The California contradiction – Record high unemployment and highest home prices in the nation. Share of Californians employed at record low levels and July home sales forecast dire home price cuts moving ahead. During bubble years July home sales came in at over 60,000 for the month while last July they came in at 34,000.

California never came out of the recession.  Technically the nation has been out of recession since the summer of 2009.  If things are bad on a national level things are tragic in the Golden State.  GDP is not necessarily a solid measure of a nation’s overall health especially when you have giant banks transferring trillions of dollars from taxpayers and suddenly speculating in the stock market to produce gymnastic financial movements.  GDP does not reflect the shrinking pocketbooks of most Americans which directly has an impact the price of local housing.  If Proctor and Gamble is making a large share of profits in oversea markets do you think this will help local home prices outside of a few niche markets where one percent of the nation live?  California has the second highest unemployment rate in the nation only behind the foreclosure ridden desert state of Nevada.  Looking closely at the data there is almost every piece of evidence suggesting a second storm is going to slam prices lower in the state.  Why would prices remain inflated when every other economic factor is pointing to a crushed economy and you have people in leased BMWs recycling cans to cover daily expenses?  We are already seeing weakness in high priced areas even in the middle of the hot summer selling season and with mortgage rates at historical lows.  The economic indicators are pointing to troubled seas ahead so let us start looking at why California housing is going to have a second significant correction.

Population growth a reason for high prices?

There is a misguided sense in a few groups that the population growth in California is now at levels from the 1940s or 1950s.  That is not the case.  In fact, when 2011 data comes out we will see growth muted but also, much of the trends are not positive outside of a raw number count.  We have seen higher wage jobs leave the state only to be replaced by lower paying sectors:

growth rate california

For 2008, 2009, and 2010 the population growth rate was below or at one percent per year.  The notion that California has outsized population gains to support sky high housing prices is misguided.  A large part of this growth is in the low income sector.  Do you think they are going to support bubble prices in cities like Pasadena or Culver City? It can’t and it won’t.  Those bubbles will burst and prices have already started falling in those areas.  Hard to tell what x-factor will break the camel’s back but prices have been falling but more in a controlled fashion because of the shadow inventory.  It now appears that the government is going after big banks with something that may have teeth through the FHFA.  We shall see how this plays out and see if it isn’t just another smoke and mirrors illusion.

It is abundantly clear that massive population growth is not a good reason for the argument that a new batch of residents will support high home prices in the state.  The home ownership rate is also heading back to more normal times but it is still a distance away from bottoming out:

homeownership rate california

All the gains made in the last decade are wiped out like a surfer catching a wrong wave.  The home ownership rate is now down to levels last seen in the late 1990s.  I expect this rate to fall to the early to mid-1990s levels before all is said in done.  We have hundreds of thousands of homes that will be lost in foreclosure before any true bottom is reached.  The overpriced markets have people living lives of silent economic desperation only hoping that they are able to find some other sucker to unload their home to.  Their hope is largely misplaced as we are seeing from viewing macro economic trends.  The gain in home ownership rates largely came from the once in a lifetime housing bubble fueled by mortgages that would make Bernard Madoff look like an economic saint.  Short of giving loans again to anyone with a pulse, this party is done and prices need to revert to levels last seen when the mortgage market wasn’t turned into a roulette table populated by snake oil salesmen.

Will California jobs and incomes support home prices?

It should be obvious that incomes and employment should be the number one driving force for home price growth.  Has California experienced more robust growth than the nation to justify higher home prices?

california earnings

Source:  CBP

For the last half decade, the median Californians’ earnings has fared worse than the nation overall!  And the nation isn’t exactly doing well if you haven’t noticed.  While the median earnings for the nation went up a paltry one percent in the last five years it has fallen by 1.9 percent here in California.  Yet some people keep arguing that home prices need to remain high because of wage growth contrary to the actual data.  I am convinced that you have a pocket of delusional people weaned on the housing bubble psychology that somehow can’t acknowledge the fact that yes, the world is round and yes, home prices in many communities are still in raging bubbles.  All the above data and information goes against the religion they have for housing even though the evidence is almost irrefutable.  Yet these pockets are becoming smaller and smaller as a new reality takes hold.  The above chart shows that income growth isn’t exactly a reason to justify higher home prices.

Let us set aside income growth for a second.  How are things going for people with any kind of job in the state?

share of californians with job employement

Source:  CBP

We are now at a record keeping low in terms of the share of Californians with a job.  Yet some still want to argue that home prices at current levels are justified!  California never left the recession.  In fact, the data shows we are still moving towards a trough.  So how can people argue that home prices are somehow fine or priced right when California is breaking all sorts of negative records?  The only reason we have yet to see a full correction is banking gimmicks and the procedure of leaking properties via the shadow inventory.  All this has done is to help the banks since the economic market is demanding lower prices to reflect lower incomes.  The public is taxed through high home prices by these artificial gimmicks and trillions of dollars to the largely crony banking system.  Ironically it is usually the “free market” believers that stand behind this slow-drip philosophy.  Their use of situational ethics is fascinating.  Bottom line is this can only go on for so long.  The drag on the economy right now is with the banks and real estate.  If we want to move forward we need to find a bottom as quickly as possible to get our attention back at the hard task of growing the real economy.  Sucking money from home buyers through high monthly nuts that go to banks isn’t exactly a good use of funding.

