brynaw

Foreclosures Are Skyrocketing

<i>Real Estate is not a commodity.</i>

David S,

Do you mean to imply that "All Real Estate is Local"?

In all seriousness, in the nearly 40 years I've been alive, California real estate has been significantly more expensive than most other parts of the country. Even so, it has NEVER come close to the stratospheric heights it has achieved over the past 6 years, when inflation-adjusted and measured against its supporting economic fundamentals (rents and incomes). It's true that big, desirable cities with low unemployment and high job growth (S.F., L.A., NYC, Boston, Miami, etc.) will *always* demand a certain premium over rural and not-so-desirable areas. However, this doesn’t mean that no price is ever too high to live there, or that prices cannot correct because “everyone wants to live in ______”.

California’s long-term affordability stats have been well below the rest of the country for a long time, this is true. Whereas in the past, the long-term median price-to-HH income ratio might be 3:1 in “flyover country”, in CA, it was probably closer to 5:1 (pre-bubble). Rents have also been persistently higher in CA by a similar margin, which indicates that (a portion of) higher prices is *not* speculative in nature, but a true “destination” (or NIMBY) premium. The problem today is, prices are ridiculously out of line with BOTH rents and incomes, even accounting for that so-called "sunshine premium". The CA median price-to-HH income ratio today is close to 11:1, and rents cannot cover more than 50% of carrying costs of a new mortgage (assuming a conventional, non-toxic loan) and a typical down payment.

I should also mention that part of CA’s high pre-bubble price-income ratio is probably due to NIMBYism and illegal immigration, as much as a “sunshine” or destination premium. 40 years ago (before UBLs, Prop. 13, anti-development zealots, Reagan immigration amnesty, etc.), the price-income ratio here was about equal with the rest of the country –about 3:1. Explosive population growth among illegals of course has increased real housing demand, while virulently anti-market forces have artificially constricted supply. So, arriving at a long-term price-income equilibrium ratio closer to 5:1 does not seem too unreasonable for today's California. But 11:1? That looks a bit toppy and unsustainable, even by CA standards.

Bottom line: when the fundamentals are this far out of whack, prices must eventually revert to the mean, either by general inflation, or by nominal price drops, or (likely) both. Either way, a house purchased today --or very recently-- is virtually sure to lose substantial real value --especially here in LA-LA land.

Foreclosures Are Skyrocketing

FYI: Foreclosures now greatly outnumber sales in San Bernardino &amp; Riverside Counties.

Foreclosure rate spikes in region
www.pe.com/business/lo...

Riverside County recorded 4,550 foreclosure filings last month, which was more than four times the 1,066 filings recorded in May 2006.

San Bernardino County was the seventh-ranked county in foreclosure activity, with one foreclosure last month for every 166 households, or a total of 3,633 filings, up more than seven-fold from 513 a year earlier

Southland home sales hit 12-year low
www.latimes.com/busine...

Most of the erosion in May’s sales appeared in the lower-priced regions, particularly the Inland Empire. In Riverside County, sales fell 45.4% to 3,307 year over year, while in neighboring San Bernardino County, sales plunged 46.5% to 2,220.