Their prediction ignores the fact that OC has quite a high median home price when compared to median income. I would say that alone implies that OC will be hit hard.
Btw, Housing Tracker does seem to show a perceptible impact in listing prices from this year's lending term changes. It's concentrated in the 25th and 50th percentiles, but it's an abnormal pattern.
So is this guy a fool or does he act for vested interests or is doing the only thing that is possible which is to encourage optimism and hope the worst of this passes by?
Tanta wrote, "I have to ask: to what other market do y'all export your children?"
They pack them in the Chinese shipping containers and export them to Europe or India, selling them by the gross for indentured service as international bankers. It's a big business, but I think the pet food scandal is worrying a few folks, because there have long been suspicions about the components of the BIB (Budding International Banker kibble) served on such journeys.
WE know that subprime was used mostly as a cash-out refi option rather then as a 1st time buyer program. Many folks in OC probably converted their fixed into a ARM cash out subprime or Alt-A or Prime which will leave them without many options unless the OC market starts to show strong appreciation again.
OC is also the employment center of the subprime leading area and with all the BK we can expect lower employment options which we know leads to higher rates of foreclosure and BK.
Thanks, MOM. I feel better now. For a minute I was worried that all those lithe tanned above-average young persons were living under bridges, waiting for the old folks to kick the bucket so they could inherit a house in OC, it being impossible for FTBs to buy one.
The sunny-side housing economists amaze me, with their ability to view complex systems and see elements working in isolation without influence. At least that's what they say to their purse-strings holders that want desperately to see the sunny side. These guys must be swallowing their integrity in big gulps daily.
OC will be in freefall later this year. Could be ground ZERO with the high income job losses from the lenders and the high risk borrowing mania that rules the region...
This is beginning to look real bad. You guys need to buy tinned food, sugar etc. Home brew kits. Solar water stills. Get friendly with people who can protect you.
The March Institute for Supply Management number just came out. It wasn't pretty. The overall index came in at 50.9, down from 52.3 in February and below the 51.4 forecast.
New orders? Down to 51.6 from 54.9.
Employment? Down to 48.7 from 51.1. That's the lowest since May 2005, when it was also 48.7. We haven't had a worse reading since October 2003.
And what about inflation? The prices paid index surged to 65.5 from 59. That's the worst reading since August 2006.
Hmmm ... Is that economic napalm I'm smelling this morning?..This makes the Chicago Number of last week seem less and less credible.IMHO!
always on the conservative side with your estimates, huh CR? OC may not be hit the WORST of CA counties, but it WILL be CLOBBERED!
I recall reading that almost 40% of CA home sales last year were to 2nd home & investment property buyers. I don't have a clue how many in OC have refinanced in the last few years but I'd bet it's a HUGE number. Sure there are fewer subprime borrowers in O.C. but O.C home prices are TRIPLE what they were in 1997! This is so far beyond a bull market it's farcical (if your on the sideline). Has anyone noticed how many homes in OC are for sale right now for more than a million dollars? How many people in the whole country make enough in a lifetime to pay the mtg. & property taxes on this? AND, that's before turning the lights on or paying for the kids education!
Reason suggests many in O.C have grown quite comfortable living on the edge of reason (yes, I'm being charitable Tanta). My guess is many super-aggressive people here are leveraged to the max. (I'm sure CR knows several of them.)
How long can these house-rich gamblers continue to keep the lights on in their mini-mansions?
As CR & Tanta have argued, RE problems are WAY bigger than subprime & O.C., CA may prove to be the BEST example of the catastrophy we face.
I personally know 4 first time home buyer couples living in OC
Couple One: bought house on cheep in 1998 from Mom & Dad..recently (last year) took Heloc to "modernize" backyard pool to pebbletech with rock waterfall & palapas
Couple Two: bought tiny house and re-fi every year to buy boats, go on vac etc. aware of credit bubble and taking advantage of it first BK at age 18
Couple Three: bought tiny house in Anaheim hills in 2003 the mom's a bank manager for WAMU and told me it was a great idea to cash out and buy a car with eqity because you can write it off on taxes they re-fied last year
the best for last
Couple Four: bought a apt. conversion err condo in 2004 WAY overpriced (350K) then bought house down street in Aug 2006 for 600K (1200sqft) here's the kicker....they never sold the condo...guy has almost 1mil in mortgages and he's the only one working and I know he makes around 100K a year
I warned him but he didn't listen and I think he was upside-down the moment he signed his papers.
