Sure as night follows day, psychology will turn tail and run in the other direction. And all the cheerleaders and other vested interests can hold this pyramid scheme together for only so long.
Denial rules until then however. Today, my banker - just another BofA manager who saw me - was telling me about her last client using a HELOC for a down payment on her next property. She was gushing about that.
She added prices are not going down here because of good schools. She actually said prices are down 15-20% in other places, but that won't happen here. Thats denial all right.
SD isn't "back" to '04 levels but is rather "still" at '04 levels as that is when it peaked and it has simply bee-bopped around the same level since then in a (gulp) classic "soft landing" pattern that we hope will not be a harbinger of things to come for other markets.
Robert, you really do have no idea whatsoever how idiotic you make yourself look when you say "Dataquick's marketwide numbers are wrong and my realtor friend is right", do you?
Price declines will be good for the economy. They were to high to begin with and have stifled the market. A steady, but solid decline will get the housing market moving again by 2008.
Everybody knows that 2004 is the starting point of the boom. But what of 2003 numbers? Yeah, it is slowing down but how are the current numbers relative to 2003.. 2002?
Nikki, it's not much - just a start. BTW, according to DataQuick, San Diego median prices peaked last November at $518K - so prices are off 7% from the peak in less than a year.
Robert, I have sources in San Diego too that agree with your assessment. There could be a number of reasons for the differences - like sellers and/or broker concessions. For the purposes of tracking, all I can do is use numbers from consistent sources (DataQuick has been tracking prices since '88 ).
PeePeeTime, thanks for those numbers. Yes, San Diego prices have risen dramatically for several years.
Spectator, I live in a pretty nice area and I remember being told in '90 or '91 that prices wouldn't drop here - yeah right. I think prices dropped at least 30% in nominal terms during the early '90s bust in my town. So I agree with you - these people are in denial.
I think all the SoCal sellers (the successful ones)are buying high-end condos in Dallas. The W Residences, Ritz-Carlton (they're starting the second tower), The Palomar, etc. My head spins at how fast these things are selling out. I live in a pretty (used to be)rural area about 25 miles southeast of downtown Dallas. In the last four years five major subdivisions have broken ground and the houses, in the 110K-220K range, sell like hotcakes. Seven years ago my school district had two elementary schools, a middle school and a high school. Today we have seven elementary schools (one under construction), two middle schools and constrcution to start in 07 of the second high school. I guess even during "busts" it's location, location, location.
To the pathetic fake BenJones: it's so enjoyable to think that you spent considerable time thinking up your quaint little ploy, and how amused you must be now that you've set it in motion. Surely, soon, you'll be able to take over the world... oh, BenJones, your silliness amuses me ever so much. Will you marry me?
In response to the discussion above about the accuracy of dataquick numbers, I'll quote an excellent website (ror.com) I use for tracking my local market:
"It is notable that the median price reflects the mid-spending point for buyers, not appraised values. Values can increase or decrease without a notable change in the median price. For example, when values decreased 20-25% in Santa Cruz, from 1990 to 1993, the median price dipped only slightly. Historically, during that period, buyers spent roughly the same amount, but purchased a larger or better house."
Here is my question: banks have been using for a number of years sophisticated quantitative models that predict the quality of loans. Are we to believe that the banks are simply ignoring the results of their own modeling? I.e. the banks know loan quality better than anyone; are they committing suicide in the face of their own data?
Robert, I have sources in San Diego too that agree with your assessment. There could be a number of reasons for the differences - like sellers and/or broker concessions. For the purposes of tracking, all I can do is use numbers from consistent sources (DataQuick has been tracking prices since '88 ).
CR, you do a great job and I acknowledge that and thank you!
All of us are trying to get as good as possible data that gets as close as humanly possible to the truth. You and I both know that is never easy.
I'm pleased to know that you confirm what my sources are telling me about San Diego home price trends.
Robert, you sad, wrinkled, hair-dyed old bullshitting dullard. You can quote your rummy old alcoholic real estate palookas all day long and claim a mainline street feed with more cred than DataQuick. We all know when real-time SD RE 411 is needed you're the go-to guy, don't we?
Ooops, no we don't.
The reason actual data is collected is so that self-deluded old has-been snake oil salesmen don't need to be relied upon for anything other than a good laugh.
Price per Sq. Ft. would be a better measure. Not perfect for SoCal, but better than median price, what with the rapid changes in the market.
