Tag Archives: California Housing Market

Home Builder Toll Brothers Shocks With 13% Plunge In Orders As California Falls A Staggering 39%

Toll Brothers announced its fourth quarter results on Tuesday, unleashing a fresh flood of concerns about the state of the housing market after it disclosed its first drop in orders since 2014. Orders were down 13% from the year prior, missing the analyst estimate of a 5% increase in dramatic fashion.

The company focuses much of its business on the California high-end home segment, which – as a result of the housing bubble in most west coast cities and rising rates, is facing an “affordability crisis” coupled with a sharp drop in overseas demand. According to the company, orders for the state were down an astounding 39%.

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The company blamed rising rates for the drop off in buyer demand, as well as sinking stock prices. What is odd is that stock prices haven’t really “sunk” – unless the company was referring to its own stock…

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... with the CEO blaming “the effect on buyer sentiment of well-publicized reports of a housing slowdown” for the plunge in orders. You see, it’s not the housing market that is slowing: it is perceptions about the market slowing, that is hitting the company.

That said, “perceptions” are correct: as we noted last week, new home sales crashed in October, suffering the biggest plunge since 2011.

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Even so, the atrocious quarter didn’t deter all analysts, who promptly defended the stock. Drew Reading, Bloomberg Intelligence analyst stated that “there are many positive factors underpinning the economy that we believe are supportive of the housing sector longer-term, and our affluent markets particularly.”

Tolls dismal results follows signs that we have been discussing for much of the past year, which have confirmed that the luxury housing market is cooling off across the country.

Recently, we profiled a mansion in Chicago that was taken off the market after being listed for $50 million and only being assessed for $19.4 million. United Automobile Insurance Chairman and CEO Richard Parrillo constructed the 25,000 sq ft Lincoln Park mansion a decade ago, after buying the property in 2005 for $12.5 million from the Infant Welfare Society.

After two years on the market, Parrillo and his wife held firm at $50 million, a record for the region, their original listing agent told the Chicago Tribune. The agent said the couple plowed more than $65 million into the estate, including land cost.

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$50 million Lincoln Park mansion — Chicagoland’s priciest listing — taken off the market

Cook County Assessor’s Office reports shows the mansion’s $50 million asking price was hugely overinflated versus its most recent estimated market value, which stood some 60% lower, at $19.4 million. The report notes the 2018 property value is significantly higher from the assessor’s $14 million estimated market value for the mansion in 2017, due to a quick burst in high-end home sales in the last several years that had since cooled.

Source: ZeroHedge

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California And Santa Barbara Median Home Prices Hit New High in May

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California’s median home price reached a new high in May at $600,860, surpassing its previous peak of $594,530 11 years ago.

Home sales declined by 1.8 percent from April and down 4.6 percent compared to May 2017 levels.

May marked the first year-over-year sales decline in four months and the lowest sales level in more than a year.

In Santa Barbara, median home price reached a new historic high in May at $1.2 million, while inventory continues to remain low.

“The softening in May home sales was due in part to the spike in interest rates in mid-April, when the 30-year fixed mortgage rate jumped 20 basis points in just one week to reach the highest level since 2014,” said Steve White, California Association of Realtors president.

“Homebuyers may have postponed escrow closings to wait out the effects of the rate surge,” White said.

“Additionally, the specter of rate increases earlier in the year may have pulled sales forward into the first quarter, which resulted in the subpar performance in the last couple of months,” he said.

“Looking ahead, higher mortgage rates and elevated home prices will heighten affordability constraints that will likely temper the housing market in the coming months,” he said.

Source: By Andy Alexander | Noozhawk

California Residents Flee, Chased Away By Soaring Home Prices And Cost Of Living

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Last month, a Wall Street Journal op-ed posited that the new tax bill could create a mass exodus of roughly 800,000 residents from the state of California who will flee the state for low-tax red states. 