The odd metrics of the current California housing market

July is usually a hot selling month for California homes.  The market is usually filled with people looking to move up to better areas in the California real estate upgrade musical chair game.  Yet even with lower priced inventory and record low rates home sales have fallen off a cliff:

california july home sales

Take a look at this!  For 2002, 2003, 2004, and 2005 California home sales in July routinely hit 60,000 and higher.  For 2010 and 2011 it was a struggle to get even close to 40,000.  Last July we fell shy of the 35,000 mark.  In fact, home sales for July of 2011 look more like that of July 2007 when the market completely imploded.  Shortly after the implosion, home prices followed.  Why are we to expect any surge in home prices following this dismal summer?  People ask why is this even occurring and the answer is simple.  Look at the above charts showing the economic issues plaguing the state.  Money is scarce and access to comic book like levels of debt are no longer available.  With continuing issues in the economy this will continue to be the case.

The all cash buyer is now a large player:

california homes bought with cash

Never have we seen so many people in California purchase homes with all cash.  This is simply another symptom of a bad housing market.  You have people bottom fishing and many of these are under the impression that buying today is like buying in say the late 1990s.  Many believe a new bull market is around the corner.  Many of these buyers have gone to areas in the Inland Empire for low priced housing as a longer-term investment.  A large number of these people are naïve in the sense that managing a property takes work, time, and a solid understanding of real estate beyond the late night infomercial.  They do back of the napkin calculations like, “if I pay $200,000 for this place and get $1,500 a month then I will be doing great!”  What about vacancies?  What if an AC unit crashes?  Many of these lower priced areas have unemployment rates of 14 percent and higher with transient workforces.  These areas depend on cheap fuel.  Are we going to see cheap fuel forever?  I think we are seeing a mini bubble here with investors rushing in without knowing the full picture of what they are doing.  At least in this case, there shouldn’t be any bailouts.

Almost 30 percent of all purchases in 2011 have come from all cash buyers.  Compare this to 10 percent back in 2004.  This rate should be at 10 percent or lower in a healthy market.  We do not have a healthy market at the moment.  Until these rates normalize proceed with caution.

Million dollar homes sales have also fallen from their peak:

california million dollar home sales

Source:  Data Quick

Contrary to myth and fantasy high-end areas are facing corrections in Beverly Hills, Manhattan Beach, and Bel-Air.  Why?  Because leverage bites on the way down at a proportion of your purchase.  If you buy a $100,000 home and it drops 20 percent you are technically out $20,000.  Say you buy a $4 million home and face a 20 percent drop you are now under by $800,000.  This is exactly what is happening.  The peak year for million dollar home sales in California was 2005 at over 50,000.  Today we are slightly above 20,000.  So much for hot money chasing big homes at the same level of the bubble heyday.

The bottom line is that home prices overall will continue to move lower in the state.  California has one of the largest amounts of shadow inventory in prime locations in the country.  The banks have tried this system for four years now and it has done nothing more than continue to pay out checks to those in the banking industry.  The bailouts were complete failures as we are seeing with income data and a sad economy.  Sad outside of those who work for finance of course since they have unlimited backups from the taxpayers.  The banking system is heavily bogged down by real estate but they want to unload properties close to peak levels to other suckers.  Yet it is becoming more apparent that those prices will never materialize.  That is why we now see more short sales and REOs hit the market as some banks get religion.  Yet the amount hitting the market is still a drop in the bucket and at this rate, home prices will trickle lower for years ahead while sucking the life out of the economy like being bit by a financial zombie.  Think about it, we are trusting the same banking system that turned housing into one large gambling parlor to handle the recovery.  What makes you think they won’t rip off the public on the way down as well?

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82 Responses to “The California contradiction – Record high unemployment and highest home prices in the nation. Share of Californians employed at record low levels and July home sales forecast dire home price cuts moving ahead. During bubble years July home sales came in at over 60,000 for the month while last July they came in at 34,000.”

  • “The economic indicators are pointing to troubled seas ahead so let us start looking at why California housing is going to have a second significant correction.”

    Yep, and if the “Kali Dream Act” comes true, the drop will be of nightmarish proportions….

    “We have seen higher wage jobs leave the state only to be replaced by lower paying sectors:”

    Can you say Banana Republik?

