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California Home Prices Drop 41% on Foreclosures!


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Guest ericopoly

The market is clearing?

 

The California price drop led to an 83 percent increase in the number of houses sold in February from a year earlier, the state association said. The number of existing, single-family detached homes sold jumped to 620,410 on an annualized basis, up from 338,970 a year earlier. Sales dropped 0.8 percent from January.

 

The number of months needed to deplete the supply of homes on the market at the current sales pace dropped to 6.5 months from 15.3 months a year ago.

 

 

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There are lies ,dam lies and then there are statistics.  The numbers which get the headlines are the avg home price declined by x%. The lie is in the average, the basket that traded last year  was dramatically different than the basket of homes that traded this year. This year the homes that traded were largely below median price homes that were sold on distressed terms ie. subprime foreclosures. If one really starts to mine the data one sees that in every mkt  the lower end of the mkt went up a lot more and has fallen a lot more in value since the year 2000. This was almost entirely a result of the freely available credit which was made to borrowers who had not  historicaly participated in the housing mkt. The decline in residential real estate values has NOT been as dramatic for those areas of the mkt where the extreme excesses caused by the credit distortions did not take place. The  residential real estate mkt is by no means monolithic which leads me to believe that some thoughtfull analysis of the the contenets of the RMBS securities is going to make some players VERY rich. The participants who have the best information are the traditional mortgage issuers.

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The decline in residential real estate values has NOT been as dramatic for those areas of the mkt where the extreme excesses caused by the credit distortions did not take place.

 

You are right about the MIX in housing sales being different.

 

However, pretty much every house in CA has experienced credit distortions.  It's just taking longer for those houses in more desirable neighborhoods to wind those distortions down, since their owners presumably have more assets or cushion before they have to "face the music".

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You are right the credit boom caused all real estate prices to increase in California and pretty much every other real estate mkt around the globe. The rising tide lifted all boats however the little boats get bounced around more than the large battleshps. Homes that were selling in CA for 1 million plus in 2000 doubled in value on avg trough to peak homes that sold for 200k tripled in value today the price disparity has pretty much disappeared the decline in the lower end of the mkt has eliminated that price differential. Given that the low end of the mkt appears pretty darn healthy all things considered and given it is 1st time buyers who really fuel the entire mkt. I predict the bear mkt in California real estate is pretty much over. I agree with you however that there will be some interesting buys in the trophy property mkt in the next 6 months because the dynamics are different and the motivations of the sellers may be different. Sell a trophy property to raise cash to invest in distressed deal that pays off 10 fold can be a pretty dramatic motivator.

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Guest ericopoly

You are right the credit boom caused all real estate prices to increase in California and pretty much every other real estate mkt around the globe. The rising tide lifted all boats however the little boats get bounced around more than the large battleshps. Homes that were selling in CA for 1 million plus in 2000 doubled in value on avg trough to peak homes that sold for 200k tripled in value today the price disparity has pretty much disappeared the decline in the lower end of the mkt has eliminated that price differential. Given that the low end of the mkt appears pretty darn healthy all things considered and given it is 1st time buyers who really fuel the entire mkt. I predict the bear mkt in California real estate is pretty much over. I agree with you however that there will be some interesting buys in the trophy property mkt in the next 6 months because the dynamics are different and the motivations of the sellers may be different. Sell a trophy property to raise cash to invest in distressed deal that pays off 10 fold can be a pretty dramatic motivator.

 

I know you are speaking in general terms, but my parents in Los Altos Hills did not see their home appreciate at all this decade, even at the peak two years ago. 

 

That's because... in 2000 their house was distorted by the tech bubble instant millionaires.

 

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ericopoly of course I am speaking about averages residential real estate is an intensely local mkt. It is for this very reason I believe the RMBS pools will make some INFORMED buyers rich. Go out and get real appraisals on the underlying properties then go out and do real credit checks on the owners make some realistic assumptions about defaul rates combine this with very low cost borrowing because of the govt. partnership and I see literaly billions of dollars of potential profits picking up the right toxic assets at the right price. It was interesting to remember Warren commenting that he would be a buyer of RMBS securities if he could buy them with govt. financing terms I wonder if he will be one of the participants

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Guest ericopoly

ericopoly of course I am speaking about averages residential real estate is an intensely local mkt. It is for this very reason I believe the RMBS pools will make some INFORMED buyers rich. Go out and get real appraisals on the underlying properties then go out and do real credit checks on the owners make some realistic assumptions about defaul rates combine this with very low cost borrowing because of the govt. partnership and I see literaly billions of dollars of potential profits picking up the right toxic assets at the right price. It was interesting to remember Warren commenting that he would be a buyer of RMBS securities if he could buy them with govt. financing terms I wonder if he will be one of the participants

 

Yes, in that MSNBC interview a few weeks ago I believe Buffett said he is more interested as a buyer of the toxic assets of the banks more than anything else they hold.

 

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One other piece to consider in the California housing market is that there are some very large developments that were mothballed in various stages of completion, especially in the I-15 corridor.  I think this skews the inventory numbers as many of the homes are done, but not on the market.

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