In the years to come, millions of people, thousands of businesses, and tens of billions of dollars of net income will flee high-tax blue states for low-tax red states. This migration has been happening for years. But the Trump tax bill’s cap on the deduction for state and local taxes, or SALT, will accelerate the pace. The losers will be most of the Northeast, along with California. The winners are likely to be states like Arizona, Nevada, Tennessee, Texas and Utah.” –WSJ

Taxes aside, a new report by Next 10 and Beacon Economics suggests the California exodus may get a lot worse, as new housing construction since the Great Recession has been tepid at best, and as a result, California faces a housing backlog of 3.4 million units by 2025 if the trend continues – and 2.8 million units at the current rate of construction. 

From 2007 to 2017, only 24.7 housing permits were filed for every 100 new residents in California – much lower than the U.S. average of 43.1 permits.

By 2025, California would have a housing backlog of 3.4 million units if the trend continues. At the current pace of construction, California would add just a minimal amount of new housing – about 600,000 new housing units (net of housing unit losses due to demolition and other causes) – leaving the state with a housing gap of 2.8 million units by 2025. –Next10

California’s current housing supply is not able to support its growing population,” the report concludes, and as such “the low levels of construction will likely result in further increases in home prices, such that fewer and fewer California residents will be able to afford homes.

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According to the report, California lost over a million residents in the decade between 2006 and 2016, due primarily to the high cost of housing disproportionately hurting lower income households. Over 20% of those who moved over that decade did so in 2006 – at the height of the housing bubble.

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And since American consumers are genetically predisposed to never learning from their mistakes, median home prices in California are once again gapping well above the national average in a very similar pattern, making housing once again prohibitively expensive:

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Meanwhile, migration out of California is mostly tied to income, as most of those leaving the state earn less than $30,000 per year.

Those migration patterns are shaped by socioeconomics. Most people leaving the state earn less than $30,000 per year, even as those who can afford higher housing costs are still arriving. As the report noted, California was also a net importer of highly skilled professionals from the information, professional and technical services, and arts and entertainment industries. On the other hand, California saw the largest exodus of workers in accommodation, construction, manufacturing and retail trade industries.MarketWatch

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Crunched California homeowners spent an average of 21.9% of their income on housing expenses in 2016, while home ownership rates are terrible at just 53.6% of homes owner-occupied; the 49th worst in the nation on both counts. California renters meanwhile come in 48th in the nation when it comes to percentage of income spent on housing at 32.8%.

And how are Californians coping with the skyrocketing costs of housing? One strategy is doubling up – as nearly 14% of renters have more than one person per bedroom, making it the state with the highest percentage of overcroweded renter households

Another solution? 

Leaving

In a separate analysis noted by MarketWatchs Andrea Riquier, “Realtor.com found that the number of people searching real estate listings in the 16 top California markets compared to people living there and searching elsewhere was more than double that of other areas — and growing.”

Searches for homes in pricey California towns – primarily Santa Clara, San Mateo and Los Angeles – experienced virtually no increase over the past year, while views of listings in other parts of the country were up 15%. 

So where do most broke Californians move? Texas, Arizona, Nevada, Oregon and Washington . 

Read the report below: 

Source: ZeroHedge

Writing Love Letters, Bidding $100,000 Extra: Buying a Home In Southern California Is Insane

Jobs and wages are on the rise. Buyers are newly urgent, fearful an era of cheap money is ending. And to top it off, there simply aren’t enough homes listed for sale. As a result, bidding wars are common and prices are rising during the popular spring buying season. A report out Tuesday from CoreLogic shows the Southern California median home price jumped 7.1% in March from a year earlier, hitting $480,000 in the six-county area. And despite low inventory, sales rose 7.8%.

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A pitched battle

When Elizabeth Rodriguez and her husband realized that the market was white-hot in the Northeast L.A. burbs where they wanted to raise their three children, they devised a strategy.

The couple, who moved from the Bay Area for Rodriguez’s husband’s director job, began writing a “love letter” to sellers describing how much they wanted the house. And then they bid over asking — way, way over asking.

In one case, they offered $102,000 above the $798,000 list price for a three-bedroom Spanish-style home in Mount Washington. The house sold to someone else for $985,000.

“After that I was like, this is insane,” said the 35-year-old mother of three.

