The true picture of the California housing market – 114,000 foreclosures listed on the MLS but 257,000 foreclosures are active. Over 622,000 homes are in foreclosure or have missed at least one mortgage payment. 30 percent of California homeowners in negative equity. Net worth and income data for the state.

I find it extremely useful to take the pulse of the overall housing market in California by combining multiple data sources.  One of the bigger driving forces that will put a wet blanket on housing for years to come is the stagnant decade of wages.  This is problematic especially when prices are still unaffordable for households in local markets.  I think people over estimate how much wealth is out there or how evenly distributed it is.  They see the nice European luxury cars but don’t see the $800 monthly lease payment being sucked out of the dwindling checking account.  They see the McMansion but don’t see the massive 30 year mortgage.  Talking about income is taboo yet flaunting artifacts of wealth is a daily thing here in California.  I’ve seen brand new Jaguars pulling up to recycle large trash bags of cans and Hybrid Escalades at the 99 Cents Store.  No doubt the really rich are among us but simply looking at purses and cars is not exactly the best indicator (especially when you see $70,000+ cars parked outside 600 square foot apartment complexes on the Westside of LA).  Let us look at the state of California housing as it stands today.

The housing situation in California – Q1 of 2012

Let us first look at owner-occupied data.  I get readers looking for this data all the time because it does speak to the California housing situation.  55 percent of occupied housing is owner-occupied (45 percent is renter occupied):

owner occupied California status

This is thought-provoking.  Over 75 percent of those that “own” a California home carry it with a mortgage.  This is a much higher rate than nationwide data.  More disturbing is when we bring in another data source and examine how many households are underwater.  When we do this, we find that 30 percent of the approximately 5,100,000 owner occupied-homes are underwater (aka negative equity).  In other words, a renter would be in a better spot because these owners have negative equity and would have to bring money to the table even to sell their home.  If we include those that are near negative equity (another 5 percent) the combined figure balloons to 35 percent of all owner-occupied units.  To put this in perspective, there are more “owners” with negative equity than folks that own their homes outright in California.  Is it any wonder then why the shadow inventory is so large in this state?

You have to think of the psychology at work here as well.  The notion is that being a homeowner all of a sudden connotes a sense of wealth yet 35 percent of those homeowners are actually worse off than renters.  The above data shows this.  In other words, dig deeper into the various data sources.  And how many others only have 10, 15, or 20 percent equity which is eroding away as California home prices make new lows?

home prices california

This ties in with the issue of household incomes:

california household income

Source:  Census

The median household income in California is $57,000 and this comes from the latest Census data.  The reason we have so many people with negative equity is the bubble of course, but also the amount of people with little savings that are buying with FHA insured loans that require only a 3.5 percent down payment.  FHA has been the choice of many recent buyers especially in the last three years.  All those buyers are likely to have seen their equity evaporate into thin air.  Even if prices remained stagnant (unlikely) the typical selling costs shouldered by the seller is 5 to 6 percent.

I tried digging around for wealth data for California households and it is very difficult to find.  I was able to pull a few items regarding California household net worth’s:

net worth data

The median net worth of a California household is $61,000 but this data is old and was based on 2008 figures.  A large part of this was based on California home values being inflated.  Even then a net worth of $61,000 is not worthy of a McMansion or a luxurious foreign car.  When you run the numbers above you realize every other Californian is acting as if they have a $1 million net worth when in reality, the facts highlight a very different picture.  Too many people think they should be living like reality TV stars when they should be living like a reality based household.

I wish we had more up to date net worth data for California but this is hard to gather and the above metrics may be out of date.  If anyone can point to recent California net worth data this would be very useful.

Negative equity and shadow inventory

If you want to get a big picture of negative equity across states look at this:

CoreLogicNegativeEquityQ32011

Source:  CoreLogic

Nevada, Arizona, Florida, Michigan, Georgia, and California take the top spots for states with negative equity.  California stands out because it has the largest number of residents in the United States.  RealtyTrac lists some 257,000 homes as being in foreclosure in California.  We also know that the combined foreclosure and 30 day late rate is 12 percent of all loans.  This is nationwide so we know for California the numbers will be higher.  But we’ll use the 12 percent figure to be conservative.  Let us run the numbers:

5,183,554 homes with a mortgage in California (owner-occupied)

622,000+ homes in foreclosure or with one missed payment

We see that 257,000 are in a state of active foreclosure but most don’t even show up on the MLS.  Only 114,000 foreclosures even show up on public home searches:

california stats

With actual active foreclosures, you have some 143,000 homes completely missing.  You have roughly 500,000 homes that simply do not show up on the MLS and are part of the shadow inventory.  When you look at the big picture, you can understand why it is hard to see home prices moving up soon in California.  Yet some still like to believe in the all hat and no cattle vision of wealth.

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78 Responses to “The true picture of the California housing market – 114,000 foreclosures listed on the MLS but 257,000 foreclosures are active. Over 622,000 homes are in foreclosure or have missed at least one mortgage payment. 30 percent of California homeowners in negative equity. Net worth and income data for the state.”

  • Real Estate Forecast 2012 Warren Buffett’s real estate forecast for 2012 and beyond is extremely rosy, with the so-called Oracle of Omaha even recommending buying them over investing in a diversified group of leading companies.

    In an interview with CNBC on Monday, Buffett said single-family homes, along with stocks, are cheap and attractive investments. By contrast, investments in Treasury bills, gold or simply keeping money in cash are not as attractive.

    Buffett said if he had a way to buy “a couple hundred thousand single-family homes” and easily manage them, he would “load up on them” and “take mortgages out at very, very low rates.

    • Respectfully Norm I have to say all this proves is Buffet knows that suckers watch CNBC.

      Mr. Buffett is Wells Fargo’s largest shareholder, holding a 9.4 percent stake through his control of Berkshire Hathaway. Well’s Fargo bought Wachovia. Mr. Buffet already owns those homes.

      I can picture Buffet with his rubber boots pulled on and wearing his presidential medal of honor. Carrying a couple of buckets o slop while hollering SUI SUI. That’s right. Come and get it little piggies.

      • Ronnie:
        Thanks for your insightful comment. I hope it is published widely. Uncle Warren is Barry’s Tokyo Rose.

      • Buffet is just an old crook. How many conversations did he have with Paulson and Geitner before dumping 5 B into Goldman Sachs and 3 B in GE. Does anyone really believe Berkshire Hathaway made these investments without receiving assurances the Government would not allow these institutions to fail.

        Like the previous poster mentioned, BH is heavily into banks. By cheerleading housing, they are just talking their book.

      • James T in MA

        Buffet talks his book. That’s the phrasing, which I only learned recently, for someone praising those investments which he owns or controls and which if they increased in value would bring him money.

        He’s a corrupt old gasbag who by virtue of having a ton of money gets to invest in special deals that prop up Goldman Sachs . . accompanied by public words about what a great value U.S. financial companies are, and he speaks against the Keystone pipeline deal . . which if it doesn’t happen means a ton more business for railroads carrying oil in tank cars. Guess who owns a s**ton of CSX railroad stock? That’s right, the orifice of Omaha.

        He speaks in favor of the inheritance tax, and well he ought to. Berkshire Hathaway has bought a lot of small companies that weren’t going to be able to easily deal with . . the inheritance tax as the generation that built a terrific local or regional company found itself not easily able to pass down its privately held company and sold to “white knight” Warren Buffet.

        He speaks disparagingly of gold (though one of his companies just invested heavily in South Korean mines), but then what should someone who is completely tied into the present system say about an investment with no counterparty risk whose acceptance and popularity would threaten overleveraged paper crap like Wells Fargo and Goldman Sachs.

        He talks his book. That’s all he does. If Buffet promotes X it means that he makes money should X become higher priced. Period.

    • I am not a huge fan of Buffet, but I can see his point. I don’t know if housing is at the bottom and neither does he, but on a longer time span (and a mortgage is 30 yrs) I would say the odds are that homes will be worth more at the end of that time span. I think you would have done all right in 1965 if you purchased a home in 1935. The other aspect to the investment is the interest rate. Neither he nor I know what the interest rates will be over the next 30 years, but it is apparent to all that they are extremely low today. So the risk is to the upside on rates.

      • patsfaninpittsburgh

        …….which means your “investment” is going down, down, down!

        Ya might want to ask Japan about housing and how that multi decade thing works.

      • What do you mean when you say “I don’t know if housing is at the bottom and neither does he, but on a longer time span (and a mortgage is 30 yrs) I would say the odds are that homes will be worth more at the end of that time span”? Are you saying real (inflation adjusted) or nominal? What would be the carrying cost of this “investment”? I believe that a SFR would be a good investment if appreciation in real dollars is greater than the cost. The cost includes the interest, maintenance, tax, transaction cost, etc. I think we need to start looking at housing more as consumption rather than an investment.

      • That kinda depends on the house….if it was a high end 1935 house it could take a upgrade to 1965 standards in 1965….but a common 1935 house would be better off demolished….they were trash then and are trash now. Think about rotten iron pipe, knob & tube wiring, no insulation, lath and plaster, sash windows, crap fireplaces, freaking nightmares….only a large home with lots of built in carpentry would be worth the effort.

      • @JSO. Homes have a natural depreciation. They eventually fall apart and need to be rebuilt. A 30-40 year old home is not worth what a new home is. It may take 20 years for the market in Vegas to fully bottom out. Eh, think about living in it, not selling it.

    • Maybe they should call him the Oracle of Obama…I don’t trust him.

  • A bit stereotypical with the assumption that because one drives an expensive car, yet shops at the 99 cent store and recycles means that they are financially troubled? For some, we make an effort to be environmentally conscious and frugal because we feel it’s the right thing do, yet splurge in some areas.

    • So someone drives around in a $50,000 leased car, that probably uses high octane fuel, yet they try to save twenty bucks by shopping at the dollar store? Definitely sounds like someone is caring about the enviornment!

      I am also sure the person driving that H2 Hummer while recycling their Corona bottles is also deeply worried about global warming.

      • Yes, Sarah. I am a multi-millionaire, and I shop, sometimes, at dollar stores, because I am very frugal. On the other hand, I am frugal in everything, including my cars. I don’t even own one, at this moment, because I live in a large city with excellent mass transit. However, in the past, I have owned moderately priced Fords, Toyotas and a little higher priced, but still relatively inexpensive BMW.

      • That is, the cheapest model of BMW…

    • No, not really. The point of noting the vehicles in the driveway is a testament to the fact that debt you can drive around is more difficult to seize than a stationary debt object like a home. If the debtor skips payment on the car loan/lease you can bet the Repo Ops will find the vehicle. If the Repo Ops could tow away your McMansion they would.

