California Housing and Economic Census: Data from the new American Community Survey shows California is in Economic Trouble. Who Moved my Cheese?

Early in the week data was released for the American Community Survey produced by the Census.  The survey looks at interviews of 3 million households in geographical areas that have populations larger than 65,000 people.  For any smaller area (below 20,000), the survey will use three-year averages.  I’ve been looking over the data and have found some startling finds.  The fascinating find is the survey captures the peak point of the California housing bubble which I have highlighted in detail and is bursting like a water balloon dropping to the floor.

This data is important because it is really some of the most comprehensive data we have had since the 2000 Census.  It also starts shedding macro data on the economic bubble and how people adjusted to the changes in our economy during the decade.  Let us be honest, the problems we are facing did not start in 2008 or in 2007.  These have been brewing for years.

The data also helps to shed light on why people are flipping out or living in a silent desperation.  Sociologically it gives us a better understanding.  I read a story this week about all these brawls taking place at Chuck E.  Cheese’s.  Chuck E. Cheese’s is basically a glorified pizza parlor with video games and creepy robotic rodents shaking their money maker.  However, since January of 2007 police officers have been called up to break up 12 fights.  You’ll love this:

“The biggest problem is you have a bunch of adults acting like juveniles,” says Town of Brookfield Police Capt. Timothy Imler. “There’s a biker bar down the street, and we rarely get calls there.”

That is the issue right now.  In California, how many times have you seen gargantuan trucks loaded to the gills with adult toys like off road bikes and jet skis?  You always see this.  Some of the most erratic driving on the freeway is by “adults” driving around in modern toys trying to deal with some unresolved childhood problems.  You literally can see this over compensation behavior.  And I address that because the housing bubble was a symptom of this disorder.  People wanted to keep up with one another and kept trying to get the bigger toy.  You have a Jacuzzi in the backyard?  Well I’m going to install a cascading waterfall in my pool.  You have a BMW?  Well I’m going to get a Mercedes.  In reality, the vast majority of people were sinking deeper into debt and actually had very little wealth.  The rat at Chuck E. Cheese’s had deeper pockets.

Yet the anger and desperation creeps out because this past decade was a massive consumerist era.  If you define yourself by objects (i.e., home, car, etc) then what happens when those things aren’t worth as much as you once thought?  Many people simply had no identity beyond their items.  Mike became the guy with the raised truck and 3,000 square foot mansion.  Jenny was a colleague with a Lexus and Louis Vuitton bags.  When that is taken away what is left?  That is where I think much of the frustration is boiling over.  The pretense is done and the ACS data proves that there was really nothing there to begin with.  We are now getting stories of massive market fraud and comments flatly stating the game was a Ponzi scheme (MarketPlace screenshot):

Ponzi scheme bernard madoff

This isn’t exactly what is needed when unemployment claims are at 26 year highs and you hear the former Nasdaq chairman is operating a “Ponzi scheme.”  $50 billion potential loss with this guy and how much is that big 3 bailout?  I wonder if we are going to have 2 months of trials and media salivating with this one case.  Does the mainstream media understand that $1 trillion is more than $1 billion?  It is time we spend our political capital and energy with the massive fraud embedded in Wall Street, opening up the books at the Federal Reserve, and digging at the root cause of this mess.  It looks like the bailout deal with the auto companies is falling apart after careful scrutiny.  Why wasn’t this much attention given to the $700 billion TARP?  I’m not for the bailouts or the auto companies but the inconsistency here is maddening.  How can we sum it up?  I’ll allow Mr. Madoff to speak:

“On Wednesday, Madoff told two senior employees that he was “finished,” that he had “absolutely nothing,” that “it’s all just one big lie,” and that it was “basically, a giant Ponzi scheme,” federal prosecutors said in their statement.”

Yup, these are the same kind of folks we are bailing out on Wall Street.  Maybe Sir Madoff can call Paulson up this Sunday to assist in his Ponzi scheme.  As if consumer confidence needed any additional help right?  Let us now examine the ACS data.

