Coaching Businesses and Life

According to DataQuick: “Bay Area home sales remain at two-decade low”

It will take time to stabilize the real estate market but I see a lot has happened these last three months alone. Prices have declined a lot already and new sellers are much more careful when pricing homes. It’s about time, what took you so long?

The opening line pretty much captures the mood of this market: “The waiting game between Bay Area buyers, sellers and lending institutions continued last month as sales dipped below 4,000 for the second month in a row,…”

“”The lending system has been in lockdown mode the last half year, … Sure there are price declines out there,… But it’s not realistic to think many sellers are going to drop a $600,000 or $700,000 asking price down to $550,000 just so a buyer can finance with a conforming loan.” What a good point but is it really unrealistic? What about people who have to move, or are relocated or what about death in the family and divorces? How much these situations have impacted real estate in the past.

This is the news I’ve been waiting for: “The median price paid for a Bay Area home was $548,000 last month, down 0.4 percent from $550,000 in January, and down 11.6 percent from $620,000 in February last year. Last month’s median was 17.6 percent lower than the peak median of $665,000 reached last June and July.” Even though we are talking about the median price which doesn’t reflect everything across the board, it still points to prices lowering, one way or another.

Meanwhile, real estate offices around town play a bloody game of wait and see. It’s survival of the fittest or survival of the ones who attract and keep the most agents. Right now, the only alternatives for any office to survive is to find enough agents to pony up enough desk fees to keep the offices open. Ah, wonderful california who forces agents to work with a broker. I see the pros and the cons.

The LA Times Blog had a bunch of numbers that shed light as to what is happening here. Click here to read it.

In a nutshell:

Homes sold in 2007 dropped 34.9% from 2006 levels.
Sales of single-family homes in December 2007 were down 51.6% from a year before.
Median price of homes sold in December ’07 was $480,000, a decline of 14.3% from the December ’06 median of $560,000.
Total 2007 sales, of 6,271 single-family homes, is well below the previous low — 7,774 in 1992. Annual Valley sales in this cycle peaked at 13,878 in 2003.

Of course this gets a few people into doom mode but it really isn’t doom at all. We had unsustainable growth rates for a few years, now it’s the counter swing. As with anything in life, the swing to the right is equal or less to the swing to the left.

Everyone talks about when the market will correct itself but few talk about what is the correct level.

With affordability gone out the window, I met many sellers putting their $1.5 to 2 million homes on the market saying they knew their children could not afford a home in this market. Indeed, not even those same sellers could have afforded their homes had they bought a year ago.

The La Times had a good article that reflected on how far this market went and how unsustainable it became for many. Thanks Calculated Risk.

Indeed, consider in 2002, the median price of a home around Los Angeles was $270,000 and the median homeowner’s income was $65,000. And that with a $50,000 down payment, the annual cost of that house would add up to about 33% of the median household’s income — just under the 35% mark that the Federal Housing Administration calls the upper limit of “affordable.” Now take into consideration this, in 2006, the cost of that same house doubled, to $540,000 but median income rose a paltry 15%. So today that same set of costs come to 60% of gross income and it is not uncommon to hear some households sinking up to 75%! Yikes! Three quarters of what is left in your bank after taxes ad other fun stuff goes to your home. Who exactly can afford this? Sometimes it feels someone tried to create a generation of mortgage paying people.

Yes prices will come down. Yes prices are coming down. Yes prices need to come further. Even of they come down 33% it still would make for a nice appreciation curve. And don’t listen to overly-optimistic people telling you the market will go up soon. It can’t. Simply said, it has plateaued and hit the ceiling. There is a certain point when it becomes unaffordable.

What do you get when home prices are high, loans are hard to get by and everyone wants to wait it out? A stalemate!

Calculated Risk picked up on DataQuick’s analysis of the market in California.

I thought by now sellers would have been more receptive to the fact that loans are very, very hard to come by. No too many people can afford to clunk down 6 months deposit, another 6 month back up and 20% down. Even with that, I have grade A people turned down. The problem is that at this stage, no matter what price you set, loans are difficult to come by and lenders don’t want to take a risk in a down market.

“The Bay Area’s housing market remained in a bit of deep freeze in November, when sluggish demand kept sales at a two-decade low for the third straight month. Prices continued to hold up best in the region’s core markets, while some outlying areas posted more double-digit annual declines, a real estate information service reported.”

“Sales have decreased on a year-over-year basis for 34 consecutive months. Last month was the slowest November in DataQuick’s statistics, which go back to 1988. Until last month, the slowest November was in 1990, when 6,015 homes sold.”

Hindsight is always 20/20 but this was predictable. If asking prices are high, plus the lending industry is in upheavals (no one wants to lend money in a market going down and be stuck with deflated home values), plus both sellers and buyers are waiting it out equals a stalemate.

Until prices stabilize, become a little more affordable, nothing will happen and Realtors will play the see-who-can-last-the-longest game.

Dataquick shows us Southern California’s real estate activities are the slowest in 20 years over on Calculated Risk.

“… Sales were the slowest for a November in at least 20 years and the median sale price posted a record 10.3 percent year-over-year decline …”

“That was up 2 percent from 12,913 sales in October, and down 42.7 percent from 23,005 in November last year, according to DataQuick Information Systems.”

Indeed, old news new month.