A decently representative sample of that data wouldn't be too hard to collect. 10 sales per zip code, comparing apples to apples, something like that. And do it every week.
Price per square foot has it's limitations too. Lot size, amenities, age, etc, etc. Comparing apples to apples could require a lot of adjustments - which would be time-consuming, especially if you were doing it zip code by zip code.
Plus, it still doesn't measure seller incentives - which can be significant.
REO departments are a good source of price information if you can get it. For example, I know an RTC guy that told me San Diego housing prices fell an average of 40% from their peak values in 1990 to the bottom of the cycle in 1996.
This was hard data because the FTC knew what the peak values were ... and how much they had to discount the properties to get rid of them.
DataQuick, on the other hand, said San Diego housing prices fell about 15%.
Robbie, is that you I hear? We thought we heard you the other day but turns out it was just the long, drawn-out farting sound as I withdrew my meat from your old lady. Sounded just like you, old man.
If you really must bare your rotting teeth you should at least invest some of your (rapidly waning) life into learning how to string together a decent retort. A heavy weight man of the street such as yourself owes it to himself.
You're clearly not suffering from delusions of adequacy, and I'm utterly terrified at the prospect of your wrath.
arbogast, sure banks use risk modeling. The big banks have big, sophisticated, proprietary models; the medium-sized banks buy pretty decent software from outfits like S&P; the smaller banks have some "scorecards" ranging from adequate to ludicrous.
They all work as well as the data you give them and the assumptions you set. If you dutifully type in an absurdly inflated appraised value, your model will dutifully tell you the loan is low-risk. If you dutifully type in the initial payment instead of the maximum first adjustment payment, your model will ignore the effects of payment shock. And so on.
Most models (except those used by the biggest banks) don't "stress test" credit quality--that's one of those things in the draft nontraditional mortgage guidelines that may or may not survive to the final regs. Of course, lenders get to design their own "stress" parameters. Then they have to pay attention to them. I mean, everybody has been doing "rate shock" analysis for dog years, because the regulators make them do so. All God's little children were doing rate shock analysis in early 1994. And a whole bunch of God's little mortgage carry-traders fell on their swords in late 1994 anyway. Few models indicate the probability of a rush to the exits, and even if they did, it's always a "low probability event."
Look, the "inherent safety and soundness of residential mortgage lending" is just self-evident truth, not just to bankers but to everybody. And, historically, that assumption has a lot of data to back it up. It is simply the nature of a bubble that we refuse to recognize the point where current behavior has so far peeled away from historical practice that the models are no longer usefully predictive.
I do not doubt that there's at least one or two banks out there being really stupid. Nor do I doubt that "regulatory arbitrage" isn't playing its part in this context. But that Keynes quote CR posted the other day is still relevant: "A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him." Banks get ruined by low probability events, and what is more "conventional" than to discount low probability?
I hope my earlier comment wasn't interpreted as sarcastic, I was being serious. I'm surprised to see the first major metro area to have fallen below 2004 levels so soon...if SD is a harbinger of things to come, that's not good...
Tanta:
Look, the "inherent safety and soundness of residential mortgage lending" is just self-evident truth, not just to bankers but to everybody. And, historically, that assumption has a lot of data to back it up. It is simply the nature of a bubble that we refuse to recognize the point where current behavior has so far peeled away from historical practice that the models are no longer usefully predictive.
Bullseye!
Equity securities have always been a good long-term investment, but the S&P is still about 15% down from 2000. During all of 2000 and several years before, the wisdom from "financial planners" was to fund your equity mutual funds with everything you had. Also in 2000, over 99% of Wall Street analysts' opinions on individual stocks were "Buy".
You can't change the nature of markets, that is, they are logical long-term and illogical short-term.
Soon & for many months.
SD prices are below 2004 levels by $1,000...wow.
DataQuicks appreciation numbers are inaccurate, especially for San Diego.
My source is a Realtor that sells 150 homes per year in San Diego. He tells me prices are 10% to 15% lower than their August 2005 valuations.
I have other sources in the trenches that say the same thing.
Condo prices are 20% lower than peak 2005 values, and high end homes can be up to 25% lower.
These figures do not include seller incentives and increased commission payouts that are common to most - if not all - transactions today.
Sure as night follows day, psychology will turn tail and run in the other direction. And all the cheerleaders and other vested interests can hold this pyramid scheme together for only so long.