The couple bid on 11 homes, she said, before they finally purchased a three-bedroom in the hills of Glassell Park listed at $799,900. To seal the deal, they again bid about $100,000 over asking, this time before an open house was held.

“It was a crazy process,” Rodriguez said. “I’m glad we are on the other side of it.”

For developers, crazy times are good — especially in areas where few new homes are being built.

Last weekend, builder Planet Home Living held a grand opening for a Silver Lake 10-home subdivision built on small lots. Before any prospective buyers showed up, six of the $1-million houses were already in escrow after the Newport Beach firm contacted people who signed a list of interested buyers.

“Four hundred people on an interest list, that’s a lot for 10 homes,” said the company’s chief executive, Michael Marini. “Anything in L.A. that we build, it sells out immediately.”

The buying frenzy isn’t limited to Los Angeles either.

Agents across the region reported heavy demand, even in the Inland Empire, which since the housing bust has recovered more slowly than areas near the coast.

Chino Hills agent Derek Oie said he and others are taking advantage by marketing open houses as a one-time-only event, in a bid to create even more of an auction atmosphere.

At one house in Eastvale he brought a client to earlier this year, 100 people showed up.

“We showed up and literally cars were parked up and down the whole cul-de-sac,” he said.

By Andrew Khouri | Los Angeles Times

Mortgage Rates Will Rise When The Fed Backs Away From Buying Mortgage Bonds

The Federal Reserve’s oft-forgotten policy of buying mortgage-backed securities helped keep mortgage rates low over the last several years.

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The monthly housing market reports I publish each month became bullish in late 2011 due to the relative undervaluation of properties at the time. I was still cautious due to weak demand, excessive shadow inventory, the uncertainty of the duration of the interest rate stimulus, and an overall skepticism of the lending cartel’s ability to manage their liquidations.

In 2012, the lending cartel managed to completely shut off the flow of foreclosures on the market, and with ever-declining interest rates, a small uptick in demand coupled with a dramatic reduction in supply caused the housing market to bottom.

Even with the bottom in the rear-view mirror, I remained skeptical of the so-called housing recovery because the market headwinds remained, and the low-interest rate stimulus could change at any moment. Without the stimulus, the housing market would again turn down.

It wasn’t until Ben Bernanke, chairman of the federal reserve, took out his housing bazooka and fired it in September 2012 that I became convinced the bottom was really in for housing. Back in September, Bernanke pledged to buy $40 billion in mortgage-backed securities each month for as long as it takes for housing to fully recover. With an unlimited pledge to provide stimulus, any concerns about a decline in prices was washed away.

In addtion to buying new securities, the federal reserve also embarked on a policy of reinvesting principal payments from agency debt and mortgage-backed securities back into mortgages — a policy they continue to this day.

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Everyone Is Suddenly Worried About This U.S. Mortgage-Bond Whale

by Liz McCormick and Matt Scully, February 5, 2017

Almost a decade after it all began, the Federal Reserve is finally talking about unwinding its grand experiment in monetary policy.

And when it happens, the knock-on effects in the bond market could pose a threat to the U.S. housing recovery.

Just how big is hard to quantify. But over the past month, a number of Fed officials have openly discussed the need for the central bank to reduce its bond holdings, which it amassed as part of its unprecedented quantitative easing during and after the financial crisis. The talk has prompted some on Wall Street to suggest the Fed will start its drawdown as soon as this year, which has refocused attention on its $1.75 trillion stash of mortgage-backed securities.

While the Fed also owns Treasuries as part of its $4.45 trillion of assets, its MBS holdings have long been a contentious issue, with some lawmakers criticizing the investments as beyond what’s needed to achieve the central bank’s mandate. Yet because the Fed is now the biggest source of demand for U.S. government-backed mortgage debt and owns a third of the market, any move is likely to boost costs for home buyers. …

In the past year alone, the Fed bought $387 billion of mortgage bonds just to maintain its holdings. Getting out of the bond-buying business as the economy strengthens could help lift 30-year mortgage rates past 6 percent within three years, according to Moody’s Analytics Inc.

