Thursday, January 24, 2008

Bakersfield home prices down 15.25% year over year.

December 2007 numbers are out for California homes. Don't believe the numbers you hear on Kern 1410 on the Saturday morning cheer leading show - where they claim its a good time to buy and prices are very reasonable now and all kinds of other crap. Unfortunately for them(and you) they have been calling the bottom for two years now. They also told listeners to buy in 2004, 2005 and 2006. Anyone who listened to that advice is now underwater by thousands of dollars and will be for many years.

Keep in mind these numbers from DQ don't include the incentives. Also, the sales price numbers include foreclosures which are included as a sale at the overvalued loan amount. If both of these items were excluded and we had just the actual homes sold to individuals; prices would be down 25% or more from their peak.

From DQ

Bakersfield down 15.25% (not including incentives or foreclosure price adjustment)


Funny Circus Bears said...

I'm surprised the Bakersfield median is sub $300k. I always dreamed of living there.

WaitingToBuy said...

How long should I wait people?

Adam said...

Waiting to buy,

Familiarize yourself with the "rent vs buying" caclulation, as that'll guide you when it's time to buy.

The nutshell answer is to wait until the cost of renting is more expensive than the cost of buying.

As your relatives are telling you, yes, renting IS throwing cash down the drain, but at least you're not hemorrhaging at the much faster rate of buying an over-priced asset that is virtually guaranteed to depreciate EVEN faster.

Think of it this way:

Per this thread, home prices have dropped AT LEAST 15% in one year. Assuming a median price of $300K, if you had bought last year you'd have overpaid by AT LEAST $45k (not to mention paying property taxes and sales commissions, etc, based on that too-high price). There's other factors mentioned by BB that explain that the "true" price decrease is actually GREATER than this. So by waiting one year to buy, you've saved AT LEAST $45k.

If you're renting at $1k per month in the same year, you've lost $12k in the same period.

Subtract $12k for renting, vs losing $45k by buying. $33k difference means it's a no-brainer. Yes, you'll lose money either way, but remember that there's NO WAY to building equity in a depreciating market. It's like paying top-dollar for a stock that's falling: the asset is STILL overpriced.

With a glut of empty rentals on the market, rents are only dropping: we see all the rentals flooding the market, and these are usually owned by wanna-be Trumps who saw a late-night infomercial and decided to buy 3 or 4 extra houses as a "can't miss" investment (bidding prices up, in the process). I guess the sight of supposed 'investors' wearing Hawaiian shirts, enjoying their "passive income", was too tempting to resist jumping in.

Anyway, it's a simple matter of supply and demand: too many buyers who wanted extra-income property snapped properties off the market (using a generous lender's money), and prices skyrocketed. People like you and I who wanted to buy were squeezed out, especially if we had the fortune to be smart enough to know a Bubble when we saw one....

WaitingToBuy said...

Thanks for all the info Adam! I guess you've highlighted my biggest fear, which is buying a house today and seeing the house next door sell next year for $50k less. I'm holding out because I want my payment to be as low as possible, not so that I can make money on the place. I'm hoping to find a nice home in a nice neighborhood for around $200,000. So my other fear is that if I buy in a "nice" neighborhood right now for $200k, the "super nice" neighborhood houses will be $200k in a year...that would bum me out big time.

hankmeister said...

Adam is absolutely correct.. this market went from an owners market to a renters market sometime in 2003. Two indicators are going to be: 1)When the numbers of new home permits plateaus and/or start climbing. (currently dropping from what I'm hearing).
2)Rents flatten out.

The sight of 900sf 1928 vintage homes in Oildale selling for $200,000 should have been a clue people...

Adam said...

I'm holding out because I want my payment to be as low as possible, not so that I can make money on the place.

Real estate agents have pumped buyers up over the past decade about what a GREAT investment a house is, but now that they're depreciating, the sales pitch changes back to, "don't think of your house as an INVESTMENT, but as a place for you to LIVE, a HOME".

Great, so now that specuvestors have bid housing prices sky-high based on hoped-for appreciation, we're supposed to just forget WHY the prices rose, and over-pay? We're supposed to buy at slightly post-peak market prices, just so they can pocket their 'fake equity run-up' and leave us with a home that's been stripped of the opportunity of building equity?

From a financial standpoint, these sellers are housing vampires who've left nothing but a hollow shell. The ability to build equity has been sucked dry, and the price should reflect it.

I guess we're supposed to just be thankful for a roof over our heads, a place to watch T.V. and eat our T.V. dinners, and just ignore the greatest scam that's been pulled on American consumers.

You're going to see the ongoing proclamations from the REIC, with their constant reassurances of "interest rates are low, so now is a GREAT time to buy!" or "there's never been a wider choice of homes for buyers, etc", but you need to be able to identify clearly mindless advice.

As far as housing prices going lower, it's almost impossible to see how prices CANNOT continue to plunge. The fundamental problem is home prices were allowed to rise too high, too long, and bubbles always end the same way. Badly.

Look at ANY past bubble/burst cycle, and you'll see it takes YEARS for home prices to unwind. House prices went to astronomical levels, simply because lenders figured out how to tie MBS investors with poorly-qualified buyers; now that the fuel pipeline has been decoupled, it's hard to imagine how the engine WON'T sputter, and the plane won't slow below stall speed, and enter free-fall.

Lenders (at least those who haven't already gone bankrupt!) are NOT going to be willing to lend to unqualified buyers in a declining market. I'm guessing 2009-2011, at the earliest, for a "bottom". There's so much uncertainty where we're going, as it's literally uncharted territory.

So my other fear is that if I buy in a "nice" neighborhood right now for $200k, the "super nice" neighborhood houses will be $200k in a year...that would bum me out big time.

Best not to be paralyzed by fears of buyer's remorse, as it's easy to scare yourself into becoming a housing perma-bear (just like some RE berma-bulls got left holding a chain of rentals that are now vacant, thus draining their cash flow).

That stated, take a look at the Dec 07 DataQuick tables, and realize that overall sales volume is down vs. prior years. Of those fewer homes that sold, prices seem more stable in the more upscale neighborhoods, where the drop-off is more pronounced in, for want of a better term, "less-desirable" areas (e.g. Bakersfield, Lancaster, etc). Areas like Newport Beach, Beverly Hills, etc. seem to have done better, although realize tighter lending rules may help some of these well-heeled (and move-up) buyers find it easier to buy. And just think: some want to raise lending limits for these jumbo loans, too!

The price drop elsewhere is reflective that it's NOT a good market for 1st-time buyers, even in a market like Bakersfield; while prices ARE dropping, it's still too expensive for many to buy at this point.