They all tell me OC is different and if prices come down they won't come down that much and then they will go back up because there is so much money in OCfools
Alo: Yeah, Thornburg left UCLA. While he was there, UCLA was quite a bit more pessimistic. Then they started turning Pollyanish, so he left. Thornburg's quote about the housing market in OC was something along the lines of, "OC is different, it's going to get hammered." Seems he has a different take on OC.
Personally, I agree with Thornburg. Affordability in OC is a joke. Median price for an existing house is approximately $675K. That was only possible because of the "affordability" products. Without people being able to get 100% financing with a teaser rate, those prices can't and won't last.
While prices have not come down much yet, they are coming down some (6 out of the last 7 months saw YOY declines). We are now at 18 consecutive months of YOY declines in sales volume. From my very unscientific review, it looks like it takes about 12 months of YOY declines in sales volume before the prices start to reflect declines (at least in the median). We seem to be about a year behind San Diego, and I expect us to follow their lead. Also, the fallout from the subprime lenders will hurt OC hard. Most of those employees were drinking the Kool Aid, and they were making good money. So those job loses will result in forced sales. And many folks in OC like to live a "fashionable" lifestyle, so I expect quite a few have done some cash-out refinancing over the years to keep up that lifestyle. In time, people will blame the fallout from the subprime lender implosing for the falling prices here (and equate it to the defense contractor layoffs of the early '90s). It won't really be true - this market would fall regardless. The job losses from RE will just make the crash happen a little quicker.
I lived in Orange County from 1959 to 1996, and I can tell you first hand that market has experienced several real estate downturns. The one in the early 1990s was rather severe and saw prices drop in the range of 15%. I lived in an area known as Rossmoor-Seal Beach which still is a very exclusive area, but even Rossmoor was wounded by the recession, and took several years to recover.
This real estate implosion looks much worse than anything I have ever witnessed. Today there are 47 subprime lenders have ceased operations, and credit is contracting on a daily basis. By summer 20 to 40% of potential buyers will be knocked out of the market because of the credit contraction. Foreclosures are growing daily and will soon become the comps that sellers will have to deal with.
In my experience people wallow in denial until they can no longer deny the truth.
25 Year old mortgage broker... "In real estate its all about location, location, location, said the Orange County native, who dropped a cool $1.7 million to buy a 2,100-square-foot unit"
What sort of loan program and appraisal do you figure this high stakes gambler arranged for himself? I would say prescription anti-depressants would see a bull market once these chumps finally come to terms with the grim side of their highly leveraged bets. Penthouse apartments have 1 advantage over single story SFHs -- They offer the discouraged borrower an express balconey launched solution to the problem harassment by their lender.
I live in OC. I was playing golf about 4 months ago w/ 3 LEND brokers. We chatted about the market - of course it was "rockin". One of them made the comment that many "prime" borrowers where using subprime lenders because it was easy to get approved and cash out quickly. They basically couldn't believe why anyone, with poor or great credit wouldn't go the SP/Alt-A route. What is the benefit of going through traditional, full doc broker, unless you are going for a 30 yr. fixed. For ARMS, cash-out, they were the way to go.
The OC is toast. Plus 11x's median wages. It was 4x in 1996.
Calmo - the percentiles should have risen into spring from Jan in a normalish market, but instead the 25th has dropped and the 50th is flat.
Mind you, the list prices don't react as quick as sales, and in declining market the sales price/list price ratio drops.
In any case, it is a change this year and it does not bode well at all for OC.
My guess is that OC will act somewhat like Miami when things really get going. I took a look at the ACS (census) figures for OC a few months ago, and I'd say there's a world of trouble ahead.
Why do I get the mental picture of a lot of otherwise responsible adults with fingers in their ears singing "la, la, la, I can't hear anything" whenever I see stories like this?
At least "Mr 25 Year Old Multimillionaire (well, on his application at least) Mortgage Broker" has the rest of his working life to recover from the excruciatingly painful financial lesson he is about to learn.
Yeah, UCLA Anderson, what could possibly go wrong here?
I have to ask: to what other market do y'all export your children?
Riverside my dear, county and city.
When we moved to Riverside in 1964, the highway to Disneyland and Orange county was a two lane road through orange groves. Now, that same route is six lanes each way of low speed freeway. Don't even think of making time during rush hours. I think there is a toll road somewhere along there to take advantage of all the high-paid folks who still work in Orange county.
There are Orange Counties all over California. I live in Santa Cruz County, where average home prices are even higher than in the nearby Silicon Valley, despite the fact that the local economy is in the toilet.
What keeps housing prices up are commuters, speculators, and investors. We have a university which draws its enrollment heavily from Southern Cal -- including, yes, Orange County -- and it's a pretty common story here for a Socal family to buy its child a house here (and rent rooms to other students) and hold it as an investment. Okay, they're realizing an income at least, but it doesn't cover half what they're paying. Plenty of vacation homes, here too -- some neighborhoods are half-dark in the winter.