The California Market    

Let us first throw out some raw numbers for the state according to 2007 ACS survey:

Housing units:                         13,308,705

Occupied housing units:         12,200,672

Vacant housing units:             1,108,033

Homeowner vacancy rate:      2.1%

As I have discussed in a previous Great Depression article, the homeowner vacancy rate is at record highs.  Take a look at this chart for the country:

homeowner vacancy rate united states

The latest data puts California up there.  You also have to keep in mind that this data captures zero of the 2008 bloodbath which California is now facing.  This data encapsulates the insanity right before the fall.  We already know the data for today so it is interesting in retrospect to look at how bad things really got.

Let us look at some more data:

Owner-occupied:        58%

Renter-occupied:         42%

This comes as no shock to many readers.  California has one of the lowest homeownership rates and it will continue to get lower as people in the upcoming year start facing the grim reality of the pay option ARM nightmare.  You will start seeing more and more people lose their home for the following 2 reasons:

(1)  Rates recasting

(2)  Unemployment

The obsessed real estate complex forgot one thing when they keep looking at monetary policy thinking this is the panacea to everything.  Our economy is in the dumps!  Did you also notice that our budget deficit just exploded over a few days?  Our politicians have no idea how to deal with this economic situation – they’ve studied the art of politics for California for the past 30 years but should have read a little further back.  Who wants a 4.5% 30 year fixed mortgage when they just lost their job or have stagnant wages?  The California unemployment rate is 8.2%, the third highest in the nation.  When the survey took place the unemployment rate was 6.6%.  At the peak you’ll be startled by this data:

Median Income:          $59,948

Median Home Price:     $532,000 (owner-occupied units)

This reaffirms years of what we have been saying.  If you look behind the curtain, there really is no wizard but just a bunch of smoke and mirrors.  In the case of California, many people simply covered up reality with a big mortgage and a leased car.  Yet one of the more startling facts is when people purchased their homes:

California moved into homes

The above is stunning.  Why?  The current median price for a California home is now $278,000, almost half of the median price from the 2007 ACS survey.  When we look at Southern California, the most populace region of the state we see that many counties are now back to 2003 price levels:

SoCal median home prices

The vast majority of people that bought after 2005 are now underwater.  I would also mention that many in the 2000 to 2004 category are underwater because prices have fallen so quickly in the state.  Yet think of the greater implications of this data.  That means that over 58% of people in the state moved in to housing units after 2000!  This is for occupied housing.  So what does this mean?  A ton of people in California are sitting underwater in mortgages.  Take a look at this data:

Income as percent of mortgage

The ACS needs to add a California only category.  32.8% of all households spend more than 35% of their income on housing.  Now that isn’t necessarily out of line.  But how many are over 45%?  55%?  That is the data we really don’t know from this but from all other indicators, we know some people are leveraged to the high heavens.  2.3 million people is a large number.  Just for a comparison, let us pull up Texas for perspective:

texas housing

Texas median home price:       $120,900 (owner occupied)

Median household income:     $47,548

This is precisely why California is not going to see a housing bottom until 2011.  The difference in the median income between California and Texas is $12,000 yet the difference in median home price is $411,000!  Of course we’ve just shaved off $200,000 in one year but you can see why the economics won’t make sense for a very long time.  And you’ll love the delusion of what Californians thought of their home values:

california home prices

Kick all those homes one step lower on the scale.  Maximum wealth destruction.  And the state used some of this data to calculate their 2008 budget!  They spend each and every penny that they get.  Insanity.

The ACS sheds much light and confirms what we have been saying for years.  The state has gone off its meds and this correction is going to be long and painful.  The delusion runs deep and in no other state will so much nominal wealth be destroyed.  The wealth was never real like a Chuck E. Cheese’s singing chicken.

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13 Responses to “California Housing and Economic Census: Data from the new American Community Survey shows California is in Economic Trouble. Who Moved my Cheese?”

  • In California, how many times have you seen gargantuan trucks loaded to the gills with adult toys like off road bikes and jet skis?

    Oh pleeease. It’s a bubble, okay? Not a frikken morality play. You think the reason for the Tulip bubble was the Dutch wanted gold plated ice skates?

    Those same trucks filled with jetskis and off road bikes were cruising the freeways and offloading their wares well before 2000, or 1990, or 1980.

    I’m new to the bubble blogs but I am impressed by the amount of self righteous
    pollution being pumped into the blogosphere from them.

