6, 2008 at 7 am

Of course, relax home owners but keep paying the high taxes, mello roos and HOAs so that the non-homedebtors can enjoy the benefit of your stupidity. I’ll be happy to take the home off your hands in a few years for a fraction of what you over paid for it. Besides, you can always get a job installing new light bulbs in government office building, I bet they’ll be paying $120/yr for that!

lee in irvine says:

December 6, 2008 at 8 am

Reloman-

After the Tech/Stock bubble went kaput in 2000, incomes in most of Orange County’s white collar communities declined. I expect the same, due to this housing/credit bubble.

Here’s a few spread out examples from melissadata.com:

Laguna Niguel ~ 92677
2000 = $97,341
2002 = $82,384

Laguna Beach ~ 92651
2000 = $162,178
2002 = $114,896

Anaheim Hills - 92807
2000 = $72,805
2002 = $70,242

I know some of these declines can be attributed to stock losses, but not most of it, because the tax laws only allow you to write $3,000 per year.

It’s hard to estimate income because there’s too many variables. For instance, we don’t know how bad the unemployment rate is gonna be … the higher it goes, the more pressure in incomes. Also, inflation will undoubtedly play a role in the future due to all the printing of money by the US Treasury. With that said, I do believe that income will be declining in OC this year, next year, and possibly in 2010. To sum it up, I expect a decline, I just don’t know how much. I don’t believe the median income will decline by $20,000.

Here’s what I do think. Due to the extreme nature of this bubble, the median price for a SFH in Orange County will likely decline to a multiple of about 3.5 to 4 times the average household income.

dafox says:

December 6, 2008 at 12 pm

ReloMan -

historical OC income/price since 1980: http://spreadsheets.google.com/pub?key=pGy0BQU1PZ9And2KJvInRJg

I dunno if the median really is 85k. Thats 10k higher than anything I’ve seen. OC Register says 67k ( http://huntingtonbeachrealestate.freedomblogging.com/files/2008/09/92647.pdf )

Marcia says:

Dafox

Thank you!!!

It’s so great when we get the facts on this blog.

Lowest price/income was 4.1x. At $72K, that puts the median at approx $295K, which is Lee in Irvine’s #.

At $84K, that puts the median at $344K.

Question is whether this is the overall median or SFR median?

Can you tell me dafox, whether your link is for SFR or overall median?

If it is overall median, that just hit $410K. Makes a big difference, doesn’t it?

Marcia says:

Remember too, that median won’t stay static. You have to figure in inflation, which, at the rate the Treasury is printing money, will be extreme in the next 3-5 years. You have to figure on at least 10%, if not 20% inflation.

20% inflation on $72K puts the new median wage at $86K.

20% inflation on $84K puts the new median wage at $100K.

Now factor that into a 4.1x price/income equation. $100K x 4.1 gets you to $410K.

That’s why the bulls are saying it doesn’t have much lower to go. They are correct, in nominal terms. In real terms, it is going much lower.

But inflation always benefits real asset holders (real estate, gold, oil), and hurts stock holders. Inflation also benefits debt holders. Get to pay back in ever cheaper dollars, as long as you’re on a fixed rate.

That’s why stock market may be looking like it is getting close to the bottom.

Fast Money showed a plot of the 1987 stock market crash, with this year’s October crash super-imposed on top of it. They were almost identical it was downright uncanny. 1987 was the last RE bubble burst…the S&L’s went belly up, instead of the stock brokers. It took until 1995 for RE prices to start to recover. The RE prices bottomed in 1992-1993 I recall (does someone have that year?). But with the advent of the internet, information travels much faster, so price corrections have been much more instantaneous. Only the govt is trying to slow it down, so that may be the one factor in the way.

For those who are predicting 6,000 on the Dow, why is that please? Does it have to do with lack of overall demand for stocks that they will just keep sinking?

ReloMan says:

defox -

I had forgotten about that google spreadsheet. Many thanks.
Trying to lock an accurate income number is extremely frustratation.

The OC Register citation is at least 3 year old (see the bottom of the pdf file) and they use Claritas (not my favorite source)

The Federal government estimates $84100, which I think is way too high for Orange County (see http://www.huduser.org). I hope they are now using those numbers to plan the budget.

I am hoping Lee’s provides his income data source so I can compare.

Marcia -

Lee is looking at SFR median, not overall median.

Also, when at the 4.1 in ‘85, rates around 9.5%. Was in the low 4 in ‘96, rates around 8.0%. With rates at 5.00%, it will be interesting to see where that ratio settles at.

Marcia says: