Housing Bubble 2.0 Veers Elegantly Toward Housing Bust 2.0

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

They’re not even trying to blame the weather this time. “Housing affordability is really taking a bite out of the market,” is how Leslie Appleton-Young, chief economist for the California Association of Realtors explained the March home sales fiasco. “We haven’t seen this issue since 2007.”

In Southern California, the median price soared to a six-year high of $400,000, up 15.8% from a year ago, as San Diego-based DataQuick reported. It was the 24th month in a row of price increases, 20 of them in the double digits, maxing out at 28.3%. Ironically, prices per square foot are increasing fasted at the bottom third of the market (up 21%), versus the middle third (up 15.9%) and the top third (up 14.3%).

Ironically, because at the bottom 65%, sales have collapsed.

People, wheezing under the weight of their student loans and struggling in a tough economy where real wages have declined for years, hit a wall. Private equity firms and REITs, prime beneficiaries of the Fed’s nearly free money, gobbled up vacant homes sight unseen in order to convert them into rental housing, and in the process pushed up prices - exactly what the Fed wanted. But now high prices torpedoed their business model, and they’re backing off. So sales of homes priced below $500,000 plunged 26.4%, and sales of homes below $200,000 collapsed by 45.7%.

These aren’t poor people who stopped buying them but two-income middle-class families who’ve been priced out of the market. Thanks to the Fed’s glorious wealth effect, however, sales of homes ranging from $500,000 to $800,000, increased by 2.9% from a year ago, and sales of homes above $800,000 increased by 5.4%. In total, 35% of the homes sold for $500,000 or more. But combined sales, due to the collapse at the low end, dropped 14.3% from a year ago to 17,638, the worst March in six years, and the second-worst in nearly two decades.

“Southland home buying got off to a very slow start this year,” said DataQuick analyst Andrew LePage. Among the culprits: the suddenly absent large-scale investors, the jump in home prices, and the increase in mortgage rates [read.... Hot Air Hisses Out Of Housing Bubble 2.0: Even Two Middle-Class Incomes Aren’t Enough Anymore To Buy A Median Home].

And he put his finger on a new culprit: potential move-up buyers were stymied because they’d refinanced their current home at a “phenomenally low” interest rate. They can’t afford to abandon their relatively low payment, which they already stretched to reach, and buy a much more expensive home – a move-up home during a pandemic of inflated home prices financed at a higher mortgage rate. They’re trapped by the consequences of the Fed’s policies:

They could sell, but they can’t afford to buy!

“Lately on Saturdays and Sundays, you see open house signs everywhere,” Carey Chenoski, a real estate agent in Redlands, told the LA Times. “The houses that last spring would be gone in the first day are sitting maybe 60 days.” That’s at the low end. At the high end, at prime beachfront locations in Manhattan Beach, the wealth effect runs the show. Agents are getting “multiple offers on just about everything,” said Barry Sulpor, with Shorewood Realtors. “The market is really on fire.”

In the nine-county Bay Area, the median price paid for a home in March jumped  to $579,000, up a bubblelicious 23.2% from a year ago, the highest since December 2007, according to DataQuick. In my beloved San Francisco, the median price jumped 14.6% to $937,500. In Solano County, the “cheapest” county in the Bay Area, the median price soared 30.4% to $300,000.

Alas, sales plummeted 12.9% to 6,308 houses and condos in the Bay Area, the worst March since 2008, and the second-worst in the history of the data series going back to 1988. And the debacle was concentrated at the lower end: while sales of homes over $500,000 rose 5.2%, sales of those under $500,000 collapsed by 32.9%.

The same phenomenon is playing out across the nation.

Redfin, an electronic real-estate broker that covers 19 large metro areas around the country, saw year-over-year price gains of 9.9% in March, after 17 months in a row of double-digit gains. Las Vegas topped the list with an annual gain of 20.8%.

But home sales in these 19 markets dropped 11.6% year over year, the fifth month in a row of sales declines. Beyond California, where sales fell off a cliff, sales in Washington DC tumbled 13.5%, in Las Vegas 15.8%, and in Phoenix 17.3%. It's tough out there.

Some analysts, tired of looking silly blaming the weather, started blaming low inventories. So inventories were flat in the 19 markets overall compared to March last year; no reason for plunging sales. In Boston, Portland, and Austin inventories dropped. But in the cities where the sales plunge has been particularly nasty, inventories skyrocketed: up 41.9% in Phoenix, 28.9% in Ventura, 25.7% in Riverside, 24.8% in Los Angeles, 23.1% in Sacramento, 21.3% in San Diego.

And the number of new listings across the 19 markets rose by 6.3%, the first year-over-year growth in March in three years. The usual suspects in California saw the largest jump, with listings in Ventura up 13.1%. But they were up elsewhere too: in Long Island 12.7%, in Las Vegas 11.9%, in Chicago 10.6%, in Phoenix 7.8%, etc.

You get the idea: rising inventories, rising new listings, soaring prices, and plunging sales. Something has to give.

Unlike stocks, housing is subject to the real economy. When the price at the bottom half of the spectrum soars beyond what people can afford even with today’s still extraordinarily low interest rates, and beyond what makes sense for speculators that fix them up and rent them out, then demand stalls. Homes sit. Sellers get frustrated. People who need to move can’t move because they can’t sell their house for the price they want. People who want to move up can’t. Pressure builds. And eventually, the prices that the Fed conspired to inflate into the stratosphere, well.... This is like so 2006.

A report from the asset management and investment banking division of Groupe BPCE, the second largest bank in France, predicts what daredevil voices at the maligned margin of financial analysis have worried about for a while: another global financial panic. Read... What Happens When ‘All Assets Have Become Too Expensive?’

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foxmuldar's picture

What gets me is how the folks that sell homes continue to push the issue that everything is good. If they spent part of their time doing their homework they would understand that more and more families are made up of people working part time jobs. When you apply for a loan, the bank wants more then a 20% down payment. They also want proof that you will be able to continue to make your payments.  You can't make payments on a food stamp income. 

q99x2's picture

The world is just not safe with oligarchs in it.

Jumbotron's picture

Sorry....this is off topic but VERY, VERY INTERESTING !

Tyler(s).....need to check this out.  A jet with small American markings owned in a trust to a Utah Bank for some mysterious person was found in Iran.   And NOBODY wants to talk about it.




Officials in Iran only would say they are aware of the plane and that the passenger is "V.I.P."

HHHHmmmmm ???



There is one slight clue though. The jet was spotted in Zurich, Switzerland on January 22, 2014, right around the time of the World Economic Forum in Davos. That probably narrows the list down to 2,633 powerful people.

The plane was also in Accra, Ghana on January 3 and in Luton, England on October 1 of last year and February 16 of this year.


Could it be her ????

Valerie Jarrett

Jarrett was born in Shiraz, Iran, to African-American parents James E. Bowman and Barbara Taylor Bowman. Her father, a pathologist and geneticist, ran a hospital for children in Shiraz in 1956, as part of a program where American physicians and agricultural experts sought to help communitize developing countries' health and farming efforts. When she was five, the family moved to London for one year, later moving to Chicago in 1963

n 1991, as Deputy Chief of Staff to Mayor Richard Daley, she interviewed Michelle Robinson for an opening in the mayor’s office, after which she immediately offered her the job.[23] Michelle Robinson asked for time to think and also asked Jarrett to meet her fiancé, Barack Obama. The three ended up meeting for dinner. After the dinner, Michelle took the job with the mayor's office, and Valerie Jarrett reportedly took the couple under her wing and “introduced them to a wealthier and better-connected Chicago than their own". She later took Michelle with her when she left the mayor's office to head Chicago’s Department of Planning and Development.

SmittyinLA's picture

Whatever housing problems they have, they figure they can fix it with more immigration and more building restrictions.

Density is an easy push for a criminal govt., they turn homebuilding into an extortion racket and treat the workers like livestock.

All over Cal wide swaths of private property are arbitrarily restricted to worthlessness while an anointed few get to build 40 story condos overlooking a residential neighborhood.

You can only do that with a criminal govt.


DontGive's picture

Anyone who's ever subdivided a property, knows they fuck you every step of the way.

Spend a bundle for them to draw some arbitrary lines on a map, then a shitload more on permits to build a infill run of the mill mid income SFH. Not to mention all the greenie requirements these days that jack costs even more.

evernewecon's picture




Key Mechanisms Of 

Real Estate Market




Full Spectrum (Price Range) One Year Only High Priced Offered Another



Weighing More The Post Crash Round Turn Sales




Holding Mortgagors Feet To The Fire Instead Of Non-Recourse And Bank Loss Taking




Laudable Watchguard Of Process But Distorts The Market Profoundly Favoring Illusion Of Recovery




Is The Same Distortion Of The State Of Supply And Pent Up Need To Sell







asa-vet52's picture

It's really stupid to think the housing market is only in SoCal. Who would want to live there in the first place is beyond me.

$500k for a shack, and probably in a gang infested neighborhood.

hootowl's picture

.......with ungodly taxes and cc&rs.

Soul Glow's picture

Loans to low wage earners remind me of Paris Hilton and 2005.

AdvancingTime's picture

Housing has become a tale of two markets, one good and one bad. A boom is not happening everywhere. I have owned an apartment complex for many years and we are currently experiencing the largest number of vacancies we have ever had. Many houses in the area are empty or under leased.

In 2005 and 2006 prior to the housing collapse many people were looking at second homes, for investments or as a vacation getaway. Today not only have many people shed the extra home many have doubled up with family or friends. We are pushing on a string and calling it demand when someone who can barely pay the rent is encouraged by the government to buy a house they can neither afford or maintain. We have a shortage of "qualified" buyers and renters. More on how low interest rates are distorting housing in the article below,


mumbo_jumbo's picture

'We have a shortage of "qualified" buyers and renters'


that is exaclty what happens when all the well paying jobs get shipped offshore, it's just simple math actually

edotabin's picture

While what you just said should be self-evident, apparently it is not for many.  And while it is not the root of the problem, it is a biggie. If you hollow out the core, the rest will eventually fall apart.

This also causes the vast majority of the articles to be useless as they are nothing more than the play by play description of the obvious outcome.

So here are the possibilities:

1. Destitution/subsistence for at least 50% (house prices, currency debasement, war, no jobs...it will come through many forms)

2. They pull some kind of magic rabbit out of their ass. (The answer has been QE. Doesn't look like a rabbit, isn't terribly smart and it's defintiely not magic.)

3. Earth shattering occurrences to divert attention and re-direct anger

There's nothing else to it.  Read a million articles and analyze them to death but unless jobs return and people start producing actual items of some value, it is lights out. Then, when/if this extremely dangerous phase is passed, people can move on to correct the actual root of the problem. Otherwise, the only outcomes will be subserviance or full scale, world-wide revolution. Most haven't realized it yet as they seem unable or unwilling to see through the bullshit. So for now, my money is on subserviance.


mumbo_jumbo's picture

homes in OC would have to fall by 50% before i'd be able too afford a home here,

ThroxxOfVron's picture

Rentier Nation/Deadbeat Nation.


"As of the first quarter of 2014, a total of 152,033 U.S. properties in the foreclosure process (excluding bank-owned properties) had been vacated by the distressed homeowner, representing 21 percent of all properties in the foreclosure process. These owner-vacated foreclosures — sometimes called zombie foreclosures — had been in the foreclosure process an average of 1,031 days."

 1,031 days divided by 365 days in a year = 2.825 YEARS.

Obviously the forclosure process does not begin until the payments are overdue by more than 90 days...

1,031 + 90 = 1121 Days divided by 365 days in a year = 3.0735 YEARS.

I'll ask again: HOW exactly is One supposed to compete economically against Neighbors who have NOT paid a single mortgage payment, -& likely NOT paid either their property taxes or their home owners insurance as well- ...in more than 3 fucking years?


toadold's picture

Possible Black Turkey, war causes and end to an influx of foreign property buyers for high end real estate.

People can't afford to rent houses and due to zoning regs no apartments anywhere near where the work is.  People move to areas where affordable apartments are even if the jobs don't pay as well. Leaving fewer people using local businesses......death spiral.