    • Melissa,
      I don’t believe he’s saying that people are “financially troubled” because they drive luxury cars and shop at 99 cent stores. It’s that they cut back on some things, just like you said, and then spend all of their money on luxury status symbols. So to see $50,000 cars all over the place and then assume “wow, Californians must be rich” would not be accurate.

      Those drivers might be doing well, but they’re probably also committing a higher % of their income to their payments than most would consider wise. And if that’s the case it means that there are a lot of Californians who look like they could afford an expensive house but would not be able to get approved for one because of their current debt obligations.

      • We sold a luxury home (regular sale) a long time ago, and rent in a very illegal section 8 apt building (mtm was the reason-belongings in storage) and these clowns (the illegals) are driving really nice newer SUV’s. Partly free $, partly wanting to emulate yuppies.

        My car is old, and we’re paying cash for our next home. We also shop at the 99C Only store all the time. When we had a sizable income we were quiet money (other than our woman killer home. LOL)

        When I meet people, I find the ones the most comfortable in their skin are the quiet money types, or the ones who have accepted their new reality.

    • Percy Dovetonsils

      Marvelous response, my dear Melissa. The Hoi polloi are just envious of our exclusive club and would just love to be us. If you’re ever at Cannes let’s get together and do lunch, Ciao!

    • One on the outside looking in others may attribute California and Californian’s financial Crisis to living beyond our means. You can only spend what you have to spend. This state is so off balance. People pay the price to live here, everything is expensive, housing, utilities, gas, etc…
      Everything keeps going up up up except our wages. On top ot that we have to pay for all the non Americans – non citizens -that are bombarding our state. They are allowed to go to college and get financial aid, get on welfare, collect food stamps and get free medical, get low income housing. Our taxes are paying for these people , they are sucking up all of our resources and leave nothing for the citizens. Believe me when I tell you that they have their place in line – it is in the front of the line. I look on the streets at the homeless, who are they AMERICAN CITIZENS, families with children, American Vets. I dO NOT SEE MEXICANS OR THOSE FROM THE MIDDLE EAST.
      Who is standing in line at the food bank – You guessed it American citizens and only American citizens. Who are the majority at the wefare office- People from the Middle East and Mexican. WHO OWNS THE BUSINESES IN SOUTHERN CALIFORNIA – WHO OWNS THE real estate Mostly THE MIDDLE EASTERN F’N People. Why are are wages so low and the lack of jobs. Because the Mexicans come into our state and will work dirt cheap. Because there are more people than there are jobs. Employeers get the cream of the crop and pay them nothingsupply and demand.
      So for all of you thinking about moving to Sunny California, I would re-think it. What I am telling you is not an exageration. President Clinton was one of the only presidents able to balance the budget………partly because he stopped all resources to non citizens. Stop the resources they will stop coming here. Then and only then will we have a chance in hell to start living the Amnerican dream again. To survive, To take back our country before it is to late ….WAKE UP AMERICA,,….STAND UP. THE FEDERAL GOVERNMENT BELEIVES THAY ARE ABOVE THE LAW THAT THEY CREATED.
      IT IS AGAINST FEDEAL LAW TO BE IN OUR COUNRTY ILLEGALLY,….. BIG RED FLAG…..WHY IS THE GOVERNMENT ALLOWING IT. IT IS AGAINST THE LAW TO EMPLOY OR RENT TO A ILLEGAL ALIEN. THAT ARE NOT TO RECEIVE ANY AID OR RESOURCES……MAKES SENSE RIGHT?? WHY, WHY WHY IS THE GOVERNMENT GOING AGAINST THEIR OWN LAWS???? THEY ARE COMMITTING TREASON AGAINST THEIR COUNTRY AND ALL THE AMERICAN PEOPLE.

  • Homeowners in CA also have a hidden liability: the CA unfunded pension obligations. Those would add several tens of thousands per household if properly accounted for, assuming the state intends to pay them off by taxing its residents.

    OTOH, cruise by the high end wineries in Napa and you would have a hard time buying a $65 wine tasting, they are so crowded. I have a hard time believing this is all ostentation, living beyond means. There are two Californias, and the upper end is doing very well indeed still. Facebook is about to make how many Bay Area paper millionaires just by itself?

    • For an interesting look at that question you might want to see the new book “Coming Apart”.

    • Lord Blankfein

      Eric, be careful when talking about any of the public employee pensions in this state. From the last feature, I almost got run off the blog after pointing out the egrigious pensions and benefits that CA cops and firefighters collect. At least you realize there is a problem, many others will join you very soon. The existing pensions are ironclad contracts, more taxes will be on the way for everybody in the near future to help pay for them…that is what the fine print in the contract says. I would very much consider this when buying a house here in CA, I wouldn’t be surprised to see a property tax “special assessment” to help pay out these pensions!

      • Keep in mind that not ALL public employees receive pensions in which they don’t have to contribute. I’m a county employee and I pay $1500.00 per month into our pension system, which is a separate entity by the way, and not beholden to taxpayer funds. My wife is a teacher, and she also has to pay into her pension fund. Police and fire may not have to, same with the prison guards, but they’re the ones with the powerful unions. The teacher’s unions are not as strong as everyone thinks they are. And, just so you don’t get the wrong idea, while most people in my office are SEIU, I’m not unionized in any way.