Official prices have so far slipped just a bit -- five percent, maybe. But I see plenty of "price reduced" signs around town, and folks I know who've been toying with cashing out and going somewhere cheap are putting their plans into high gear. Their agents are telling them: Sell NOW!
I live in Newport Beach and my neighborhood is filled with empty homes owned by subprime mortgage brokers. The down turn in subprime will undoubtedly drive many of these properties onto the market and, for some, eventually to foreclosure.
These are $3M to $10M homes that, I suspect, have been financed with >90% LTV mortgages. They have been refinanced multiple times to extract equity so there is no equity cushion.
I took the money and ran from the OC when my comfy little condo tripled in value from 1997 to 2005. Neighbors tell me that only one other unit sold for more than mine (June 2005). The realtors unanimously tut-tutted and covered their mouths in shock when I told them that no way would I go for a place with 100% financing or an ARM. Of course, I bought a boat and went sailing with my ill gotten gains. Debt free and saving for the next place in say, about 2 years far, far away from the OC maybe back at 1997 prices or less....
Thanks MOM, I don't think I'd ever have picked that up:
the percentiles should have risen into spring from Jan in a normalish market, but instead the 25th has dropped and the 50th is flat.
What I got out of that tablized data was that inventory had climbed 13.2% in the last month (an accelerating pace).
And the high end houses (75 precentiles) peaking mid 2006 have dropped $50,000 with 50 percentiles losing a proportionate amount but 25 percentiles showing somewhat better with only a $15,000 drop.
I would like to have seen the actual percentile volumes.
I can see the seasonal spring sprout should be there, but my untrained eye doesn't look for it when it's dormant this time around perhaps overshadowed by that large inventory build.
Until and unless OC has large amounts of housing inventory available, prices may stabilize but there's little support for the idea of an appreciable crash. I don't deny that it's a possibility, but it's pretty remote. There isn't that much new construction that can go on or is going on; it's completely unlike the situation in Arizona and Nevada, and to some degree, the Inland Empire. This sounds like wishcasting to me from people who wish they could afford housing in Orange County.
"Until and unless OC has large amounts of housing inventory available, prices may stabilize but there's little support for the idea of an appreciable crash"
What were the odds against the last crash in the early '90s? All the same arguments applied then too. The difference is this time employment is more focused & housing related, the affordability numbers are much worse combined with much higher debt levels and a concentration of far riskier loan products.
The general consensus in the Los Angeles area is that it'll never happen here. There's this isolationist attitude that L.A. and the surrouding areas including 'The O.C.' are buffeted by a multi-faceted local economy that is bullet-proof. The Anderson group believes that CA will miss a recession if or when it comes.
That attitude is certainly going to be tested considering the housing activity that has taken place over the recent years.
As far as the O.C. Not everyone lives in posh areas. A post that I found amusing from another site was saying that if you want to discover the real O.C. then go to the barrios of Santa Ana.
Mom bought a Camry a few years ago. She used a HELOC for the better rate and paid it off in three years.
Excellent point. We weeks away from not making payroll when we got a HELOC that got us over that rough spot. Not rich now, but are paying off all of the dot.bust debt.
What were the odds against the last crash in the early '90s?
Since you're so big on history, where's the employment crash of equivalant magnitude to the exodus of aerospace in the post-Berlin Wall early 90's? Where's the LA riots? We haven't seen anything remotely like those two incidents, which combined were in large part responsible for dragging down the market in that timeframe.
The worst of the subprime meltdown will be felt in Arizona, Nevada, the Inland Empire, etc., not LA and OC.
What translates into a deeper hole on default. Which needs a lot more CASH to get that asset into some other buyer's hands under tighter credit standards? Prices need to deflate A LOT before we find the clearing price for the REOs given much tighter credit.
The OC and LA has a lot further to fall in dollar terms. The only thing that enabled those insane prices was loose credit. Take a lot of that credit away and add a healthy dose of REO to that mix and you'll see what a price meltdown looks like. Q4 2007 should do the trick...
BTW, care to back up your unsubstantiated claim that employment is "more focused"? According to the latest Orange County Workforce Indicator Report (pdf), in 2003 construction trades didn't amount to 7% of overall employment within the county.
Actually, 7% sounds high, but 2003 was a generation ago in bubble years. I think the RE sector is far better represented. The lenders, mort brokers, RE agents... That segment will see declines in the 50% range.
The meltdown is already into the 3rd inning. My guess is we've got a 110% LTV leveraged guy on $1.2M seeing the margin trade heading the wrong way in a hurry...