    I knew you could…

  • Think about it, we are trusting the same banking system that turned housing into one large gambling parlor to handle the recovery. What makes you think they won’t rip off the public on the way down as well?
    Be careful. It’s ok if the banks rip you off, but don’t dare say, write, or PAINT anything bad about them…
    Link: Chase Bank Burning

    • Fear of art…people are so ignorant. I want that painting, btw.

      • It’s all yours, Natalie:

        The auction closes in less than 24 hours. Starting bid was $920; now over $10,000. Just don’t tap your HELOC to buy it. 🙂

        There is a reason why some are afraid of art. For very, very good reasons. Art has the ability to move people. Possibly even away from watching American Idol, and seeing what’s actually happening to them.

      • Thanks Questor! A bit out of my price range, and I don’t even know what a HELOC is ( I’m not a loanowner). Yes, you are right about art, I’m a former art major 🙂

      • *slaps forehand*. I wasn’t thinking big enough. Here’s the plan:

        Take your HELOC owned by Chase, and use it all to buy this painting. Say $50,000. Or $100,000. Or whatever.

        Then default.

        Ooooo. The irony here would be delicious.

    • HMOG, that has GOT to be the ripest 1st Amendment case I’ve seen in a decade! I think this artist just retired young, courtesy of LA taxpayers… I know I would. The key would be lawyers coming out of the proverbial woodwork, willing to take the case on contingency.

      “It’s post-9/11″… umm, sorry, which Article or Amendment of The USC is THAT language contained in????

  • I don’t have that much faith in the FHFA lawsuits. For one thing, Fannie and Freddie were charter members of MERS, and they actually encouraged the bank behavior they’re suing over. You can bet the banks will bring the point up.

    Moreover, even though it’s common knowledge now, the feds have carefully avoided alleging that the loan securitization failed completely owing to bank negligence, and called into question the title to 60 million properties (the NY and NV attorneys general have made such allegations in various suits).

    Notice that the one missing player was Wells Fargo. I wonder why that is? If the feds are right, then Wells, as successor to Wachovia, and especially World Savings (the king of the pic-a-pay neg am loan) should certainly be among the defendants. Perhaps the feds will file against WFB this week.

    • Purely smoke and mirrors. Naught but a dog and pony show to distract the sheeple.

      The idea that the Skull & Bones Yalies in Duh Gov are going to inflict any serious pain on the Skull & Bones Yalies in Duh Banks is laughable… but I’m not laughing. 😡

  • Isn’t it possible that during the last 10 years of bubble and bust, the wealth distribution has become more unequal? If so, then that could lead to more unequal house prices than before, propping up prices in a few selected areas. Household income isn’t the only factor affecting prices. Surely a few people made out like bandits by flipping and haven’t squandered it all? Don’t know if there’s enough of them to make a difference to the overall market though.

    • Good question.

      My theory is that a larger rich/poor gap would actually work against propping up
      houses in selected areas simply because if the supply of homes remains a *constant*
      then there are even *fewer* high income households who can afford them. Thus,
      the “leftover” homes must be sold at even lower prices.

  • Oh sure, use accurate numbers and research, to try to convince even the most stubborn bubblemania mind that it is inescapable that the housing bottom isn’t in (but people do still buy, interesting). Well, this exhaustive post did not repeat prior work shown on the one massive pro-deflationary factor: the loss of the California-based equity that was present five years ago in the homeowning or even stockholding family. The calculation of the lost equity statewide has to be a number in the hundreds of billions or trillions, and in certain submarkets, almost all equity is lost of the entire middle class (newer and younger subdivisions, eg). How does housing find a bottom without down payments and liberal mortgage loans? Again, the upper middle class is right now suffering stock market shocks. So, add these in to the other factors so brilliantly summarized in this posting, are we feeling optimistic enough yet?

  • Today, European stock markets crashed over 5% because the banks are going down. They say that it is just like before Lehman went in 2008. The European banks will go and then the banks in the US will feel pressure. Exciting times are ahead. The US banks will have pressure to get rid of their REO’s.
    Remember the Great Depression lasted over 10 years, so will the current one.

    • @John CPA
      Please explain your logic. Why would stock market pressure force banks to unload REO? Why would the want to realize losses when they are most vulnerable?

      • Banks will need to raise cash to handle the run on the banks. Cash is king. Also, they need to raise cash to settle the FHA federal suites. The Feds filled the suits to encourage settlement on the already proposed settlements. Obama needs the cash and he needs a win against the banks in the coming election. Investors can not stand uncertainty and they are dumping the bank stocks. Look at what has already happened to Bank of America. The end is near. It will take more than a management shake up at Bank of America to stop the stampede.

  • House across the street in Burbank REO is getting lots of visits from Taxi cabs???? What do you suppose that’s about. Not a cab driver in the world can buy a 420k fixer in Burbank. Investors flying in to Bob Hope looking to flip in a bubble community like Burbank. I told you guys before, people are relisting homes here HIGHER than original asking price. Big money is playing games here!!! It stinks cause there a enough suckers I guess to keep the game going by buying into the delusion.

