Normally housing downturns are preceded by downturns in the economy. This one wasn't because of the asset bubble. Houses became commodities rather than homes. Speculation, fraud and investor exuberance inflated the prices far beyond normal rational levels. Like all asset bubbles, it burst and prices are returning to normal levels. But what about the spillover to the rest of the economy?
Now that this has spread to the rest of the economy will there be a 2nd wave to this housing bust. The first wave is the deflation of the bubble prices currently hitting us. Once the prices return normal levels, will a 2nd wave drive them even lower? This second wave, driven by a severe US recession could take prices far lower than those normal levels. A severe US recession would put millions out of work. Many of those people are in homes they can easily afford right now, but they might lose them if they lost their jobs.
At this point a recession is all but a certainty. In California were in it, and have been for a while. The argument amongst the so called experts is now, how bad will it be. Goldman Sachs has just announced that they are now forecasting a much deeper recession that they expected earlier.
If you read the news all you know about the job losses. They are not just in housing and banking anymore. They have spread to manufacturing, service, government and just about every other sector of the job market. Auto makers, airlines and even Starbucks are laying off.
The talk now is about the coming wave of Prime and ALT A defaults. Will the talk next year be about the coming wave of defaults due to job losses. If you lose your job now, finding another will be difficult. The competition, even for menial jobs is fierce. They are getting thousands of applicants for jobs at Walmart.
Corona just announced it is eliminating 112 jobs due to budget shortfalls. The shortfalls are a result of lower property and sales tax revenues. Lake Elsinore also just had a round of layoffs. Remenber the good old days when a government job was a safe job? I'm not sure there are any safe jobs any more.
Sorry if this post is a little too "tin foil hat" for your taste. But the news these days does not fill me with optimism about the future. I think the government is far too optimistic about this crash. I don't know if they are just putting forth a brave happy face to calm people. Or if they really actually think this will be over in a year or two.
I think the US will be changed forever after this. Hopefully for the better. We have become the nation of the quick buck. A nation trying to keep up with the Jones's. And a nation of perpetual debtors. Maybe this is what we need to snap us back to reality.
Land, way worse price declines than homes.
From the Wall Street Journal,
As it struggles through the housing crisis, home builder D.R. Horton Inc. is unloading land across California at big discounts.
Horton two weeks ago sold about 2,000 house lots in Desert Hot Springs ... for $7.8 million, according to county records. William Shopoff, a land investor ... estimates Horton paid about $110 million for the land before spending on improvements.
Who knows how much they spent on improvements. But even if they spent nothing that sale would be 7 cents on the dollar. YIKES!!
As it struggles through the housing crisis, home builder D.R. Horton Inc. is unloading land across California at big discounts.
Horton two weeks ago sold about 2,000 house lots in Desert Hot Springs ... for $7.8 million, according to county records. William Shopoff, a land investor ... estimates Horton paid about $110 million for the land before spending on improvements.
Who knows how much they spent on improvements. But even if they spent nothing that sale would be 7 cents on the dollar. YIKES!!
Before and After shots
Remember the good ole days. When everyone had a big house, a convertable vette and a Hummer?
Then something unheard of happened. The banks actually expected people to pay for it. The nerve! Well paying for it was out of the question for most average folks. And that brings us to the "after" picture.
The home looks so sad now. No Vette, no Hummer, no occupants. This house, 6347Peach Ave in Corona was purchased new in 2002 for $291K. In 2004 it sold for $560K and now it's owned by the bank. REO price is $355K. Still about $80K too much in my book. I wonder if the home paid for those fancy cars via HELOC or refis??
Then something unheard of happened. The banks actually expected people to pay for it. The nerve! Well paying for it was out of the question for most average folks. And that brings us to the "after" picture.
The home looks so sad now. No Vette, no Hummer, no occupants. This house, 6347Peach Ave in Corona was purchased new in 2002 for $291K. In 2004 it sold for $560K and now it's owned by the bank. REO price is $355K. Still about $80K too much in my book. I wonder if the home paid for those fancy cars via HELOC or refis??
The plunge is spreading
I've posted about sub $100 sq/ft listing and then sub $80 sq/ft listings. But those sub $80 sq/ft listings were for the most part in areas that most of us would rather not put down roots. They have been primarily in far flung areas like Hemet, Perris, San Jacinto and Moreno Valley. They are moving though. Like ripples on a pond sub $80 sq/ft listings are creeping out. There are loads of them popping up now in Murrieta, and it probably won't be long before they start creeping into Temecula, Riverside and Corona.