      • Patiently Waiting and Waiting

        Ah yes, the FAUX Noise propaganda

      • I don;t want to see you run off the board here because we disagree in a matter of degree as to the issue of pensions. After our posts last week I saw an LA Times article about an LADWP employee as an auto painter making $100,000.00 a year. Now if indeed that person is a journeyman level auto painter I would agree that that is an overpaid worker, but if he or she is a mid level manager I don’t see that as excessive in our non-gold standard economy. I have no idea what you do Blankfein but I am sure if you don’t you very much would be happy in this culture to make over $100,000.00 a year. Indeed if you owned an auto painting shop or were a franchiser I believe you would make well over that amount.

        That said the discussion her is pensions. I happen to collect one of those govt pensions. [ Don't get too excited it's in very low five figures. Yes I do have medical subsidy but I also pay a premium]. My pension is with the city of LA. From there website: Currently LACERS provides services to over 27,000 active employees, and provides benefits to 17,000 retirees and their beneficiaries. LACERS administers the benefits approved by the City (the “plan sponsor”) which includes payment of $650 million in annual pension benefits (estimated as of 9/30/09), administration of retiree health care premiums of approximately $70 million annually, and management of the pension fund portfolio of $10.81 billion (as of 8/24/11) to offset payment of these obligations. Police, Fire and DWP are separate pensions but they are also equally well funded and investing in our recovering stock market. By the way with the down economy in the last few years I did not receive a cost of living increase.

        None of this is to say that there are not entities with very poor pension management. The city of San Diego and the challenges with the state deficit come to mind. I think blaming the pensions in a blanket shoot from the hip manner is disingenuous. Pension issues are a symptom of the problems DR HB points out here weekly – think the posts about unemployment underemployment. Everyone in the state got caught up in the bubble and the bubble did make the market and tax income go up. Personally I think the real problem is the major corporations running jobs out of the country. Without that strong working class that these govt jobs were based on from the 60s on it only makes sense that there are problems. Couple that with the money being given to the robber banks and not infused into the economy from the bottom up [and I mean really stimulating manufacturing and jobs] and you see the real culprit. Faux News is pulling the wool over your eyes for their masters to keep skimming off the top.

      • patsfaninpittsburgh

        Yup

        Anyone care to guess exactly how much wealth was ever created by a parasite like “wydeeyed” as gov’t employee?

        Why can’t we ship these types overseas? The turnaround starts when these types are on the slow boat to China.

      • That is a great idea patsfaninpittsburgh! This might even help the trade deficit as well! Win win!

      • James T in MA

        Lord Blankfein. I often read people saying that this or that pension contract is ironclad. I seriously doubt it but even if it were, so what? When the SHTF and that money simply *cannot* be paid, like the $300,000 a year pension that some education system officials in Illinois have absurdly been granted, you institute the “Windfall Pensions Tax” or some such thing. Any dolt thinking that his union got him a massive, unstoppable, monthly kiss in the mail can easily find that it whittled right back down to normal human scale.

      • Lord Blankfein

        Wydeeyed, first of all thanks for coming clean that you collect one of these govt pensions, you obviously have a very big vested interest here (rightfully so).

        After reading your lengthy response, I still don’t think you recognize the real problem. The real problem is that many of these pensions are mathematically unsustainable. The fine print in the contract says the taxpayer must make up the shortfall. Short of an entity filing a Chapter 7 bankruptcy, the existing pensions have to be paid out (that is the law and there is no way around it). How some of these pensions became so egregious is also a topic we will discuss here too. Since California taxpayers are on the hook, they should know a little history about what they are paying for and how it came to be…the taxpayers are really going to love this one. :)

        Let’s go back to mathematics first. I have been crowing about the egregious public safety 3@50 pension plan. This means that a public safety employee can retire at age 50. The amount of his/her yearly pension is determined by multiplying their last year’s salary by a fraction. Where the fraction is: (number of years of service*3)/100. So if they put in 30 years of service, their pension would be 90% of their last year’s salary plus COLA plus free healthcare for life. If the retiree lives until 80 and collects said pension for 30 years, there is no way on god’s green earth that this will be sustainable without massive taxpayer intervention. As I said before, mathematics says the employee would have to put about 50% of their salary into their pension account to make this work. And we all know this isn’t happening. The public safety employee is an extreme example, but other state government entities have also juiced their pension calculations in the last decade…many of these will fold too. I know Calpers relies on investment return of almost 8% yearly to make the sytem work, they have showed return for about half of that for the last decade. Anybody who is versed in math know that when you start playing with exponential returns, one or two percent makes a monster difference.

        Now we move on to the history lesson. Let’s rewind the clock back to 1998 in California. The gubernatorial election that year had a surprise winner. Some guy by the name of Gray Davis (remember him). Gray Davis seemingly came out of nowhere and won the governor’s race. His campaign was bankrolled by many of the powerful California labor unions (in the way of money and votes). After he got elected, the unions wanted the favor returned and old Gray was more than happy to oblige. From this we got Senate Bill 400 passed (SB400) in 1999 that RETROACTIVELY GIFTED the 3@50 pension plan to most California public safety employees. This sounded like a great idea in 1999 since the stock market was going to the moon. Anybody with an ounce of common sense knew this wasn’t going to be sustainable, but who cares…heroes need hero sized pensions and benefits. It wasn’t long afterward that many other entities in California (non safety employees, utilities, etc) also wanted a bigger pension slice and they got it. Remember the fine print, the taxpayer will make up any shortfall!

        So there you have it. I gave you some math, facts and history and why most taxpayers in this state should be absolutely irate. My Gray Davis scenario is a perfect example of why collective bargaining should NOT be allowed in the public sector. When you have corrupt politicians conspire with corrupt unions, the taxpayer will be left holding the bag every time ala California. There is just simply too much conflict of interest here.