  • Admittedly this is one person and unique but think its telling of the larger situation:
    A relative who through a series of very bad personal choices in the 1996-2003 time frame was relegated to renting during the boom, has been offered the 2000 sq ft circa 2005 house he’s been renting in Bakersfield for the last 3 years for $70 a square foot by the bank that is foreclosing on the landlord.
    That seems to be an acknowledgement by at least one of the banks that prices are back to ~1998 in Bakersfield. That would equal about 60% DROP FROM THE PEAK up here.

    • It looks like the bubble has come full circle in the desert, here are some examples from Hesperia:{scid=hdp-site-map-bubble-address}{scid=hdp-site-map-list-address}{scid=hdp-site-map-list-address}

      Prices are close to what they were twenty years ago, only difference now is that the houses are twenty years older and there’s been twenty years of inflation. The value has actually gone down with age, which in some odd way makes sense once you cut the whole bubble deal out of the equation.

      • Yeah looks like the bubble has completely deflated in Hesperia as in other desert communities. On the Zillow page expand the time period to 10 years to see. To me the amazing thing about the desert communities isn’t the price drops but that the prices had risen as high as they did.

    • “That seems to be an acknowledgement by at least one of the banks that prices are back to ~1998 in Bakersfield. That would equal about 60% DROP FROM THE PEAK up here.”

      That is correct. I visited a friend recently in Bakersfield and was blown away by the number of forclosures in his neighborhood. They bought their house in 1995 for approx. 105,000. At one point it was up around 300,000. Now they would be lucky to sell it for 130,000.

      • Although I have not been back to Bakersfield, since I moved away in 1994, I think I know the dynamic that is in play there. Bakersfield is just another Central Valley city, with one exception. They have a lot of really good paying oil industry jobs. These 30K to 80K jobs are great jobs, compared to all the minimum wage jobs that dominate the Central Valley.

        The problem is that Kern County oil production peaked in 1985, I think. Oil industry employment peaked not long after. Yes, oil companies are still extracting vast quantities of oil from the Bakersfield area, and a little bit of tax revenue from that certainly helps the state and county. But mortgages are paid out of paychecks, and the number of those are dropping, since the big oil field build outs ended a couple of decades ago.

        So Bakersfield is in the same boat as LA and Orange county, just substitute the word ‘oil’ for ‘aerospace’. The State of California desperately needs some new industry to come in that will supply a half million jobs. The State has got to figure out a way to get itself out of the way. They have had 20 years to prepare for this moment, but I’m not aware of much progress, to date.

      • Chairsatan Bernank’s ruse known as Operation Twist- to get mortgage rates lower and refinancing higher – has failed.

        But the real problem with “Operation Twist” is, like other plans we have seen in recent years, it could still fail even if it works. Mortgage rates are already so low…really historically, ridiculously low. So why would making rates even lower solve the economy’s ills? It won’t, and it will not fix the housing market either. The problem is not that rates are too high, it is that individuals can’t take advantage of the low rates that are already on the market. Most people want to refinance but can’t. In many cases it’s because they owe more on their home than the acceptable appraised value. This actually causes many of them to become frustrated and to stop paying their mortgage, which exacerbates the problem.

        In an insane effort to save the bankster’s MBS & CDO Ponzi schemes, the Fed – aided and abetted by Congress, Bush and Obama – have thrown the U.S. economy under the bus.

        Folks, there’s no coming back for most of Cali, as there is no economic future to create jobs where cost of housing has been turned into a perverse economic engine requiring artificial banking standards (zero down, ARMs, Interest only, etc.) and has driven BUSINESS creation away due to an unprofitable climate (employment costs, apparatchik encroachment, socialist culture, et al.) *GAME OVER*

    • “… has been offered the 2000 sq ft circa 2005 house he’s been renting in Bakersfield for the last 3 years for $70 a square foot by the bank that is foreclosing on the landlord…”

      Really need to know what he’s paying in rent, BUT… that works out to $140k = STILL TOO HIGH. This renter is IN THE DRIVER’S SEAT, and *IF* renter LOVES the house, and *IF* they have a (relatively) sustainable income sitch-ee-ay-shun, I’d offer to end the bank’s misery for $105k… or better yet, $94k! Certainly no more than 100 times his monthly rent, *IF* it’s in primo turnkey condition.

      That ain’t La Jolla out there. There’s no such thing as a “low-ball” offer when dealing with bankSter scum. Fook them. Buyer needs a flippable price, not a stuck-here-forever price.