Denial rules until then however. Today, my banker - just another BofA manager who saw me - was telling me about her last client using a HELOC for a down payment on her next property. She was gushing about that.
She added prices are not going down here because of good schools. She actually said prices are down 15-20% in other places, but that won't happen here. Thats denial all right.
SD isn't "back" to '04 levels but is rather "still" at '04 levels as that is when it peaked and it has simply bee-bopped around the same level since then in a (gulp) classic "soft landing" pattern that we hope will not be a harbinger of things to come for other markets.
http://i12.photobucket.com/albums/a216/Pixbucket/SoCalRePrice2006-07_550.png
Best to all.
Robert, you really do have no idea whatsoever how idiotic you make yourself look when you say "Dataquick's marketwide numbers are wrong and my realtor friend is right", do you?
Oh look, another troll (although I agree with you on the Robert Campbell thing).
Price declines will be good for the economy. They were to high to begin with and have stifled the market. A steady, but solid decline will get the housing market moving again by 2008.
Everybody knows that 2004 is the starting point of the boom. But what of 2003 numbers? Yeah, it is slowing down but how are the current numbers relative to 2003.. 2002?
08/03 LA median = $338k
08/02 LA median = $278k
Nikki, it's not much - just a start. BTW, according to DataQuick, San Diego median prices peaked last November at $518K - so prices are off 7% from the peak in less than a year.
Robert, I have sources in San Diego too that agree with your assessment. There could be a number of reasons for the differences - like sellers and/or broker concessions. For the purposes of tracking, all I can do is use numbers from consistent sources (DataQuick has been tracking prices since '88 ).
PeePeeTime, thanks for those numbers. Yes, San Diego prices have risen dramatically for several years.
Spectator, I live in a pretty nice area and I remember being told in '90 or '91 that prices wouldn't drop here - yeah right. I think prices dropped at least 30% in nominal terms during the early '90s bust in my town. So I agree with you - these people are in denial.
Best to all.
I think all the SoCal sellers (the successful ones)are buying high-end condos in Dallas. The W Residences, Ritz-Carlton (they're starting the second tower), The Palomar, etc. My head spins at how fast these things are selling out. I live in a pretty (used to be)rural area about 25 miles southeast of downtown Dallas. In the last four years five major subdivisions have broken ground and the houses, in the 110K-220K range, sell like hotcakes. Seven years ago my school district had two elementary schools, a middle school and a high school. Today we have seven elementary schools (one under construction), two middle schools and constrcution to start in 07 of the second high school. I guess even during "busts" it's location, location, location.
we started selling out a condo building in jan 06. 2br units first sold for $360k.
we just accepted an offer for $315K and have more to go.
we're lowering prices to $300k after this next round of settlements.
thats in less than one year.
To the pathetic fake BenJones: it's so enjoyable to think that you spent considerable time thinking up your quaint little ploy, and how amused you must be now that you've set it in motion. Surely, soon, you'll be able to take over the world... oh, BenJones, your silliness amuses me ever so much. Will you marry me?
In response to the discussion above about the accuracy of dataquick numbers, I'll quote an excellent website (ror.com) I use for tracking my local market:
"It is notable that the median price reflects the mid-spending point for buyers, not appraised values. Values can increase or decrease without a notable change in the median price. For example, when values decreased 20-25% in Santa Cruz, from 1990 to 1993, the median price dipped only slightly. Historically, during that period, buyers spent roughly the same amount, but purchased a larger or better house."
Here is my question: banks have been using for a number of years sophisticated quantitative models that predict the quality of loans. Are we to believe that the banks are simply ignoring the results of their own modeling? I.e. the banks know loan quality better than anyone; are they committing suicide in the face of their own data?
CR,
CR, you do a great job and I acknowledge that and thank you!
All of us are trying to get as good as possible data that gets as close as humanly possible to the truth. You and I both know that is never easy.
I'm pleased to know that you confirm what my sources are telling me about San Diego home price trends.
Thanks again for running such a great blog.
BJ,
LOL. Once again, you prove yourself to be nothing more than a clueless troll.
Robert, you sad, wrinkled, hair-dyed old bullshitting dullard. You can quote your rummy old alcoholic real estate palookas all day long and claim a mainline street feed with more cred than DataQuick. We all know when real-time SD RE 411 is needed you're the go-to guy, don't we?