        Wydeeyed, you seem to have it out for Wall St., large corporations and outsourcing. That is a topic for a whole different debate (not saying that I support any of this stuff). That does not make it right for taxpayers of this state to get ripped off by public employees via their corrupt unions and politicians. And please stop with the Faux News propaganda crap, that makes you seem much less intelligent. Attitudes like that will get many people turning on the public employees…and from what I can tell that’s already happening in a big way. Have a good weekend! :)

      • @Lord Blankfein
        My response would have been much more simple. I would simply say “see Vallejo CA”…

      • speedingpullet

        I wasn’t trying to ‘run you off the blog’ Blankfein. Hah! As if I had that kind of power…

        I just get bored of hearing the same litany over again i.e. its always someone else’s fault and if only the PTB could take away someone else’s rights, then we’d all be better off.

        Truth be told, I bet you don’t even know how many pennies a year you’re personally liable for Public Sector workers pensions, do you?

        But, someone else is doing better than you are and somehow this enrages you, because you don’t belong to a union and your pension sucks. Therefore your solution is to take away their benefits, so that we can all be miserable together.

        As I pointed out in the good Dr’s previous post – there’s plenty of us who don’t begrudge those who work for our public good to get decent compensation and benefits.

        I understand that moaning about other peoples good fortune makes you feel better – and if it actually helped anyone in a practical way to take away union benefits and pensions then I’d be right there with you clamoring for it too.

        But, you know what – it doesn’t make any difference to your condition what people in the public sector get paid. You have no control over it, you don’t get to vote on it.

        I find it funny that you feel perfectly justified in kvetching about public sector employees and say bupkiss about the Wall St gangsters who make considerably more money. But I guess its different because they ‘earnt’ it, unlike some slacker 8th Grade math teacher or a firefighter….

      • Lord Blankfein

        Speedingpullet, I’m going to make this short and sweet since I already gave the lecture and I don’t think you paid attention.

        “Truth be told, I bet you don’t even know how many pennies a year you’re personally liable for Public Sector workers pensions, do you?” Calpers says unfunded pension liability is 100+ Billion, Standford puts it at 500 Billion. That’s a lot of pennies there, don’t you think!

        “But, someone else is doing better than you are and somehow this enrages you, because you don’t belong to a union and your pension sucks.” Like I said before I am envious at all. If these pensions were FAIRLY earned, I would have no problem with them!

        “I understand that moaning about other peoples good fortune makes you feel better.” Good fortunes? I guess the public employees were fortunate to be on the receiving side of the taxpayer ripoff. Is that what you are saying

      • Lord Blankfein

        Speedingpullet, one more thing I forgot to add:

        “I find it funny that you feel perfectly justified in kvetching about public sector employees and say bupkiss about the Wall St gangsters who make considerably more money.” I do not support Wall St. gangsters, like I said that is a topic for a whole debate. Just because Wall St. pulled off a large scale theft does not make it right for the taxpayers to get ripped off by corrupt unions and corrupt politicians.

        Let me know when all this sinks in and makes sense. It’s really not that hard to figure out.

      • patsfaninpittsburgh
        March 2, 2012 at 1:58 pm

        Yup

        Anyone care to guess exactly how much wealth was ever created by a parasite like “wydeeyed” as gov’t employee?

        Why can’t we ship these types overseas? The turnaround starts when these types are on the slow boat to China.

        Well I can see where you would fit right in – 1930’s Nazi Germany. Remember Germany was in a depression and they chose Hitler and glided right into murdering, Jewish, Catholics and Gypsies. You are one cold hearted son of a bitch. That’s language taken from my fathers mouth. He fought the fascists of Germany but sadly I don’t think he did so as an invitation for Americans to turn into them. You have no right to slander me as a ‘type’ and suggest I be sent off to a foreign country – possibly because you think I am a communist? For working and having a pension? Or that’s just your version of concentration camp. You show what a Pittsburgh hack you are when you claim that the economy will turn around by killing me off. Not to bright are you? Do not kick me buddy. But thanks for showing your colors.

        You and blankfin are not paying attention. There is nothing unsustainable about my pension or it’s administrator. Read the note I passed along about it again. I and the vast majority of public sector employees are not ripping off the taxpayers. Truth be known myself and my co-workers were ripped off by the politicians.

        It is not Faux News propaganda unless it is coming out of the mouths of puppets on Faux News. They lie, they spread their agenda based on those lies and they are the corrupt.

        You completely ignore that I made points that the state screwed up financially – and you most likely are 100% blind to the fact that a huge factor in that was the fraud perpetrated by Enron. Are you aware that most cities and counties had the sales tax dollars that the state paid to them withheld because of the resulting economic hole. This put all those municipalities in a financial bind and hard to meet their obligations.

        Understand that I agree with you about pension abuses. The Times next pension article was about top level managers having their vacation and other benefits added to their salaries and boosting their income over their base salary. That is unfair. I disagree with that as much as I disagree with how they value your vacation, sick, overtime and earned time off that is banked on the books at the new hourly rate when you get promoted. I think that in this world of computers it is not that hard for the money to be held and tracked at the hourly rate it was earned at. Heck all they have to do is adjust the hourly amount down to what it would be at the new rate.

        As to your math you are just throwing random math out there and saying this is it. 50% of the salary to make the pension work. Your nuts. Look again at my pension fund. It is financially sound. Inflation will eat away what I get as the years go on. LACERs has had a strong recovery from the loss they had since 08. Off the top I believe they are up well over 10%. The economy is recovering. Enough with the sky is falling.