      Naturally, there would be ZERO transaction costs to your family member, and ZERO DOWN too!… BankSters should probably bring a $12k “thank you, and have some new furnishings on us” check to the closing… made out to “Cash”… just in case family member “forgets” to report it to taxing authori-tahs… seriously, it’s below the radar in these hyper corrupt days. ;’)

      Remind selling bank how MANY OTHER RENTALS and REOs are within walking distance. Remind bankSter-Scum what their listing, commissions, cleaning, etc. fees, plus CARRYING COSTS/Days On Market (DOM) are going to be if they don’t accept your sweet/painful deal. 😀

  • The gig is up for buying houses on the Westside of Los Angeles. We have had a paradigm shift in how people now view housing. It’s not a get rich quick scheme anymore and most people are buying what they can actually afford. That means renting. Buying now makes no sense financially speaking and nobody wants to lose their hard earned cash. Rental prices will soon be going up as owning a home right now, is nothing but a burden for most.

  • What we need is wage inflation and to turn on the printing presses… We have deflated enough already…. Time to hyper inflate… Destroy the us currency and reset everything… Deflating home prices another 30-50% will only hurt everyone short and long term… If u dont own a home now u may want a big sale on homes… But it is only going to cause rampant squatting… U wont see any homes for sale. The music will jusg stop and if u have a home… U will stay put… We dont have a viable way out of this mess except to inflate wages and currency and hold home prices stagnant until we all catch up… We arent going much lower though without total economic collapse.

    • @Kevin
      Dude, what do you think the Fed and USG are trying to do with low interest rates and QE’s?
      They tried inflating everything but nothing has worked, at least in terms of wages. Commodities have spiked, food and energy prices are high, which has sucked money out of people’s pockets. How can wages rise when there’s 16% un and under employment (U6)?
      Overvalued assets need to crash and be written off for any recovery to happen.

      • LAer,

        You didn’t address my concern about falling home prices… You can’t bankrupt 50% of the population and expect things to “recover”. All that will happen is chaos… We are in a period of controlled chaos now.. But if prices plummet another 20-50% like many are calling for on here.. You are asking for destruction of the financial system. Anyone that bought a home between 2000-2009 would default and squat in their home… Stagnant prices is the only thing keeping people from all walking away or squatting and saving their downpayment money back in free rent.

        A few fringe people are squatting now… Do you really think falling home prices will do anything but increase squatting and defaults… This won’t benefit renters.. It’ll just make credit scores useless, allow people to squat rent free en masse.. and you get to keep paying high rent on the sidelines.

      • A great many people have mortgages taken out well before the bubble. They are paying a reasonable nut. It’s the frenzy buyers and the get rich quickers and the “hey my house is worth 150,000 more than I bought for, get a HELOC, buy a BMW, and go to Cancun” people that I say can go down to hell right along with their falling home prices Kevin. So this will not cause any mass squat. Prices need to come in line with reality and that is that they are too damn high. I’m gonna start ” the home price is too damn high party”!!!

      • I’ll join that party CC.

        I don’t see mass squatting occurring. Unfortunately for us bears waiting on the sidelines, it seems obvious that a quick drop isn’t going to happen. It’s going to be a long, drawn out, non-steep slope to the bottom. While not an ideal environment for buyers on the sideline, this non-steep slope gives those in trouble more time to deal with their poor bubble purchase.

    • Kevin you are a total idiot. You must be one of the suckers who recently bought a home and can’t be honest with yourself that home prices can and will fall another 50%. The only people this will hurt are those who bought that which they couldn’t afford.

      • @ Mo: I don’t think Kevin is an idiot. He’s simply expressing the desperate wish of those who own a mortgage and are freaking out that they made a horrible mistake. I think there are many people who rely on Hope as their financial planning strategy. Hope that they can last until the next bubble in CA real estate or Hope that the Next Big Thing will come along and save us.

        I saw a bumper sticker the other day: “Please God, just one more bubble!” That pretty much sums up the financial plan for most underwater Americans today.

      • To those on this board claiming a 50% drop in home prices will ONLY affect those negatively that bought more house than they can afford are moronic. It will hurt EVERYONE.. renters and owners pretty alike. Rents are already going up..because people aren’t buying homes and renting instead.. thus driving rental unit demand.

        Home prices won’t fall dramatically from current levels until interest rates start rising… Then when interest rates will rise lock and step with price drops.. so the monthly nut to own a home won’t be much different in 5 years in a worst case scenario. Sure that $800K home will be $600K… but interest rates will be 13%… so unless your flush with cash your monthly mortgage will be the same as someone buying now…

        Only very select few people will have the cash to take advantage of a high interest rate…lower home price situation. And if the economy turns around and the the govt turns on the printing presses… then home prices could actually RISE with a rise in interest rates… just like they have historically.

        Who knows what will happen.. But any moron on this site predicting 50% declines with 4% 30 year mortgages is truly dreaming. Anyone know how CHEAP a $200K mortgage is at 4% interest per month? My rent in Burbank when i moved to CA in 2002 for a crappy 1 bedroom/1 bath apartment was $1100 a month.

