California Home Sales Revive, But Not Without Intense Pain

First Post!

House Sales in California. Article from WSJ on current situation there.

online.wsj.com/article/SB122462963345656289.html

They are now selling for close to nominal 1993 prices. If we see a drop like that here the screaming will be a lot louder than 1000 oap’s yesterday. Negative equity for anyone who bought in the last 10 years :open_mouth:

I have to ask what the LTV on that refinance. That sounds completely insane.

There’s the key. In the US you can see just how much is owed on a property and who has been a silly billy credit binger. Here, who knows? Everything’s hidden.

Some of the stats here are really jaw-dropping, almost unbelievable.
I think (open to correction) that the Finish and Dutch busts were possible 50% or so, adjusted for inflation, but 60% in a state the size of California (40m people & 5th / 6th largest economy in the World on its own) is really amazing.

Prices down 66% from peak in Merced.
State-wide drop of 34% from previous year
Forecast of 60% state-wide drop from peak
45% of loans were sub-prime in Merced.

Merced is a Bay Area fringe city. Kind of like Enniscorthy in the Dublin commuter belt. Its a sleepy ag town in the middle of the Central Valley. No economy to speak of.

The Bay Area did not have as big a run up in prices as So Cal because it started at a higher base because of the dot.com driven property boom in the late '90’s. So the crash here has been slower to take off. Dollar adjusted median sale prices last month fell to 2000/2001 levels. My guess is that we will get back to adjusted 1997/98 levels before this is all over.

So when the bust is fully played out property will have returned slightly over inflation over the last 15 years.

How can a 66 year old get a loan of $376,000 on his PPR and only pay back on an interest only mortgage?

I know the banks went crazy here in Ireland but please tell me that they weren’t this insane?

My thoughts exactly.

A question to ask the man ultimately responsible for regulating California mortgage brokers during the ramp up, Kevin Shelly.

en.wikipedia.org/wiki/Kevin_Shelley

A crap San Francisco Supervisor, a crap State Assembly Member and a really crap Secretary of State. The wiki article does not even begin to give a real feel for just how sleazy and incompetent he was.

A few factors are very different in the US vs. here, should be borne in mind when reading above article:

  • the banks here were irresponsible, the banks in th US were crazy (because they securitised all the s…t so they didn’t care how bad it was)

  • mortgages in the US are non-recourse, if you’re in significant negative equity it pays to walk away from the mortgage, the bank can’t chase you. This leads to massive levels of default in a downturn, with consequent firesales by banks. You could argue though that this factor would just speed up the return to a clearing price, not ultimately change the clearing price.

WV

Merced and its ilk was the classic edge case. The norm was not quiet so extreme. I found myself shaking my head in utter disbelief at stories I heard in the UK and IRL more times over the last 10 years than in the US. And I’ve heard some real doozies in the US.

The whole buy-to-let, 125%, interest only short term, situation in the UK and IRL has American shaking their heads in disbelief. Then you explain the complete lack of any transaction information, the huge tax costs, no property taxes, low disposable income etc etc in Ireland and they starting thinking I am making it all up.

This is where this bubble will be different. First mortgages tend to be non-recourse but refinanced, seconds and HELOCs tend to be recourse. Plus they changed the bankruptcy laws a few years ago so the whole dynamic of personal bankruptcy has changed. More likely to ditch the house first now rather than defend it till the end. So the repossession rate will be a lot higher this time around.

Two years ago this month we met an American couple on holiday in Italy. She was a Californian real estate agent so we got talking about property. I gave her the low-down on the Irish experience and she just sat there gobsmacked. Finally she grinned at me and said “You wouldn’t be telling me one those famous Irish yarns now would you?”.