I think it is Ok tj to express an opinion that invites us to re-examine our position. I think 'barely' is not only quite capable but informing --a review of history (and Rob's view of that too) is a worthwhile exercise. It goes without saying that OC, a wealthy county whose residents by and large have fat asset cushions will not feel the pain first or as long, (if ever) as the poorer counties.
I lived in OC from 1996 to 2002. The market was clearly reaching affordability limits by 2002, but the financing just kept getting more exotic.
I even remember in 1996 being pleasantly surprised at the cost of living. I was expecting SoCal to be a challenge, but I rented a room for a while for $325 a month in Buena Park, then moved into a $750/mo 2BR apartment in Tustin. There were also lots of cheap Mom'n'Pop motels around Disneyland and Knotts Berry farm for $22 to $29 a night.
Some "sun tax" - yes - but it was not that out of line with mainstream America.
From 2002 to 2006 OC had added 114,500 jobs of that 44.3% 50,700 jobs were in the construction, RE, finance (credit intermediation and related activities) and architectural/engineering related services. These industries have averaged about 11.7% of the total jobs in OC and that is what is was in 2002 meaning 88.3% was for everything else. Add the 63,800 non-RE related jobs and divide by .883 that equals what a normal job picture would look like with an unemployment rate of 6%. A rate last seen in 1993. Any other industry cracks and the 90s bubble will look like a hiccup. 2002 to 2006 we continued to lose manufacturing jobs and if we didn't have Ceradyne those losses would be worse.
UCLA forecasts without Thornburg have gone to crap.
Chapman blew it in the 90s with Esmael Adibi calling for a recovery in 12/90 that by 1992 OC homes will be appreciating faster than inflation with an annual rate of 9.4% by 1995. In 2004 he was calling for the bubble to burst and again in 2005 and in 2006 they gave up. This year they are probably not bearish enough. Updated report to come in June.
CR, I like the thought that we (OC) will be spared the worst, due to our lesser subprime exposure.
But, I feel the risk has always been there, even before this subprime episode. The subprime trouble is just a single feather on the Housing-Bust phoenix bird (no slur on Arizona intended).
We could be off to a slower start, down the slide; but, slide we will.
My crystal ball is not clear enough to see if we will be somewhat saved by the lesser suprime risk, or we will be overly squashed by the very large overshoot in prices. Our prices have always tended to climb steeply when prices are rising, and to continue rising when all sanity would indicate moderation. We tend to overshoot and undershoot the stable target prices that would be based on the old supply-demand curve.
I would love to be part of UCLAs forecasted safety zone.
I just think it aint gunna happen.
While Im on a rant, I would like to say that I dont like the pushing of the media. I hear more and more MSM talk about the busted bubble and the disaster ahead. I hear this from the MSM and the many blog respondents, too.
Now that we have all been proven correct, lets not be gleeful in the approach of the economic problems. We have been proven right enough. We dont need more. More news and forcasts are good. Laughing at disaster? Not good.
CR, Yours is one of the best. Thanks for the effort!
Their prediction ignores the fact that OC has quite a high median home price when compared to median income. I would say that alone implies that OC will be hit hard.
Btw, Housing Tracker does seem to show a perceptible impact in listing prices from this year's lending term changes. It's concentrated in the 25th and 50th percentiles, but it's an abnormal pattern.
Orange County is "not a first-time buyer market"
I have to ask: to what other market do y'all export your children?
So is this guy a fool or does he act for vested interests or is doing the only thing that is possible which is to encourage optimism and hope the worst of this passes by?
Tanta wrote, "I have to ask: to what other market do y'all export your children?"
They pack them in the Chinese shipping containers and export them to Europe or India, selling them by the gross for indentured service as international bankers. It's a big business, but I think the pet food scandal is worrying a few folks, because there have long been suspicions about the components of the BIB (Budding International Banker kibble) served on such journeys.
Fuzzy memories: Wasn't there a dude who left UCLA Anderson because the other dudes were being way too rosy in their forecasts - Thornburg?
WE know that subprime was used mostly as a cash-out refi option rather then as a 1st time buyer program. Many folks in OC probably converted their fixed into a ARM cash out subprime or Alt-A or Prime which will leave them without many options unless the OC market starts to show strong appreciation again.
OC is also the employment center of the subprime leading area and with all the BK we can expect lower employment options which we know leads to higher rates of foreclosure and BK.
Doesn't this also ignore the loss of jobs in the OC dues to New Century and other OC subprime employers going out of business or cutting back?
Thanks, MOM. I feel better now. For a minute I was worried that all those lithe tanned above-average young persons were living under bridges, waiting for the old folks to kick the bucket so they could inherit a house in OC, it being impossible for FTBs to buy one.