        You all magically believe that same $1100 a month will soon buy you a 3bed/2 bath house that currently is going for $400K in burbank?

        Small 3-4 bedroom homes have a hard bottom in the $350-400K price range… in Los Angeles area in good school districts. Don’t expect them to fall below that without much pain for our entire society as a whole… The music will just plain stop… kinda like it has for the past 2 years… no music .. no musical chairs.

      • Wake up Kev, lower prices only hurt the banks and debt holders. Why do You hate the poor so much? That is like saying lower oil prices hurt everybody>>No that hurts, oil producers, tax collectors, but helps refiners and users, and everything that gets moved by oil…food, etc. I’d LOVE cheap everything. What is wrong with that? That would give me more FREE time to SURF. Dont be a fool.

      • 50% drop sure as hell won’t hurt me. I just wish it would happen sooner than later. I guess I’ll just have to keep stashing cash away until it does fall… Not a bad simple financial plan if you ask me.

    • “What we need is wage inflation and to turn on the printing presses…Time to hyper inflate… Destroy the us currency and reset everything…”

      Bring it baby, this is EXACTLY the reason I took ALL of my RE winnings and biz profits back in 2001-2002 and PLOWED it into PMs!

      No way out now for the knee-jerkers except MASSIVE currency devaluation…

      “But it is only going to cause rampant squatting…”

      Oh please…Have you not heard that LAW enforcement will be one of the GROWTH industries for some time to come?

      “We arent going much lower though without total economic collapse.”


      When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal not in goods, but in favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you… you may know that your society is doomed. ~ Atlas Shrugged

      ¿Tienes plata gringo?

      • See this article on this same site:

        Shadow inventory Armageddon – Foreclosure timeline up to an average of 599 days with 798,000 mortgages having no payment made in over 1 year and no foreclosure process initiated. Shadow inventory grows to over 6,540,000 properties.

        There already are plenty of squatters. There’s even a frequent poster to this blog who says he’s been living in the same home for almost two years making no payments waiting for foreclosure that never comes.

        And yet, police and firemen have been being laid off. Some growth industry.

    • Currency destruction will screw over most of America, but the rich will follow suit and hoard up alternative currencies (including gold). This will leave the middle/lower class up the creek without a paddle. Should be careful what you ask for…

      • It will screw those with cash savings, mostly middle class retirees probably. And it will probably screw workers too because there is no way wages will keep up with inflation (nor will tax brackets I’d bet). Why should they when you have massive unemployment, a global economy, and the ability to import even skilled labor cheaply.

  • I have this foreclosure near me. Asking price is more than 2005 sale price. Very few people are looking at it. Nice house, but the upstairs rooms are tiny!

    • $506 /sqf in Pasadena? I will wait.

      • It’s South Pasadena, not Pasadena. Whole different ball game and city.

      • That my prescient friend would be very, VERY wise….

        That is assuming you’ll have some REAL wealth with which to purchase @ FIRE sale prices when the debt-slaves have -0- options!

        Got Ag/Au?

      • Natalie, considering prices for South Pasadena homes were well < 300/sq ft before the bubble, buying at 500+/sq ft is overpriced. The neighborhood there hasn't changed much at all over the past 10 years. I used to live off orange grove + mission just before the bubble, and I still go visit family/friends in the area (huntington + fair oaks). The game hasn't changed at all.

        I wouldn't mind living in that area, but I not for those prices. You could convince yourself that 'it is worth the price' if you want, but overpriced is overpriced, no matter how you look at it

      • I don’t think these are good prices! Jesus! They are way overpriced!

    • Guess what Natalie? That house will sell close to asking price. Probably a cash or mostly all cash buyer. That’s why there are not too many lookers. Reason? South Pas has a “gold-plated” school district. It also has small population with no room for corporate housing expansion. Not too many credit crunchers or no-money-down folk live there…………….

      • I’m sure you are right! Lots of million dollar and up houses get snatched up within weeks of hitting the market.

      • Not sure WHAT you’re basing your rosy prediction on? LA County Assessor’s office shows several other SFRs, within a 500 ft. radius, SOLD over the last 2 years… ALL of them in the $525k-$625k range… this home looks to have the SAME SIZE lot, and I doubt it is a whopping 40-50% “better” than its neighbors… and if it actually IS that much “better”, then the prospective new owner’s problems are just beginning. ;’)

        This list price is simply delusional, made by a NON-motivated seller. It will NOT move at anything over $700k, even to money-laundering Mexican cartel members.

        “Very few people are looking at it.”… no kidding. Believe me, “Architectural tourists” are the only viewers… ZERO serious buyers. Listing price is so out of whack that serious buyers know it’s not really even for sale, and move on to ones that are.

        Before I knew the particulars, I was LMAO… now after 3 minutes of research, I’m ROTF, clutching my abs, and LMAO!! 😀

      • OOPS… getting late out here on the East Coast… I meant 80- (almost) 100% better! Almost 2X more than the “comps”… ABSURD!!

