The average home price in California is down 32% in April of 2008 versus April of last year. Here is the whole piece from Bloomberg:
"May 23 (Bloomberg) -- California home prices tumbled 32 percent in April from a year earlier as ``distressed'' properties and a lack of financing cut demand, the state realtors group said.
The median existing home price fell to $403,870, the California Association of Realtors said in a statement today. Sales increased 2.5 percent, ending 30 months of consecutive year-on-year declines. Homes priced under $500,000 accounted for 64 percent of sales compared with 40 percent a year earlier.
California had the second-highest U.S. foreclosure rate in April, one for every 204 households, and the most foreclosure filings for the 16th consecutive month, RealtyTrac Inc., a seller of default data, reported on May 14. Sales increased in northern and southern California last month as buyers purchased discounted properties that had been in some stage of default, DataQuick Information Systems said this week.
``Both tighter underwriting standards and the ongoing effects of the credit/liquidity crunch continue to constrain sales,'' William Brown, president of the association, said in the statement."
My Take:
Isn't this staggering? Imagine buying a home and realizing a year later that the biggest investment you ever made in your life is now worth a third less.
Whats scary is prices are still deteriorating and we still can't see a bottom. The reason California is having such a hard time is most of the houses there are priced over $417,000 which puts them in the jumbo loan category.
No bank wants anything to do with jumbo loans because they consider them to be more risky. This is why the interest rates on a jumbo are now around close to 8%. Many Californians stretched to buy these houses by using loan products like subprime which are no longer available in today's mortgage market.
This spells disaster if you bought a home with a subprime product and it cost you $417,000. I predict many of these homes will not be sold until they get underneath the 417k category.
You need to assume most of these buyers don't have the money to short sell these houses at $417,000 or below, so expect most of them to walk away are get foreclosed on.
The reason I say this is because these buyers wouldn't have used a subprime loan if they had the cash for a solid downpayment. Anyone with the money to really afford such a house would have used a conforming loan.
When you realize many of these houses are now in the red by $100,000 or more, its easy to see how this will end very badly.
The fact that 64% of home sales in '08 were under $500,000 in the article above versus only 40% last year is starting to bear this out. Expect the under 500k number to continue to rise.
Bottom Line:
Housing prices will continue to decline in California because there are still many more subprime loans that still have not reset. As a result, there will be more foreclosures which will result in higher inventories. This combined with tougher lending standards will continue to push prices down further in 2008 and beyond.
I still wouldn't be buying foreclosures in California. As long as prices are accelerating to the downside, you will be catching a falling knife.
This is an easy way to get cut!
5 comments:
"I still wouldn't be buying foreclosures in California. As long as prices are accelerating to the downside, you will be catching a falling knife."
Unfortunately many of my peers, knife catchers, that were too late to buy when prices peaked think that today's prices are a bargain. They are jumping at the chance to buy at a discount from peak and even buying investment properties.
The nice thing about the dot com bubble by comparison is that it was over quickly. Housing by nature is slow and with the banks dragging their feet the actual losses in a more liquid market would be staggering.
I believe the actual losses will be realized, but the buyers must first understand that a discount to 2005 prices isn't really a discount. We are far from a bottom out here, and we won't hit it until the numbers (income to price\payment and rent to payment ratios)return to normal. I won't even get into the interest rate hike scenario.
Thanks for the daily updates.
oppor
totally agree
Many people will be banging their head against a wall years from now buying at these dicounted levels.
There was an 85% increase in home prices nationally during this bubble. It was even higher in the bubble areas. Buying at a 30% discount doesn't sound too intelligent after such a runup.
Rates will be going higher( like you just said) as inflation gets out of control.
The worst is yet to come.
These numbers are nothing less than catastrophic. Here in Cali, there are For Sale signs everywhere.
The state's basically bankrupt and they're thinking about cutting the education budget by 10%, raising sales tax, and doing a whole host of things to screw everybody.
Unfortunately, the much-publicized bankruptcy of the city of Vallejo is a microcosm of the state's general problems. They've relied on housing taxes so much over the years - and then spent all the cash - that the spillover problems here are going to be really bad.
In fact, I would predict one of the unpleasant and forever-lasting side-effects of the recession will be wholesale increases in sales tax across the country. I'm from the UK, where it runs at 17.5%, and the US could be heading that way in just a couple of years.
Minton
Either they increase taxes or cut bidgets. Wow I didn't realized sales taxes were 17%.
Going forward we may all living more like the brits in this country.
Smaller cars, higher taxes, and national health care. America is on for one rude awakening.
There will be a new standard of living that will require discipline and sticking to a budget.
The sooner we reset to a cheaper standard of living where houses aree affordable the better IMO.
No more spending like drinken sailors unless you have the money to do it!
We live in San Rafael, CA and considered buying a condo (all we could afford) after selling our home in New Orleans. However, everything is still too expensive and we also think prices will continue to fall. We will continue to sit on the sidelines waiting this out. Thanks for your blog - great information!
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