Comments on: One Dozen Observations on Residential Housing http://alephblog.com/2008/04/30/one-dozen-observations-on-residential-housing/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Fri, 25 May 2012 21:31:47 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: xyzhttp://alephblog.com/2008/04/30/one-dozen-observations-on-residential-housing/comment-page-1/#comment-17527 xyz Wed, 30 Apr 2008 23:52:51 +0000 http://alephblog.com/?p=672#comment-17527 San Francisco as an area is unusual: SF itself is still extremely high and somewhat stable at this height as well as Marin County to the north. The surrounding closer suburbs have two characteristics: Still high, but pockets of (crime-ridden) housing low in value, ie Richmond and Oakland in Alameda across the Bay where you can find bad houses for as little as $100K. Suburbs further out in Contra Costa the prices are coming down seriously, like Stockton, but still overpriced compared to other areas of the country. And remember wages do not reflect the same differential as housing costs so wages are still relatively low compared to housing costs. San Francisco as an area is unusual: SF itself is still extremely high and somewhat stable at this height as well as Marin County to the north. The surrounding closer suburbs have two characteristics: Still high, but pockets of (crime-ridden) housing low in value, ie Richmond and Oakland in Alameda across the Bay where you can find bad houses for as little as $100K. Suburbs further out in Contra Costa the prices are coming down seriously, like Stockton, but still overpriced compared to other areas of the country. And remember wages do not reflect the same differential as housing costs so wages are still relatively low compared to housing costs.

]]> By: rich thttp://alephblog.com/2008/04/30/one-dozen-observations-on-residential-housing/comment-page-1/#comment-17523 rich t Wed, 30 Apr 2008 16:07:46 +0000 http://alephblog.com/?p=672#comment-17523 Re. the OFHEO vs. Case-Shiller topic, the fact that CS only covers a subset cities does not explain the discrepancy. Here in San Diego, for instance, OFHEO shows a decline of about 5% whereas CS shows almost 20% (it's actually 24% but I am disregarding the last two months to line it up with OFHEO). It is pretty clear to me that the discrepancy comes from the fact that OFHEO only measures homes bought/refid with conforming loans, and thus throws out the properties at greatest risk of becoming must-sell inventory. C-S measures all sales (of detached homes). I don't know about nationwide but I can comment on San Diego, with which I am extremely familiar. Anyone who says we are near the end of the bust here in SD is indulging in fantasy. - Volume (the best leading indicator for local RE) is absolutely dismal and there is a glut of inventory -- most recently 10 months' worth of resale inventory. This is at the typical seasonal low in months of inventory, so it's probably closer to 11 or 12 months deseasonalized. This level of inventory is deep bear market territory for SD. - Default notices have been at all time highs in recent months, easily more than doubling the rate of default we saw in the 6-year SD housing bust in the early 90s. (This is adjusted for ensuing population growth). At current processing rates, that are just defaulting now will not actually hit the market for at the very least 6 months on average... and again, we have JUST seen the all time default records. Defaults could drop by 2/3 and we'd still be in bear market territory (as measured by the last bust). - YOY job growth just went negative for SD -- something that never happened in the 2001-era recession. And the jobs being created are typically lower paying than the jobs being lost. - Against this backdrop, SD homes still remain substantially overpriced based on their historical relationship with incomes and rents. It's still much cheaper to rent than buy (even if you don't count the price depreciation as an expense... if you do then it's WAY cheaper to rent). And it remains tough for the typical person to buy at these levels without getting wacky loans or settling for an inferior property. - Finally, consider that the prior bust lasted for 6 years, and that was after a boom that was tiny in magnitude and duration compared to the more recent boom. I don't know exactly what inning this is for SD... if I had to guess I'd say 4th or 5th. But I just wanted to note that the theory (oft-advanced by local RE pundits) that SD in near the bottom is completely indefensible and lacking in factual basis. I have a tough time believing it's any different in the rest of SoCal... as for the nation in aggregate, I don't know, but I thought a little local color might help people puzzle things out. Re. the OFHEO vs. Case-Shiller topic, the fact that CS only covers a subset cities does not explain the discrepancy. Here in San Diego, for instance, OFHEO shows a decline of about 5% whereas CS shows almost 20% (it’s actually 24% but I am disregarding the last two months to line it up with OFHEO).

It is pretty clear to me that the discrepancy comes from the fact that OFHEO only measures homes bought/refid with conforming loans, and thus throws out the properties at greatest risk of becoming must-sell inventory. C-S measures all sales (of detached homes).

I don’t know about nationwide but I can comment on San Diego, with which I am extremely familiar. Anyone who says we are near the end of the bust here in SD is indulging in fantasy.

- Volume (the best leading indicator for local RE) is absolutely dismal and there is a glut of inventory — most recently 10 months’ worth of resale inventory. This is at the typical seasonal low in months of inventory, so it’s probably closer to 11 or 12 months deseasonalized. This level of inventory is deep bear market territory for SD.

- Default notices have been at all time highs in recent months, easily more than doubling the rate of default we saw in the 6-year SD housing bust in the early 90s. (This is adjusted for ensuing population growth). At current processing rates, that are just defaulting now will not actually hit the market for at the very least 6 months on average… and again, we have JUST seen the all time default records. Defaults could drop by 2/3 and we’d still be in bear market territory (as measured by the last bust).

- YOY job growth just went negative for SD — something that never happened in the 2001-era recession. And the jobs being created are typically lower paying than the jobs being lost.

- Against this backdrop, SD homes still remain substantially overpriced based on their historical relationship with incomes and rents. It’s still much cheaper to rent than buy (even if you don’t count the price depreciation as an expense… if you do then it’s WAY cheaper to rent). And it remains tough for the typical person to buy at these levels without getting wacky loans or settling for an inferior property.

- Finally, consider that the prior bust lasted for 6 years, and that was after a boom that was tiny in magnitude and duration compared to the more recent boom.

I don’t know exactly what inning this is for SD… if I had to guess I’d say 4th or 5th. But I just wanted to note that the theory (oft-advanced by local RE pundits) that SD in near the bottom is completely indefensible and lacking in factual basis. I have a tough time believing it’s any different in the rest of SoCal… as for the nation in aggregate, I don’t know, but I thought a little local color might help people puzzle things out.

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