    • $1,000,000 ? What a joke.

    • I don’t even know the particulars, and I’m LMAO!

  • Financially speaking, the last ten years have been the best in history. Ask the folks at the top. Follow the money and you’ll find the perps.

  • We Don't Make Those Drinks No More

    Great article, Doc. Incomes don’t justify housing prices. Numbers don’t lie.

    However, there is the demographic who doesn’t seem worried about lack of ability to save and/or invest for the future, decide against starting/having a family because to do might involve relocation to a “less cool” place, give up shopping, etc. Few worries about a “savings-free” lifestyle (if job disappears or the business stalls/fails) govt will provide assistance, unfortunately that might involve low income/subsidized housing and govt cheese. However, close proximity to Trader Joe’s and the beach trump everything. Multiculti atmosphere unique to CA! THE WEATHER! Surf on Christmas! Wheeeeee!!!!!!

  • People are slowly starting to see that this is not a cyclical recession. We’re 4 years into the drop and no improvement has been seen. Things are actually looking quite bleak. This winter should see some heavy price drops as summer has been terrible.

    • I think you’re right about that. If you NEED to sell your house in the near future, lower prices are almost guaranteed. Even with the record low rates, this spring/summer was bad and it certainly doesn’t bode well for the slow selling season we will enter into shortly. I’m a potential future buyer, but I see no upside to buying anytime soon. I think another 5 to 10% price decline is a sure thing, interest rates aren’t going anywhere and there is little urgency to buy now when you can do so in a year or two.

      • By keeping interest rates low for the next 1 1/2 – 2 years… If we stay stagnant for the next year.. or only drop 5%… You will see prices rising leading into year 2.. People will get anxious knowing interest rates might SKY ROCKET the following year… And bidding wars will raise home prices…

      • I can’t wait for rates to rise! Much rather buy a cheaper home that have a lower rate. Can always refi when rates come down later… but they won’t go below today, so no reason to buy now.

        These low rates are just keeping the prices jacked up!

    • And things aren’t even bad…YET 😉

  • I have many friends who live in California and it is shocking to me how in the dumps the state can really be at this point in time. When you consider that even with the economy trying to make a come back people are still losing money everyday it hits you. But then again it also says something about how our country decided to base its economy on publicly traded stocks rather than a collective system of constant production and sale without the able to have public investment. I feel that in this situation we have dug our own graves.

    • “But then again it also says something about how our country decided to base its economy on publicly traded stocks rather than a collective system of constant production and sale without the able to have public investment.”

      You do realize, I’m assuming, that the sentence I quoted is an oxymoron?

      Don’t you?

      “Publicly traded stocks” are indeed a “public investment”, but unfortunately for the “public” organized criminals, which I identify as the Ivy League Mafia, have so corrupted and co-opted funds intended for the equity/bond market, that the entire system has been corrupted beyond its normal function.

      The Fraud St. banksters, enable by their fraternity politeer brethren, have looted the USofA to the point where nary an honest outsider can get a break…

      Too bad, so sad, the ‘MeRiKan sheeple are only beginning to put together the pieces of a broken dream.

    • Yes, and publicly traded traded stocks (i.e.. companies) have only one obligation — provide returns for their shareholders (not to their communities, citizenry, country). So you have Proctor & Gamble (or GE, or IBM, etc.) making money hand over fist first and foremost by lowering their #1 cost driver (e.g., labor costs…either through automation or off-shoring) and taking advantage of a growing global population and increasingly wealthy markets in Asia/India. The perverse thing about all this is you have American pensioners and 401k/IRA slaves depending upon stock returns from U.S. companies who have zero fealty to their own citizenry…so that my 401k money is used to provide liquidity to companies who are intent on firing me.

      This is the dark side of free market capitalism….it’s no charity. There is no demanding that “my children have it better than I did,” or even to enjoy a middle class existence if you are educated and work hard. Labor is becoming either obsolete or a fluid commodity in the global economic machine.

      The 1 percenters who are part of George Carlin’s “ownership” elite will continue to live well and support “prime” RE markets. The real question is: how prime is prime? Certainly Manhatttan Beach, upper Santa Monica, Pacific Palisades, etc. But, what about Pasadena, Culver City, West Los Angeles, etc.?

      • “e perverse thing about all this is you have American pensioners and 401k/IRA slaves depending upon stock returns from U.S. companies who have zero fealty to their own citizenry…so that my 401k money is used to provide liquidity to companies who are intent on firing me.”

        Last I checked TREASON was still a crime in the USofA:

        Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort. No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act, or on Confession in open Court.

        Of course, you’d have to enforce the Rule of Law to do that, and no one really wants to be held strictly accountable for their actions anymore, do they?

        The truth is, ‘MeriKa has become a nation rife with pathological liars and spoiled children.