It’s difficult to imagine that losing a buyer of that magnitude wouldn’t cause prices to fall, thereby raising yields and mortgage interest rates.

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The surge in mortgage rates is already putting a dent in housing demand. Sales of previously owned homes declined more than forecast in December, …, according to data from the National Association of Realtors.

People are starting to ask the question, “Gee, did I miss my opportunity here to get a low-rate mortgage?”  …

While this may close the door on the opportunity to get a low rate, it opens the door on the opportunity to get a low price.

People can only afford what they can afford. If their payment stretches to finance huge sums like they do today, then prices get bid up to that equilibrium price level. If their payment finances a smaller sum, like they will if mortgage rates rise, then prices will need to “adjust” downward to this new equilibrium price level.

I wouldn’t count on a big drop. Prices are sticky on the way down, particularly without a flood of foreclosures to push them down. Today’s owners with low-rate mortgages won’t sell unless they really need to, and lenders would rather can-kick than cause another foreclosure crisis, so any downward movement would be slow.

As prices creep downward, rents and incomes will rise offsetting some of the pain, and those buyers that are active will substitute downward in quality to something they can afford. It’s a prescription for low sales volumes and unhappy buyers and sellers. The buyers pay too much, and the sellers get too little.

https://i2.wp.com/ochousingnews.com/wp-content/uploads/2016/03/fed_taper_stimulus.pngNevertheless, the consequences for the U.S. housing market can’t be ignored.

The “Fed has already hiked twice and the market is expecting” more, said Munish Gupta, a manager at Nara Capital, a new hedge fund being started by star mortgage trader Charles Smart. “Tapering is the next logical step.”

As the federal reserve tapers its purchases of mortgage bonds, it opens up this market to private investment. Perhaps money will flow out of 10-year treasuries into mortgage-backed securities for a little more yield. It’s also possible that Congress will reform mortgage finance and remove the government guarantee from these securities, making them less desirable.

It’s entirely possible that the yield on the 10-year treasury will drop this year. Higher short term rates and a strengthening economy means the US dollar should appreciate relative to other currencies, attracting foreign capital. Once converted to US dollars, that capital must find someplace to invest, and US Treasuries are the safest investment providing some yield. If a great deal of foreign capital enters the country and buys treasuries, yields will drop, and mortgage rates may drop with them. Rising mortgage rates are not a certainty.

For now, the federal reserve will keep buying mortgage-backed securities, but the messy taper is on the horizon. Apparently, when it comes to boosting housing, Yellen plans to stay the course.

Source: OC Housing News

California Home Prices And Sales Expected To Rise In 2017

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The California housing market is expected to grow increasingly un-affordable next year, driving would-be home buyers away from high-cost coastal regions and toward the more inexpensive inland stretches of the state, according to an industry forecast.

The California Assn. of Realtors on Thursday predicted that sales will be more robust in the Central Valley and Inland Empire as families look for a home they can afford.

And as more and more families struggle to afford a home, price increases are expected to be more muted than in years past. The state’s median price is projected to end this year at $503,900, up 6.2% from last year. In 2017, prices should climb 4.3% to $525,600.

“Next year, California’s housing market will be driven by tight housing supplies and the lowest housing affordability in six years,” Pat Zicarelli, the association’s president, said in a statement.

The high cost of housing in California has become a growing political issue within the state. And it has spurred calls for increased funding for subsidized housing, as well as efforts to loosen building regulations so the private sector can quickly construct more residential units.

This week, two studies — one from UC Riverside and another from UCLA — warned that the state’s housing shortage threatens to put a drag on economic growth.

Despite those and other fears, the Realtors association predicted that the economy will keep improving and produce enough demand to nudge statewide home sales up 1.4%, compared to 2016.

In contrast, sales this year are projected to inch down 0.4% from 2015.

“The underlying fundamentals continue to support overall home sales growth, but headwinds, such as global economic uncertainty and deteriorating housing affordability, will temper stronger sales activity,” the association’s chief economist, Leslie Appleton-Young, said in a statement.

By Andrew Khouri | Los Angeles Times