  • With over 8% unemployment, is that median wage going to stay at $59,000? Welcome $50,000! Of course, that means median house price should hit $150,000. Maybe with the “Cracked AshLandslide Inundation.” premium, we’ll see average prices just “south” of $200,000.

  • K, you seem new to the idea of interconnectedness, too. Of course the Dutch wanted gold plated ice skates. That is what greed is all about. Greed and morality are always in the same boat. Take a look at product sales in California and manufacturing capacity from 1980 to present and you will find your missing link to reality and why the housing mkt has put the economy in trouble. The graph for product sales will follow that of the price of houses quite well.

  • A bubble IS a morality play-

    My children wonder why we seem so broke compared to their friends at school.
    The ones with $700K houses, $40,000 new cars, superdeluxe cel phones and $90 tshirts.
    Simple fact is that we’re not borrowing money HELOC credit card or otherwise.
    Their friends’ parents have begun to lose their homes… and in an expensive town like ours (La Verne) that trickle (which so far has not been too noticeable) is gonna become a flood…
    My wife and I both make great money and it’s still HELLA hard to make ends meet even in our dumpy little little house. That’s how I know that others MUST be borrowing to fund their much more lavish lifestyles than ours.

  • Am I missing something? If out of 13,308,705 housing units, 1,108,033 are vacant, isn’t that a vacancy rate of 8.33%? Or does that total number of housing units include apartments and other dwellings not typically ‘owned’ by homeowners? Still, even 2.8% is scary…

  • I think the confusion is that the number in question is “homeowner vacancy rate” which I would translate to mean the % of places that could be bought and occupied by an owner but are not.

  • K-
    The bubble IS, in part, due to morality. Specifically, greed, which usually involves a lack of morality.

  • Yeah, all that jet ski, monster truck, speedboat, crap is chronic here in Florida as well. I could never understand why anyone would pay for 4-wheel drive and monster rims in a state with no hills and zero snow. The US national pastime is burning gasoline, good thing we annexed Iraq. Oh wait.

    My girlfriend’s parents owned a carnival, and they know what Chuck E. Cheese knows, and the Fed knows. Whether it’s tokens or FRN’s, if you issue the currency, you rule.

  • K
    Docs right about the whole Peter-Pan mentality where adults never grow up. There’s nothing inherently wrong with a jet-ski–but somebody has to be the grownup. The responsible are being overwhelmed by reckless right now and the circus that modern life has turned into is an obvious paradigm of mass insanity and all the toys are an excellent symbol of that. Time for big-boy pants ’cause the red tide is rolling in…sorry, morality is the heart of this mess. EIght-billion people gotta have some rules to survive together.

  • Thank you Dr Housing Bubble for comparing Texas and California. The central question is – why did housing bubble up to 9 times annual household earnings in California, which they remained constant at around 2.5 times annual household earnings in Texas.

    Its clearly land use regulation, where they are “allowed” to build affordable housing in Texas – but not sadly it would appear in California. Unless of course, you believe the silly line that somehow Texans are somehow “more moral” than Californians.

    Its the Californian housing bubble collapse that triggered the Global Financial Crisis – that at the very least is going to lead to a severe global recession. It would be fair to say that States such as California had land use law like that of Texas – it would likely be that the United States economy would still be growing.

    When do the Californians intend to start dealing with the real structural land use regulation issues – so we dont see a repeat of these unnecessary artificial housing bubbles?

    Hugh Pavletich
    Performance Urban Planning
    New Zealand

  • Dave,

    THis is a morality/econ lesson for your (and my) kids they
    will never forget. We had kids coming by sneering before
    they moved out of our rowhouse neighborhood to mcmansionville,
    just throwing it in our face. Now you bring your kids to those
    bighouse burgs. Show them the price reduced signs.;
    Show them the headlines. Let them know that those snooty
    assholes are to blame for the countries problems. As parents,
    you don’t get this kid of teaching moments but once in a generation
    at best!

    -Matt C

  • You forgot to mention that many of the people who bought houses before 2003 are also underwater because of the HELOC’s. How bad will it get before it’s all said and done? Worse than most of dire predictions is my opinion. We’re talking depression here folks.

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