Earthquake territory.
Calculated Risk's star Jim the Realtor is ready for California housing bonanza in 2010, and starts the post gloomy Christmas with a fairy tale of wealth untold. His pal the Flipper offers the above cliffside Pacific house at $2.7 million. (Warning: this is San Diego County. The San Andreas fault is a determined animal. Living on a cliff in earthquake territory is thrilling, cocky, ruminative and surprisingly like shopping for a pre-grave: all cheerful irony.) The story behind this extravaganza is that WAMU/Chase foreclosed on a mortgage worth $3.7 million last year and then made a decision to get the property off the books. How? At a trustee sale on the courthouse steps, WAMU/Chase offering the house at $1.7 million. The flipper paid cash and out the house back on sale at a million dollar mark-up. Jim says this smartie pants has flipped 271 houses this last year, at an average profit of $250k per property. The banks now get to re-mortgage the property at $2.7 plus fees, and the bankers get their bonuses out of their profit. No one gets punished for the loss except the genius who lost his job, house and bonus, and except the US taxpayers who absorbed this tomfoolery.
Pacific Cliff-Diving Living.
The puzzle is why this cliff-diving house begins the new year a hot property. Is it because it faces East Asia? Because the last days of Pompeii enjoyed a great view of Vesuvius? The predictions for 2010 are chaotic and paradoxical. All currencies will decline? Silver and gold will climb? Go long cement and steel because China is train crazy? Short GS? Long bonds? Jobless drift except the hiring in Ireland and Eastern Europe? Health insurance stocks in a new tulip-like bubble? AAPL to $400/share? And then there is the political landscape. The markets must and will discount the GOP wave as soon as March-June. The illusion of Republican challenge to the Democratic majorities will entertain the optimists. The overhang of badly built housing in poor job regions that are without means of recovery in high tax states (California) will darken part of the sky indefinitely. What vocation finds a bargain in $2.7 million for a cliffside postage stamp over a vastly dull looking ocean? A PIMCO sales trainee?
From Calc Risk comments:
WOW 13% and last year was horrific too. I read Best Buys lower expectations because people were only buying highly discounted items..iow...not making much of a profit and basically just inventory reduction.
I don't know about anyone else but in my neck of the woods...the worst of the recession in housing has been relatively sheltered thus far in property values (resort area with short supply in affordable housing). That being said, lots on the market, few buyers and CRE for sale signs are multiplying like tribbles around here. In 01/02...and beyond there were bidding wars over housing in the mid-range (affordable). Now homes in that range are just sitting unoccupied. We don't have many box stores. Linens and Things and the Circuit City storefronts are still sitting empty. A long time and quite popular local-only restaurant biz busted 2 years ago...large (relatively) for this area establishments are still sitting empty too
more from Calc Risk comments:
not_going_to_post:
"... The first time homebuyer tax credit and FHA lending to anything with a pulse has easily had a 50k boost in asking prices over a year ago. What would have been a 200k property last year is a 260-270k property now. Seems like gravity has been suspended. Almost the entire low end is flipped properties. ..."
Same story here in The OC. The government programs (FHA loans, first time buyers credit, ...) are enriching the flippers. Court sales are cash only so there is little competition. The properties are flipped in weeks to FHA buyers who are buying with essentially nothing down, so prices are excessive. In the end this is a transfer of Federal money to the flippers. The real kicker is that a majority of the flippers are former subprime brokers.
THE REAL KICKER IS THAT PEOPLE ARE BUYING WITH NO MONEY DOWN.
These new buyers could cause the next housing crisis. Haven't we learned anything ftom 2008?
The answer to most of your questions is a resounding YES, except for the one about silver and gold. People from India, for example, have been going to Dubai for decades for the express purpose of buying gold. This is tradition. It is not new. The value of gold is a constant. Only currencies fluctuate – up or down. If the dollar, the yen and the euro implode, gold will not be of much help. Neither will property (unless you are actually living there).
I recall my mother telling me about fleeing the Russian advance during WW II. They'd packed all their valuables into wagons and headed west. All along the wayside, she remembers seeing the carcasses of dead pack animals strewn; along with the 'valuables' people had discarded in an effort to lighten the load. Nobody thought it a smart idea to stop and load gold candle holders or silverware onto their own carts.
Currencies are the only thing capable of gaining in value. It depends entirely on the work and productivity of the people they represent. If a government hinders people from working; if it smothers productivity; if it runs up too much debt; if it prints too much paper; if it taxes too much and makes it unprofitable to work; if it insists on shifting value from productive sectors to unproductive sectors - everything that we are currently doing - the currency will fail and the disaster will be more than just economic. This is why socialism/communism cannot work on a societal plane of higher complexity than the single family unit.
http://peterkoelliker.blogspot.com/
Hedegie from my condo complex left Fairfield Co, Connecticut to go work for a fund in San Diego. He drove his SAAB out to California and he is renting his unit to some Party girls.
Cliff houses on the Pacific tend to wash into the sea when El Nino activity occurs, which it is.
What does California offer? Aviation jobs? Hi-technology? California reminds me of the Midwest in the 1970s, they saw competition, but refused to change their ways. Unions demanded better benefits and higher wages without any productivity concessions. Midwest Governments followed the big Eastern city Liberal policies of elaborate social programs and generous pay for government employees. Unsustainable model
California has debt that may take 20 years of austerity to fix, high taxes will chase retirees to other states, manufacturing is gone or going. Energy is taxed or politicized out of Business, see PG&E.
Notice these flippers are not holding any real-estate but quickly picking through the swill for an occasional diamond or two. Rental is a good indicator of real-estate value, but with high taxes and jobs leaving Cali, rental income is non-existent. Dead cat bounce?