        Free skittles and unicorn rides for everyone!

        I was so stupid not to go to Perp school and then onto Ivy League racketeer training – I had no idea you got a license to steal with those diplomas!

        Are you ready to receive the eucharist Pancho? Caliph Hussein Obama is gonna put a chicklet in every mouth!

        Truth is treason in an empire of lies…

  • I’m curious about these all cash offer people. It’s not just small $200k houses in the desert they are snatching up . I’ve been trying to buy in the Westside for long time now. I keep getting outbid by all cash offers, even though in a few cases my offer was higher. At first I thought I was competing with flippers so I moved up to nicer and more expensive homes, thinking that might do the trick. Each time I lose to an all cash offer. The last house I tried for I was told they would only counter the all cash offers. Are these investors? It seems risky buying a smaller house in the $700-900k range as an investment. I’d love to know who these people are.

  • My wife and I are looking at homes in the $600-$650K price band. Our intention is not to pay that, but maybe $550-$575K for those homes in a few months. We’ve been encouraged lately by the fact that the open houses where we are looking (Westchester, Redondo) have gotten really quiet in the last three weeks. We’re seeing price drops 2-3 weeks after initial listings for homes that weren’t being unrealistic (it’s all relative, of course). One realtor called me on Sunday letting me know that they dropped the price 30K and if I was interested to let my realtor know. I didn’t mind the hustle on behalf of the listing agent, then I looked at my watch and realized she called me during the middle of their open house. Apparently there was nobody there to talk to. It seems as if it just dried up.

    Feeling vindicated for being crazy enough in 2005 to say it would all blow up, but feeling frustrated at all of the obstacles being thrown at slowing down a true price discovery. Anyway, I predict a fairly quick 5-10% correction in this price band, then a plateau as buyers jump in. Then more slow price leakage. I’ve resigned myself to not timing the bottom exactly, but avoiding most of the carnage. Just an opinion…

    • You’re up in there at the new Jumbo loan limit area. I’d be interested to hear how this shakes out in your price range. I’m guessing you might be on the right side of the line.

  • It is a disntinct possibility that everything will not be as bad as people imagine. All that is required is modest to low economic growth to unleash a pent up torrent of upper class spending. There is a tremendous amount of wealth sitting on the sidelines right now. Yes. there has been some equity damage to stockholding families, as one reader points out. But people’s BMWs and Jags are getting old around here! I’m seeing road rash on some very fancy wheels. Trust me, people with millions in net worth are itching to pull the trigger on fancier rides and shopping sprees as soon as it can be phychologically justified somehow.

    • Relative to the population of CA, the number of wealthy people waiting on the sidelines is small. I think long term things will be pretty bleak.

    • Hi Jay. It is my understanding that cash, as a percentage of mutual fund positions, is near the all time low, around 4%. Not much rocket fuel for a stock market rally. We had a pretty nice short covering rally today, though. I think a lot of those high frequency traders (HFT) are just selling to themselves the same stocks back and forth.

      Every where I go I see so many empty retail, wholesale, office, and light industrial buildings, not to mention all the residential excess. Seems like even a modest recovery wouldn’t help the construction industry much, and that has been the main jobs driver coming out of past recessions.

      You almost have to hand it to Bernanke. It is a miracle there aren’t bread lines and soup kitchens on every corner. Lot of folks on food stamps, however. If there was an an easy way out, they would have thought of it by now. Sit back and wait for some of your rich friends to get overextended. Maybe you can get a used Jaguar automobile cheap, when they start having trouble making the payment on the McMansion.

  • @Ed, So. Pas. is crazy overpriced, I agree with you here. I live in an apt. and have zero interest in becoming a homeowner.

  • I’m just saying, people are still nuts enough to pay a million for a house here. Check out 1717 Fletcher Ave. or the little house on Marengo by the elementary school that recently sold for over $800K. Nuts I tell ya!

  • Buy 100% made in USA. Don’t shop Walmart – money goes to Asia, China, Mexico, etc. Have a neighborhood teen/young adult mow your lawn instead illegal alien.

    You have the right to choose who you buy a home from and sell to.

  • What’s your prediction about what would happen with a second Obama term? By propping up the banks with printed money, they have no need to move the shadow inventory and therefore house prices stay up. Things look better for an incumbent. But right after a re-election, there’s no need for the shadow inventory any more. Let it go down the tubes…

  • When I read the article this past week about the record-low percentage of folks employed in CA, it didn’t surprise me at all. I’ve noticed since I moved here two years ago that the roads are ALWAYS busy…nearly any time of day. Certainly all those folks driving around (or into the shopping plaza where I park my car) at 10 or 11 AM (or 2-3 PM) can’t all be cutting out of work to do “chores.” Looks to me like a large percentage of the population in the SD area are part of the “leisure class” (or at least they THINK they are).

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