        And you are spouting numbers for public safety pensions as though all public workers are on that track. Not so. Nor do all Cops and firefighters start at 20 and retire at 50. But you take that and jump to conclusions. You really haven’t shown math to denigrate good pensions in healthy economic markets. And not all cops are on SB400. the truth: The bill led to the infamous 3 percent at 50 provision for California Highway Patrol officers. CHP. Not all public safety workers. Yes the state expanded these high benefits to non-safety workers – but you are blasting all public employees for the foolishness of the state. Dang I wish my pension was at 3%. Yeah Yeah boneheads start slamming me. I am in the range of unemployment compensation on my pension. Most public sector employees retire at 65. That’s the age under my pension.

        Back to PatsfnPittsbug and what: Your attack on me is uncalled for. Do not call me a parasite. I did a hard job that I imagine you could not even stomach. I have worked non-union and union in my work life. I can testify that working union is not about a gravy train. It is about constraints on the ability to abuse workers. I was many times abused in my working conditions and pay by non-union jobs. I worked a job non-union once where I was carrying the load of three positions for 2/3rds the rate of pay for one. I was and am no parasite. In my day I would have worked circles around either of you.

        I apologize to the rest of the fine people here on Dr HBs site. But I am tired of these thoughtless haters blaming decent hard working Americans and advocating what our fathers and grandfathers fought to get for us and the very thing that made America the greatest nation on

      • Lord Blankfein

        Wyedeeyed, that’s a pretty nice write up you had there. There are plenty of places where I disagree…but I am done debating this topic. Face it, I won’t change your mind and you certainly won’t change mine. Let’s see how if plays out.

        The train won’t come off the tracks this year or next…but when it does derail (and it will) I’ll be the guy in the street with the “I told you so” sign.

  • The condo market is in a unique situation too. I looked last weekend and found that several complexes have maybe 10% owned by the bank and who knows how many more with starting to miss payments. I’m sure the HOAs are not getting paid in a lot of cases. Maintenance is deferred, the dues are raised, to cope with it. Can an HOA go bankrupt? What would that look like?

    • James T in MA

      That’s a very interesting question. The other aspect of such a situation is that there are very strict rules for the status of a condo association if an FHA mortgage is to be used by a prospective buyer. Only a very small portion of the units can be occupied by anyone but the owner and only a very small percentage of units can be in arrears on their association fees. So, a condo association that has the troubles you described is also bringing upon itself the added trouble of having diminished the size of the market for its units by ruling out buyers with certain types of financing.

      • In many cases, condo HOAs are in such bad financial condition due to assessment arrears and defaulting owners that units cannot be financed at all.

        Here in Chicago, there was issued a list of buildings, mostly new or newly converted, and often very high-end, that were “blacklisted” by financial institutions as ineligible for mortgages due to the financial condition of the association and the high number of units in default and/or foreclosure.

        Miami also had such a list, and about 100 prominent buildings were on it.

        Buying a condo has become very dangerous because the defaults tend to cascade- more people bug out as they see other people in the complex defaulting, and then you have a building that is virtually unsalable. Many people I know have had their assessments raised $200 or $300 a month over the figure they were quoted when they bought- an expense they did not plan for and that most cannot easily bear.

        When you set out to buy a condo, you have to do a lot of discovery, make sure you know how much debt there is in mortgages, HELOCS, whatever, against every single unit in the building, Know your building really, really well because it is the paying owners who will be stuck with the expenses left unpaid by defaulting owners. It really sucks to pay $750,000 or some like figure for a “luxury” condo just to end up having to man the front desk and mow the lawn, and live in an unkempt building with dirty carpeting in the corridors and badly maintained mechanical elements because your association is too broke to handle this.

        It all changes the way I look at buildings. I used to seek security numbers and believed that a large building was financially safer than a small one. But if you have 100 units, or 500 units, and a third of them are not paying their assessments, you have a very big financial problem. I also like co-ops better than I used to, because, unlike a condominium association, a co-op can financially qualify prospective buyers and blackball them if they are not financially qualified to bear the cost in the opinion of the board. This may seem repressive and it has killed sales in co-ops, but it is better than being stuck with a building that can’t pay its bills.

      • Please forgive typos and dropped connector words in foregoing post.

        I meant to say “security in numbers”.

        Anyway, condos look worse every day, and perhaps they don’t really make sense. Or, at least, a prospective buyer should wait for things to stabilize and see which buildings are making it and which are not.

      • The realtor for one standard sale said she got it approved by FHA. But that’s the govt; they can do whatever they want, and proved that in the past ten years.

      • And yes, I do believe the cascade effect is happening. People look around and see their neighbors and co-owners defaulting and are just bailing out of their condos, enjoying a year free of payments, and then starting over somewhere else.

      • Here in Vegas I wondered about the same thing. I looked up something that showed condo complexes in compliance in the middle of the bubble. I rent in a condo complex that should no longer be in compliance because of the number of renters. Guess what? No updates to the compliance records. I think the FHA is looking the other way.

  • I guess I qualify as a disinterested observer, since I no longer live in California. Still, I think about moving back once in a while. And yet all it takes is a few minutes of internet browsing to dispel that thought. Prices are still at delusional levels in the desirable beach areas. I guess I’d be a buyer once prices drop to 1977 levels. LOL

    • At those prices you might get trampled in the stampede.