The sunny-side housing economists amaze me, with their ability to view complex systems and see elements working in isolation without influence. At least that's what they say to their purse-strings holders that want desperately to see the sunny side. These guys must be swallowing their integrity in big gulps daily.
OC will be in freefall later this year. Could be ground ZERO with the high income job losses from the lenders and the high risk borrowing mania that rules the region...
This is beginning to look real bad. You guys need to buy tinned food, sugar etc. Home brew kits. Solar water stills. Get friendly with people who can protect you.
Home brew kits
I'm pretty sure we've already been drinking gin out of the bathtub.
I'd kind of like to see everyone buy a solar-powered coffeemaker.
Ok, MOM, about that abnormal thingie here:
It's concentrated in the 25th and 50th percentiles, but it's an abnormal pattern.
Whereizit again? I see no graphs in red and green concealing it from me this time, so I need real explicit directions I guess.
We in O.C. may be spared the worst of the subprime fallout, but we'll be at Ground Zero for the Alt-A collapse.
Solar powered portable devices for home, office or your vehicle
"PowerPac II will operate small refrigerators, electric coffee makers"
No worries!
The March Institute for Supply Management number just came out. It wasn't pretty. The overall index came in at 50.9, down from 52.3 in February and below the 51.4 forecast.
New orders? Down to 51.6 from 54.9.
Employment? Down to 48.7 from 51.1. That's the lowest since May 2005, when it was also 48.7. We haven't had a worse reading since October 2003.
And what about inflation? The prices paid index surged to 65.5 from 59. That's the worst reading since August 2006.
Hmmm ... Is that economic napalm I'm smelling this morning?..This makes the Chicago Number of last week seem less and less credible.IMHO!
always on the conservative side with your estimates, huh CR? OC may not be hit the WORST of CA counties, but it WILL be CLOBBERED!
I recall reading that almost 40% of CA home sales last year were to 2nd home & investment property buyers. I don't have a clue how many in OC have refinanced in the last few years but I'd bet it's a HUGE number. Sure there are fewer subprime borrowers in O.C. but O.C home prices are TRIPLE what they were in 1997! This is so far beyond a bull market it's farcical (if your on the sideline). Has anyone noticed how many homes in OC are for sale right now for more than a million dollars? How many people in the whole country make enough in a lifetime to pay the mtg. & property taxes on this? AND, that's before turning the lights on or paying for the kids education!
Reason suggests many in O.C have grown quite comfortable living on the edge of reason (yes, I'm being charitable Tanta). My guess is many super-aggressive people here are leveraged to the max. (I'm sure CR knows several of them.)
How long can these house-rich gamblers continue to keep the lights on in their mini-mansions?
As CR & Tanta have argued, RE problems are WAY bigger than subprime & O.C., CA may prove to be the BEST example of the catastrophy we face.
No first time buyers in the OC, eh? Just stable, well-heeled coupon-clippers like the estimable CR?
Time for a little reality check:
OC METRO Magazine
Orange County is "not a first-time buyer market"
I personally know 4 first time home buyer couples living in OC
Couple One: bought house on cheep in 1998 from Mom & Dad..recently (last year) took Heloc to "modernize" backyard pool to pebbletech with rock waterfall & palapas
Couple Two: bought tiny house and re-fi every year to buy boats, go on vac etc. aware of credit bubble and taking advantage of it first BK at age 18
Couple Three: bought tiny house in Anaheim hills in 2003 the mom's a bank manager for WAMU and told me it was a great idea to cash out and buy a car with eqity because you can write it off on taxes they re-fied last year
the best for last
Couple Four: bought a apt. conversion err condo in 2004 WAY overpriced (350K) then bought house down street in Aug 2006 for 600K (1200sqft) here's the kicker....they never sold the condo...guy has almost 1mil in mortgages and he's the only one working and I know he makes around 100K a year
I warned him but he didn't listen and I think he was upside-down the moment he signed his papers.
They all tell me OC is different and if prices come down they won't come down that much and then they will go back up because there is so much money in OCfools
Alo: Yeah, Thornburg left UCLA. While he was there, UCLA was quite a bit more pessimistic. Then they started turning Pollyanish, so he left. Thornburg's quote about the housing market in OC was something along the lines of, "OC is different, it's going to get hammered." Seems he has a different take on OC.
Personally, I agree with Thornburg. Affordability in OC is a joke. Median price for an existing house is approximately $675K. That was only possible because of the "affordability" products. Without people being able to get 100% financing with a teaser rate, those prices can't and won't last.