Ooops, no we don't.
The reason actual data is collected is so that self-deluded old has-been snake oil salesmen don't need to be relied upon for anything other than a good laugh.
BJ,
Now you resort to name calling. How funny. Having a bad day, are we? Or is it a bad life? LOL.
My comment still stands: you're a clueless troll. And angry as well.
My advise to you is to take a "self-esteem" class. You clearly need it.
Price per Sq. Ft. would be a better measure. Not perfect for SoCal, but better than median price, what with the rapid changes in the market.
A decently representative sample of that data wouldn't be too hard to collect. 10 sales per zip code, comparing apples to apples, something like that. And do it every week.
Duncan,
Price per square foot has it's limitations too. Lot size, amenities, age, etc, etc. Comparing apples to apples could require a lot of adjustments - which would be time-consuming, especially if you were doing it zip code by zip code.
Plus, it still doesn't measure seller incentives - which can be significant.
REO departments are a good source of price information if you can get it. For example, I know an RTC guy that told me San Diego housing prices fell an average of 40% from their peak values in 1990 to the bottom of the cycle in 1996.
This was hard data because the FTC knew what the peak values were ... and how much they had to discount the properties to get rid of them.
DataQuick, on the other hand, said San Diego housing prices fell about 15%.
Robbie, is that you I hear? We thought we heard you the other day but turns out it was just the long, drawn-out farting sound as I withdrew my meat from your old lady. Sounded just like you, old man.
If you really must bare your rotting teeth you should at least invest some of your (rapidly waning) life into learning how to string together a decent retort. A heavy weight man of the street such as yourself owes it to himself.
You're clearly not suffering from delusions of adequacy, and I'm utterly terrified at the prospect of your wrath.
arbogast, sure banks use risk modeling. The big banks have big, sophisticated, proprietary models; the medium-sized banks buy pretty decent software from outfits like S&P; the smaller banks have some "scorecards" ranging from adequate to ludicrous.
They all work as well as the data you give them and the assumptions you set. If you dutifully type in an absurdly inflated appraised value, your model will dutifully tell you the loan is low-risk. If you dutifully type in the initial payment instead of the maximum first adjustment payment, your model will ignore the effects of payment shock. And so on.
Most models (except those used by the biggest banks) don't "stress test" credit quality--that's one of those things in the draft nontraditional mortgage guidelines that may or may not survive to the final regs. Of course, lenders get to design their own "stress" parameters. Then they have to pay attention to them. I mean, everybody has been doing "rate shock" analysis for dog years, because the regulators make them do so. All God's little children were doing rate shock analysis in early 1994. And a whole bunch of God's little mortgage carry-traders fell on their swords in late 1994 anyway. Few models indicate the probability of a rush to the exits, and even if they did, it's always a "low probability event."
Look, the "inherent safety and soundness of residential mortgage lending" is just self-evident truth, not just to bankers but to everybody. And, historically, that assumption has a lot of data to back it up. It is simply the nature of a bubble that we refuse to recognize the point where current behavior has so far peeled away from historical practice that the models are no longer usefully predictive.
I do not doubt that there's at least one or two banks out there being really stupid. Nor do I doubt that "regulatory arbitrage" isn't playing its part in this context. But that Keynes quote CR posted the other day is still relevant: "A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him." Banks get ruined by low probability events, and what is more "conventional" than to discount low probability?
I hope my earlier comment wasn't interpreted as sarcastic, I was being serious. I'm surprised to see the first major metro area to have fallen below 2004 levels so soon...if SD is a harbinger of things to come, that's not good...
Tanta:
Look, the "inherent safety and soundness of residential mortgage lending" is just self-evident truth, not just to bankers but to everybody. And, historically, that assumption has a lot of data to back it up. It is simply the nature of a bubble that we refuse to recognize the point where current behavior has so far peeled away from historical practice that the models are no longer usefully predictive.
Bullseye!
Equity securities have always been a good long-term investment, but the S&P is still about 15% down from 2000. During all of 2000 and several years before, the wisdom from "financial planners" was to fund your equity mutual funds with everything you had. Also in 2000, over 99% of Wall Street analysts' opinions on individual stocks were "Buy".
You can't change the nature of markets, that is, they are logical long-term and illogical short-term.
dc1000-Where is that?
NW Washington DC in a marginal area.