    • I live in a desirable beach area and love it but couldn’t agree more. I hope the houses do go back to 1977 levels. Why wasn’t the bubble considered HYPER inflation? After all, housing is a staple and ramp up prices are hyperinflationary.

      • We’ve been looking for a retirement home in Southern California but the inflated home prices are making the task next to impossible. It’s obvious that the state government inflated assessed property values so they could collect higher property taxes. Many of the high end homes are dumps.

  • —–They see the nice European luxury cars but don’t see the $800 monthly lease payment being sucked out of the dwindling checking account. They see the McMansion but don’t see the massive 30 year mortgage. —-

    This reminds me of something my husband saw once while cycling through an upper middle class neighborhood: a McMansion, with a luxury car in the driveway. The house had a “For Sale” sign out front and the car sported a Papa John’s Pizza light.

    • Wow…that’s really sad. :( It seems as though the collective is getting dragged back down to Earth; the bubble has certainly burst! It’s a hard lesson, but OTOH our culture of entitlement is truly disgusting and CA has been leading the pack for a long time.

      We live in a fairly nice area and when I went to register my middle and high-schooler for classes last year, a parent’s group was asking for donations to supplement various programs because our education budget has been decimated and the schools are hurting. Out of 300+ parents that went through the line before me, I was told I was only the 2nd parent to donate money! When I looked around the line I saw most students were dressed nicer than I, with designer shoes, jeans…ipods, Nintendo DS’s, etc. and their parents couldn’t spare $100??? I watched these parents that couldn’t spare a dime waltz out to the parking lot filled with newer model luxury vehicles – no doubt LEASED.

      • patsfaninpittsburgh

        Good for them.

        Anyone who would give a public school an extra nickel is a complete sucker and is part of the problem.

      • Spare a dime? They’re sparing a dime for their kids directly, not for some administrator’s lavish pension. What ever happened to 30 kids in a classroom, a pencil, a piece of paper and one book? One rubber ball for recess. That’s how we grew up and we have far better basic skills than the poorly educated today who have far more money per student (inflation adjusted).

      • Common Sense Citizen

        I’m with patsfan on this one…..

      • Giving money to a public school is like giving a drink to a drunk. if you think you’re helping, you’re a clueless doofus. The private Catholic high school I went to had 800 students, 1 principal, 1 assistant principal (for disclpline), 1 senior counselor, 1 librarian, a couple of secretaries and a janitor or two — plus teaching staff, and every single coach was a full-time teacher as well.

        The public high school my kids go to has 1200 students — and FOUR assistant principals, at least half a dozen secretaries, a full-time school psychologist and assistant, an athletic coordinator, several full-time coaches, and more. I counted up, and less than half the employees of the school actually teach in a classroom every day. They did get rid of the librarian, however.

        Public schools are generously funded. In my area, they get $5,000 a year per student from tax money. In a typical (alas) class of 32, that comes to $160,000 a year, tax-free of course (and everything they buy is tax-free). Next time you go into your kids’ classroom, with one teacher there, remember the state is forking out $160,000 a year for that class. Does it LOOK like that kind of money is being spent on books, desks, equipment? Do you think it’s all going into the teacher’s pocket?

        Ha ha. The parasites of administration are sucking the blood out of the schools, and then have the effrontery to suggest that your teacher beg you for more.

    • Teresa-
      LOL – He could also have 1-3 franchises going and is bailing out. I’ve learned not to be so quick on judging.

      People see us white folks among the illegals and think we’re losers, when in fact we’re housing hunting for an all cash deal, coming out of a 4,000 sq ft hilltop view home. To people who don’t know us or our past, we look like losers.

    • My luxury 2011 MBZ is fully paid for – and not through re-fi. And I don’t live in a 600 sq. ft. apt., I live in an incredibly gorgeous area and love it every day.

  • For most high level professionals, an expensive auto, Rolex watch, office in Centrury City, and an Armani suit are the cost of doing business. People generally are attracted to and want to identify with other (supposedly) sucessful individuals. These status items help close the deal.

    • Dirtbagger
      I usually disregard showy people like that, and get down to the human being.
      Our realturd tried that on us. He was meeting us in a Saturn (we drive my old Volvo to meet him) , and when he found out my husband has a Vette, he switched to his Expedition. LOL

  • Don’t forget, baby boomers are getting rid of those houses next 20 years…Which means, it only go down down down….

    • I keep hearing that and I have my doubts about it. In CA, Prop 13 makes that scenario less likely, particularly for boomers who have been in their homes for many years. My mother, aged 62 and nowhere near retirement, just sold her home and is buying a larger place because her newly divorced son and twin grandsons are moving in with her while her son returns to grad school. I hear this sort of thing is a growing trend, and I get the impression with an economy that is nowhere near recovery I believe we will see many boomers that will be staying out in their homes and not downsizing their accommodations at retirement age like previous generations.

      • staying “put” in their homes.

      • lady6
        I think there is more than one right answer to the aging baby boomer housing scenario. Some will stay put, some will look for one-story homes (unless their two-story has a bedrm downstairs), some will go for assisted living, some will do the generational household thing, etc… I think the trend to downsize isn’t upon us yet.

        I hope your brother takes care of your mother, if or when the time comes, returning her good deed.

      • If the aging boomers are staying in the suburban house in order to take in their offspring and grandkids, then the offspring won’t be buying a family house for themselves. It’s still a reduction in housing demand which will weaken prices.