Murrieta may not be your idea of the perfect town but it's much better than most of the other cities that have gone sub-$80. It is a little far off the beaten path and I would not recommend anyone move there if they cannot find work locally or within a reasonable commute (20 miles). There are a few to choose from in the Sub-$80 range or close to it. Most of them curretnly are short sales but there are REO's to choose from as well. Most of them are huge and most are fairly new. Lets take a look at a few.
26193 Palm Tree Ln is a big 4008 sq/ft, 5 bedroom/5 bath home. This puppy sold at the peak for $680K. It looks like bank took it back WAY back in Jan for $573k. It's just now hitting the market (why did they wait 9 months??). It's listed at $295K or $74 sq/ft. That is a loss of $385k or 57% from the bubble price. This is a nice looking house. The yard leaves a bit to be desired but the house looks clean and ready to move into.
39166 Shree Rd is another nice looking house in Murrieta. This one is 3586 sq/ft and has 4 bedrooms and 3.5 baths. The home was purchased new in 2006 for $632K. The bank took it back in Sept. It looks like the offered it on the court house step for $375K and not surprisingly there were no bidders. It just hit the market listed for $280K or $78 sq/ft making the loss (if it sells at asking) about $352K or 56%. I think this one will go quick, maybe even over list, it looks very nice. Notice the last occupants took the oven!
37705 Summer Wind is a 3160 sq/ft 5 bed/3 bath REO that has been on the market for a month and a half. After a $30k price drop this home is currently listed for $260K or $82 sq/ft. Since it's been on the market a while you might be able to get it under $80.
How about a little Sweet Magnolia? This home is another REO home. It's 3066 Sq/ft and has 4 beds and 4 baths. This one looks to be a sad case. Purchased new in 2000 for $246K it was lost to the bank in August. There's no telling if this was HELOC abuse, familiy tradgedy or simple job loss. My guess is HELOC abuse since the bank took it back for more than the original loan. This is now listed $1k BELOW it's original selling price in 2000! Now that's a rolback! BTW is it just me or is that one BUTT-UGLY house.
Murrieta may not be your idea of the perfect town but it's much better than most of the other cities that have gone sub-$80. It is a little far off the beaten path and I would not recommend anyone move there if they cannot find work locally or within a reasonable commute (20 miles). There are a few to choose from in the Sub-$80 range or close to it. Most of them curretnly are short sales but there are REO's to choose from as well. Most of them are huge and most are fairly new. Lets take a look at a few.
26193 Palm Tree Ln is a big 4008 sq/ft, 5 bedroom/5 bath home. This puppy sold at the peak for $680K. It looks like bank took it back WAY back in Jan for $573k. It's just now hitting the market (why did they wait 9 months??). It's listed at $295K or $74 sq/ft. That is a loss of $385k or 57% from the bubble price. This is a nice looking house. The yard leaves a bit to be desired but the house looks clean and ready to move into.
39166 Shree Rd is another nice looking house in Murrieta. This one is 3586 sq/ft and has 4 bedrooms and 3.5 baths. The home was purchased new in 2006 for $632K. The bank took it back in Sept. It looks like the offered it on the court house step for $375K and not surprisingly there were no bidders. It just hit the market listed for $280K or $78 sq/ft making the loss (if it sells at asking) about $352K or 56%. I think this one will go quick, maybe even over list, it looks very nice. Notice the last occupants took the oven!
37705 Summer Wind is a 3160 sq/ft 5 bed/3 bath REO that has been on the market for a month and a half. After a $30k price drop this home is currently listed for $260K or $82 sq/ft. Since it's been on the market a while you might be able to get it under $80.
How about a little Sweet Magnolia? This home is another REO home. It's 3066 Sq/ft and has 4 beds and 4 baths. This one looks to be a sad case. Purchased new in 2000 for $246K it was lost to the bank in August. There's no telling if this was HELOC abuse, familiy tradgedy or simple job loss. My guess is HELOC abuse since the bank took it back for more than the original loan. This is now listed $1k BELOW it's original selling price in 2000! Now that's a rolback! BTW is it just me or is that one BUTT-UGLY house.
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