While prices have not come down much yet, they are coming down some (6 out of the last 7 months saw YOY declines). We are now at 18 consecutive months of YOY declines in sales volume. From my very unscientific review, it looks like it takes about 12 months of YOY declines in sales volume before the prices start to reflect declines (at least in the median). We seem to be about a year behind San Diego, and I expect us to follow their lead. Also, the fallout from the subprime lenders will hurt OC hard. Most of those employees were drinking the Kool Aid, and they were making good money. So those job loses will result in forced sales. And many folks in OC like to live a "fashionable" lifestyle, so I expect quite a few have done some cash-out refinancing over the years to keep up that lifestyle. In time, people will blame the fallout from the subprime lender implosing for the falling prices here (and equate it to the defense contractor layoffs of the early '90s). It won't really be true - this market would fall regardless. The job losses from RE will just make the crash happen a little quicker.
Thanks, 4shzl. I needed to know that about OC.
Now that my reality has been checked, please excuse me while I run down to HomeDepot for some more aromatic glue.
I lived in Orange County from 1959 to 1996, and I can tell you first hand that market has experienced several real estate downturns. The one in the early 1990s was rather severe and saw prices drop in the range of 15%. I lived in an area known as Rossmoor-Seal Beach which still is a very exclusive area, but even Rossmoor was wounded by the recession, and took several years to recover.
This real estate implosion looks much worse than anything I have ever witnessed. Today there are 47 subprime lenders have ceased operations, and credit is contracting on a daily basis. By summer 20 to 40% of potential buyers will be knocked out of the market because of the credit contraction. Foreclosures are growing daily and will soon become the comps that sellers will have to deal with.
In my experience people wallow in denial until they can no longer deny the truth.
25 Year old mortgage broker... "In real estate its all about location, location, location, said the Orange County native, who dropped a cool $1.7 million to buy a 2,100-square-foot unit"
What sort of loan program and appraisal do you figure this high stakes gambler arranged for himself? I would say prescription anti-depressants would see a bull market once these chumps finally come to terms with the grim side of their highly leveraged bets. Penthouse apartments have 1 advantage over single story SFHs -- They offer the discouraged borrower an express balconey launched solution to the problem harassment by their lender.
I live in OC. I was playing golf about 4 months ago w/ 3 LEND brokers. We chatted about the market - of course it was "rockin". One of them made the comment that many "prime" borrowers where using subprime lenders because it was easy to get approved and cash out quickly. They basically couldn't believe why anyone, with poor or great credit wouldn't go the SP/Alt-A route. What is the benefit of going through traditional, full doc broker, unless you are going for a 30 yr. fixed. For ARMS, cash-out, they were the way to go.
The OC is toast. Plus 11x's median wages. It was 4x in 1996.
Silly Tanta -- just send the concierge to get your sniffables. That's the way we do it here in sooo Kaliforniah.
4shzl, FUNNY, What the article fails to mention is that highrise is about a 1/4 mile from John Wayne Airport. NOISY!
Calmo - the percentiles should have risen into spring from Jan in a normalish market, but instead the 25th has dropped and the 50th is flat.
Mind you, the list prices don't react as quick as sales, and in declining market the sales price/list price ratio drops.
In any case, it is a change this year and it does not bode well at all for OC.
My guess is that OC will act somewhat like Miami when things really get going. I took a look at the ACS (census) figures for OC a few months ago, and I'd say there's a world of trouble ahead.
I live in the OC, and I think it is going to crash hard. I detailed it here:
Irvine Housing Blog - Irvine Real Estate and Resale Homes - What if Prices Dropped to Fundamental Values?
and here:
Irvine Housing Blog - Irvine Real Estate and Resale Homes -
Why do I get the mental picture of a lot of otherwise responsible adults with fingers in their ears singing "la, la, la, I can't hear anything" whenever I see stories like this?
Very entertaining, 4shzl.
At least "Mr 25 Year Old Multimillionaire (well, on his application at least) Mortgage Broker" has the rest of his working life to recover from the excruciatingly painful financial lesson he is about to learn.
Yeah, UCLA Anderson, what could possibly go wrong here?
I have to ask: to what other market do y'all export your children?
Riverside my dear, county and city.
When we moved to Riverside in 1964, the highway to Disneyland and Orange county was a two lane road through orange groves. Now, that same route is six lanes each way of low speed freeway. Don't even think of making time during rush hours. I think there is a toll road somewhere along there to take advantage of all the high-paid folks who still work in Orange county.
Thanks Waiting, not feeling so fuzzy now, just fussy.
It'd be interesting to get behind the woodwork at some of these universites and see who is funding their reports, and what the funders' biases are.