  • Man, a lot of you are messed up or ignorant or stupid…

  • Hold on, hold on.
    The luxury car issue is a red herring. Who cares?
    The median income is 57K, the median value of vehicles owned is ~ 19K–proving the luxury car issue is non extant.

    Public pensions, another red herring issue.

    The truly astonishing thing is that ONLY 35% of O-O housing [in Cali] with a mortgage have positive equity. Really?

    IOW, 48.75% of ALL owner occupied RE in Cali are at or near underwater.
    This is much more significant that the “shadow inventory” issue.

    Forget your 500,000 housing units that do not show up on the shadow inventory, you are talking about another 2.5 million plus housing units that are in a tenuous status.

    Holy crap.

    Thank you for this data, Dr. HB.

    • Which makes Blankfeins concern with pension deficits a real concern because most of the State and local govt income comes from property tax and sales tax both sure to suffer in weak housing markets.

    • Wait a minute, chicken little!  You’ve got the numbers backwards.  

      Only 35% of home owners with mortgages are under water or have less than 5% equity – not 65% as you seem to think.  Since 75% of home owners have mortgages, this means that only 26.25% of all home owners are under water or have less than 5% equity.  That’s about 1.8 million home owners who are under water or have less than 5% equity instead of 2.5 million as you calculate.  And, most of those .5 million home owners who are in foreclosure or are at least 30 days late are probably under water or have little equity.  People who have lots of equity generaly don’t let their home get foreclosed.

  • “If anyone can point to recent California net worth data this would be very useful.”

    Not California but Ritholz 6/2011 pointed to some charts done by the Chart Store. Maybe that helps?

    http://www.ritholtz.com/blog/2011/06/household-net-worth-2/

  • What about second mortgages and home equity lines of credit taken out on these houses, including those ‘without a mortgage’?
    I don’t know about California (I am too lazy to check) but in some states (Florida and Georgia for sure) one can buy a house using an FHA loan, with $100 down payment. For owner occupants only! This is not a joke guys.

    • I have seen real estate glossy flyer mags at the markets that offer housing to buy here in Southern Cal for nothing down. They list the monthly payment. Hilariously like the car market. Oh yeah that’s what they turned it into. And they even get to repossess and resell just like cars.

  • I in this mess too. I used all my saving 80K to put down on my 390K home in 2007. I took out a 5 Year ARM interest only, my payments were 1700 monthly. After a year I was barely making it and needed to put the rest of my saving on my house in order not to lose it, I put another 180K (the rest of my savings) on my house and refinanced to a conventional 30 year loan. My house is now worth 140K. It keeps losing value too. This is a small house only 766 square ft. on a 3000 sq.ft. lot in a “so so” area of Long Beach, CA. I about to get laid off from my airline job and I can’t afford to move to look for another job or a better area to live. On top of that I owe 34K to the city on a second mortgage that I had to take out because I needed to rehab. my house since the inspector at the time I bought my house did not disclose the bad shape the wiring was in, bad roof, leaking windows, termite damage, and a few other things. I now owe 166K on my home. Everything I had saved up for a home is now gone, no equity, and a home yes, but a home that is more like an anchor dragging me down.

    • David

      Sorry to hear your story. But learn the lesson and move on. You should not have drank the kool-aid in 2007. File foreclosure asap and start renting in the “so-so” LBC area and start saving. As you sow so shall you real.

    • James T in MA

      Sorry to hear of your difficulties, David. If only you had known of Dr. Housing Bubble back in 2007 or (too miraculous to be possible) had encountered a real estate agent honest enough to tell you that that was a poor time to be buying.

      Do your best and remember that you are not your possessions.

  • @percy – I dont believe that is your real first name. And for what its worth, old chap, Hoi means The. So you are repeating yourself.
    http://en.wikipedia.org/wiki/Hoi_polloi
    see section “usage”
    -cheers, mate

  • I heard on NPR (NPR!!) Tuesday that the Teachers union was the single largest contributor last year to Political campaigns.

  • Eh. Left California 7 years ago. Took our money and ran. Didn’t take too long to figure out that very bad things were going to happen when less than 20% of So. CA households could afford the median So. CA house price at the time. That’s not rocket science; it’s just basic math.

    We’ve thought about going back, but it is too hard to leave our paid for $27K bungalow in a hip neighborhood, our more than $90K annual household income, and our complete lack of commute here in Wichita, KS. Median income is higher here than in a lot of places in CA.

    Oh, and no college enrollment freeze threat for our soon-to-graduate from HS daughter, who will live at home and go to a state university 10 minutes from the house. And her mom and dad, in their paid-off house, can offset a lot of her tuition.

    Yep – CA, particularly the beach, is a great place to be… when we visit on a Tuesday when all the fools are crammed on the 55 and 405 trying to get to work and there’s parking aplenty at the pier.

  • Hi folks, I’ve noticed that many of the articles don’t consider the anomalies in parts of California, such as the San Francisco bay area, or more specifically, Silicon Valley. I’ve noticed that in the last 18 months or more, prices have been shooting up in Silicon Valley. In Los Altos / Palo Alto prices have risen as much as 20 percent, while on the south end of the valley, in San Jose, where we live, prices have risen 3 to 5 percent or more.

    The question we are grappling with is this rise going to continue in our area and has the bottom been reached here because of it’s unique economic situation. We’re renting and considering buying, wondering whether we’ve hit bottom or whether even this area will experience a decline again in the next few years. It would be great to see charts and stats specific to Silicon Valley.

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