Boomberg: End of CA Housing Decline in Sight?

Here’s a highly encouraging headline from Bloomberg: “California's Discount Foreclosure Sales Point to Housing Bottom.” A bottom? Bloomberg may be on to something.  It reports that home sales in California rose for three consecutive months starting in April. That’s the first time that’s happened in 30 months. Economy.com’s Mark Zandi says the news “signals the beginning of the end.”

Why the strength in sales? Banks have finally figured out that they need to cut prices big time to unload foreclosed properties, so prices are off anywhere from 40% to 60% or more from their peaks in markets with high foreclosure rates. Foreclosures accounted for 75% of homes sales in Merced County in June, 72% in Stanislaus County, and 66% in San Joaquin County. ``Half off in a decent neighborhood is close to the bottom,'' says PIMCO’s Bill Gross. Buyers are often investors who pay so lttle they can rent out properties for 10% of the purchase price. Inventory statewide is down to 7.7 months, from 10.2 months a year ago. ``We've found the bottom,'' says the head of one local broker. ``The financial institutions have seen the light and are allowing the market to find its own level.''

Even Karl Case, he of the Case-Shiller home price index so beloved of the bears, allows that “things are beginning to happen.”

So sales are up, inventories down, and prices stabilizing—albeit at low levels. That’s what the end of a long slide figures to look like. . .

Comments

[ArnoldCountry:]

Wishful thinking... the wave of option arm resets is on the horizon and the litigation is just now starting to get into full swing... couple that with the buckling of banks... rethink this around January 09 and tell us what you think.

2008 Aug 01 09:11 AM

[Can'tSpotAB...:]

Well I'm glad to hear that houses in the ex-burbs far away from anything are finally selling at 40 - 60% off in California. That is starting to show some pricing reality. Unfortunately, here in the midwest sellers are still trying to cling to 2005 pricing. Few properties are selling in this market and those that do are usually 15 - 25% lower than 2005 levels. The price to rent ratio is still historically skewed. Prices need to fall at least another 25% here before they will be in line with historical norms. There is also a large amount of foreclosed inventory that is NOT on the market (usually held by smaller regional banks) since attempting to sell would further depress the market and the banks involved would have to realize the loss on their balance sheet.

This is nowhere near over yet. Of course everyone is still trying to call the bottom. The bottom cannot be reached until the financial players fess up on their balance sheets. Until that happens, if ever, we will continue to muddle along with American style socialism.

Here's the easy way to tell if the real estate market is correctly priced.

I can buy a rental house with 20% down and experience positive cash flow on DAY ONE.

We are still a long way from that happening.

2008 Aug 01 09:21 AM

[San Diego D...:]

Sure at 50% off home sales are increasing. But, there is another wave of foreclosures ahead. This time it will NOT be sub-prime loans! Starting late next year, ARM loans will start to adjust. This will impact middle to upper end priced homes.
For a very good article on this, by a major San Diego mortgage loan banker, one should visit www.brokerforyou.com/b.../ and look at the 7-17-08 post titled: San Diego Real Estate … The Coming Next Wave of Foreclosures

2008 Aug 01 09:55 AM

[Griz:]

My neighbor just listed his boat for sale, three homes on the street are in foreclosure, my employer is freezing hiring and is getting ready to do layoffs, I see more and more luxury cars sporting for-sale signs on my way to work, my city is cutting back on services... No, I don't live in Riverside or San Bernadino, I live in South Orange County in a $1M+ neighborhood where many of the homes were financed with alt-a's (a much larger asset class than sub-prime with most of the resets yet to come). The second wave of pain (via the negative feedback loop) is just about to start and it's not going to be pretty.

2008 Aug 01 12:09 PM

[foreclosure...:]

This looks like good news and it might be for some markets. But, just as the other commenters suggested, the wave of Option ARM resets are just over the horizon. But at least banks are learning that they have to offer properties at prices people are willing to pay now -- not what they were willing to pay in 2006 at the heights of the boom.

2008 Aug 01 12:27 PM

[Still Renting:]

Hope none of those buyers are state employees. Arnold had some interesting words - and actions - in the last couple of days.

2008 Aug 01 03:25 PM

[Skeptical Ben:]

Buyers are often investors who pay so lttle they can rent out properties for 10% of the purchase price.

That is a joke. Give me one example in California. If you run the numbers, mortgage as a non owner occupied, property taxes, closing costs, no way even at today's discount prices can you rent a single family home for profit, certainly not as described above. Bunk.

2008 Aug 04 09:27 PM