There are Orange Counties all over California. I live in Santa Cruz County, where average home prices are even higher than in the nearby Silicon Valley, despite the fact that the local economy is in the toilet.
What keeps housing prices up are commuters, speculators, and investors. We have a university which draws its enrollment heavily from Southern Cal -- including, yes, Orange County -- and it's a pretty common story here for a Socal family to buy its child a house here (and rent rooms to other students) and hold it as an investment. Okay, they're realizing an income at least, but it doesn't cover half what they're paying. Plenty of vacation homes, here too -- some neighborhoods are half-dark in the winter.
Official prices have so far slipped just a bit -- five percent, maybe. But I see plenty of "price reduced" signs around town, and folks I know who've been toying with cashing out and going somewhere cheap are putting their plans into high gear. Their agents are telling them: Sell NOW!
The bottom of the ponzi chain is gone.
I live in Newport Beach and my neighborhood is filled with empty homes owned by subprime mortgage brokers. The down turn in subprime will undoubtedly drive many of these properties onto the market and, for some, eventually to foreclosure.
These are $3M to $10M homes that, I suspect, have been financed with >90% LTV mortgages. They have been refinanced multiple times to extract equity so there is no equity cushion.
I took the money and ran from the OC when my comfy little condo tripled in value from 1997 to 2005. Neighbors tell me that only one other unit sold for more than mine (June 2005). The realtors unanimously tut-tutted and covered their mouths in shock when I told them that no way would I go for a place with 100% financing or an ARM. Of course, I bought a boat and went sailing with my ill gotten gains. Debt free and saving for the next place in say, about 2 years far, far away from the OC maybe back at 1997 prices or less....
We all know how accurate the Anderson forcast has been in the past.
I'll just leave it at that.
Thanks MOM, I don't think I'd ever have picked that up:
the percentiles should have risen into spring from Jan in a normalish market, but instead the 25th has dropped and the 50th is flat.
What I got out of that tablized data was that inventory had climbed 13.2% in the last month (an accelerating pace).
And the high end houses (75 precentiles) peaking mid 2006 have dropped $50,000 with 50 percentiles losing a proportionate amount but 25 percentiles showing somewhat better with only a $15,000 drop.
I would like to have seen the actual percentile volumes.
I can see the seasonal spring sprout should be there, but my untrained eye doesn't look for it when it's dormant this time around perhaps overshadowed by that large inventory build.
Just a remark on all this.
Mom bought a Camry a few years ago. She used a HELOC for the better rate and paid it off in three years.
The HELOC can be used for good purposes if you are careful.
Anyhow... These other people with two Lincon Navigators... good luck.
Until and unless OC has large amounts of housing inventory available, prices may stabilize but there's little support for the idea of an appreciable crash. I don't deny that it's a possibility, but it's pretty remote. There isn't that much new construction that can go on or is going on; it's completely unlike the situation in Arizona and Nevada, and to some degree, the Inland Empire. This sounds like wishcasting to me from people who wish they could afford housing in Orange County.
Rob, are you trolling?
"Until and unless OC has large amounts of housing inventory available, prices may stabilize but there's little support for the idea of an appreciable crash"
What were the odds against the last crash in the early '90s? All the same arguments applied then too. The difference is this time employment is more focused & housing related, the affordability numbers are much worse combined with much higher debt levels and a concentration of far riskier loan products.
Not a lot of support for the "idea" LOL!!
The general consensus in the Los Angeles area is that it'll never happen here. There's this isolationist attitude that L.A. and the surrouding areas including 'The O.C.' are buffeted by a multi-faceted local economy that is bullet-proof. The Anderson group believes that CA will miss a recession if or when it comes.
That attitude is certainly going to be tested considering the housing activity that has taken place over the recent years.
As far as the O.C. Not everyone lives in posh areas. A post that I found amusing from another site was saying that if you want to discover the real O.C. then go to the barrios of Santa Ana.
Mom bought a Camry a few years ago. She used a HELOC for the better rate and paid it off in three years.
Excellent point. We weeks away from not making payroll when we got a HELOC that got us over that rough spot. Not rich now, but are paying off all of the dot.bust debt.
What were the odds against the last crash in the early '90s?
Since you're so big on history, where's the employment crash of equivalant magnitude to the exodus of aerospace in the post-Berlin Wall early 90's? Where's the LA riots? We haven't seen anything remotely like those two incidents, which combined were in large part responsible for dragging down the market in that timeframe.
The worst of the subprime meltdown will be felt in Arizona, Nevada, the Inland Empire, etc., not LA and OC.
Rob, consider this...
110% LTV (at origination) on a $950K loan.
110% LTV (at origination) on a $250K loan.
What translates into a deeper hole on default. Which needs a lot more CASH to get that asset into some other buyer's hands under tighter credit standards? Prices need to deflate A LOT before we find the clearing price for the REOs given much tighter credit.
The OC and LA has a lot further to fall in dollar terms. The only thing that enabled those insane prices was loose credit. Take a lot of that credit away and add a healthy dose of REO to that mix and you'll see what a price meltdown looks like. Q4 2007 should do the trick...
BTW, care to back up your unsubstantiated claim that employment is "more focused"? According to the latest Orange County Workforce Indicator Report (pdf), in 2003 construction trades didn't amount to 7% of overall employment within the county.
Actually, 7% sounds high, but 2003 was a generation ago in bubble years. I think the RE sector is far better represented. The lenders, mort brokers, RE agents... That segment will see declines in the 50% range.
The meltdown is already into the 3rd inning. My guess is we've got a 110% LTV leveraged guy on $1.2M seeing the margin trade heading the wrong way in a hurry...
Don't feed the troll.
I think it is Ok tj to express an opinion that invites us to re-examine our position. I think 'barely' is not only quite capable but informing --a review of history (and Rob's view of that too) is a worthwhile exercise. It goes without saying that OC, a wealthy county whose residents by and large have fat asset cushions will not feel the pain first or as long, (if ever) as the poorer counties.
I lived in OC from 1996 to 2002. The market was clearly reaching affordability limits by 2002, but the financing just kept getting more exotic.
I even remember in 1996 being pleasantly surprised at the cost of living. I was expecting SoCal to be a challenge, but I rented a room for a while for $325 a month in Buena Park, then moved into a $750/mo 2BR apartment in Tustin. There were also lots of cheap Mom'n'Pop motels around Disneyland and Knotts Berry farm for $22 to $29 a night.
Some "sun tax" - yes - but it was not that out of line with mainstream America.
Some OC job facts for everyone. The data can be found here:
http://www.calmis.ca.gov/file/indhist/oran$haw.xls
From 2002 to 2006 OC had added 114,500 jobs of that 44.3% 50,700 jobs were in the construction, RE, finance (credit intermediation and related activities) and architectural/engineering related services. These industries have averaged about 11.7% of the total jobs in OC and that is what is was in 2002 meaning 88.3% was for everything else. Add the 63,800 non-RE related jobs and divide by .883 that equals what a normal job picture would look like with an unemployment rate of 6%. A rate last seen in 1993. Any other industry cracks and the 90s bubble will look like a hiccup. 2002 to 2006 we continued to lose manufacturing jobs and if we didn't have Ceradyne those losses would be worse.
UCLA forecasts without Thornburg have gone to crap.
Chapman blew it in the 90s with Esmael Adibi calling for a recovery in 12/90 that by 1992 OC homes will be appreciating faster than inflation with an annual rate of 9.4% by 1995. In 2004 he was calling for the bubble to burst and again in 2005 and in 2006 they gave up. This year they are probably not bearish enough. Updated report to come in June.
Well, since it was mentioned, here's Thornberg's presentation from 2/06:
Google Videos Error
With the benefit of hindsight, it seemed like his presentation was pretty accurate, for being some 14 months old by now.
PS I love the joke where he asks what Greenspan and Jose Conseco have in common?
Answer: both have been accused of artifically bolstering performance!
CR, I like the thought that we (OC) will be spared the worst, due to our lesser subprime exposure.
But, I feel the risk has always been there, even before this subprime episode. The subprime trouble is just a single feather on the Housing-Bust phoenix bird (no slur on Arizona intended).
We could be off to a slower start, down the slide; but, slide we will.
My crystal ball is not clear enough to see if we will be somewhat saved by the lesser suprime risk, or we will be overly squashed by the very large overshoot in prices. Our prices have always tended to climb steeply when prices are rising, and to continue rising when all sanity would indicate moderation. We tend to overshoot and undershoot the stable target prices that would be based on the old supply-demand curve.
I would love to be part of UCLAs forecasted safety zone.
I just think it aint gunna happen.
While Im on a rant, I would like to say that I dont like the pushing of the media. I hear more and more MSM talk about the busted bubble and the disaster ahead. I hear this from the MSM and the many blog respondents, too.
Now that we have all been proven correct, lets not be gleeful in the approach of the economic problems. We have been proven right enough. We dont need more. More news and forcasts are good. Laughing at disaster? Not good.
CR, Yours is one of the best. Thanks for the effort!
Don't feed the troll.
Wow, since when is asking for actual proof of assertions "trolling"? By the way, thanks to graphrix for providing some actual documentation.