Zoning boards geek to big bank pressure because of foreclosures and allow surviving rental houses to be turned into duplexes and stuff so banks can get some money from them.....there goes the neighborhood? 

Philalethian's picture

There are so many possible black swan event pokers in the fire now, it will be obvious as to WHO will be responsible for the next False Flag Event. Everybody knows something is planned and something usually happens on Easter. There as some saying the 3-22 (S&B) date is to be prepared for. The dream that was had a week ago mentioned three places to be hit. One was Tuscon, the other names were undiscernible.

So much about EMP's and more chinese sneaking in the back door for the secret surprise attack. Why?



Can this happen?



JailBank's picture

Here in Omaha, NE thanks to one of the largest home builders going "tits up" about two years ago we have a shortage of homes.


I would sell my house in a second and move farther south if I could turn a profit.

SunRise's picture

I was with you until:  "if I could turn a profit".

3.7.77's picture

Scew the realtors and their inflated houses, gee the more the house costs the more they make, what's wrong with this picture.

novictim's picture

Don't forget the banks!  This is their territory too...

The more you pay, the more you need to borrow, the morelikely you foreclose and forfiet all your down payment to the bank.  The bank never loses especially now that they lend you your own money (ZIRP) that they get for free.

werdoomed's picture

"Beloved San Francisco" where most can't afford to move into or move out (rent control or Prop 13 low prop tax) have to put up wiith $250 Parking tix, $6 Artisan Coffee, the Asian Mafia running the city along with various local Collectivist self-appointed bosses tell you what you can and can't do from drinking soda to paint on your building, where bums camp out in your doorway and shakes you down for some cash, to where worthless obnoxious tech retards have invaded the city and harrass the few good looking single women left who haven't golddug their way into cashola from one of the f-tard techheads. Darn good geography and weather though...


novictim's picture

Why hasn't ZH posted a story on the Asian Mafia/State Senator scandal in San Francisco!?

It is amazing that the NPR folks and Local SF KQED are not mentioning this horrific tale.

Fred Hayek's picture

It's amazing that they're . . not mentioning it?
Are you kidding? A player on team blue of the false dichotomy gets in deep shit and you expect the portion of the media cheering for team blue to mention it?

TheReplacement's picture

Don't NFL cheerleaders always boo the QB when he throws an interception?

Skateboarder's picture

They're not real tech - they only know how to make f**king worthless apps. They'll go jack off around the next biggest circlejerking fad to come next when this shit is done.

silentsock's picture

Yeah, much of it is technology, 'just because'. It doesn't really benefit productive ventures or improve people's lives.

We've allowed most of the jobs that produce actual THINGS to go overseas, and refuse to utilize what natural resources we have, while retaining the 'parasitic' sector which produces little or nothing. We're left with service jobs, banks, government, healthcare, and people making 'Angy Birds'.

It won't take much to blow this house of cards over. God help us if another WWII ever comes about. We have plenty of empty factories to meet the production needs, but we have entire generations of fools that probably don't know the difference between a wrench and a screwdriver to work in them...

g speed's picture

most of the actual thngs they make aren't worth a damn thing either.

scraping_by's picture

Then too, most of the jobs even in a tech company are marketing, HR, and other soft skill functions. People running around as little fake aristos. Taken on the English upper class pride in being removed from practical details. "Haven't a clue! Haven't a clue!"

willwork4food's picture

I've run across many upper class folks that just don't know or are just too busy to want to know how to use a wrench. Thank God for them.

KidHorn's picture

If mortgage rates go up and incomes don't follow, home prices have to come down.

scraping_by's picture

That's assuming the end game is sale to the ultimate consumer. In deindustrialized America, the ultimate consumer now has a part time minimum wage job. The hedge funds might as well bulldoze the house as sell it at a loss. Different accounting treatment.

lex parsimoniae's picture

Not to worry, the minumum wage is increasing! That should fix everything..

Iam_Silverman's picture

"Not to worry, the minumum wage is increasing! That should fix everything.."

At least for the bulldozer operator hired by the hedge funds.

TheReplacement's picture

If a few incomes go up enough those few can be the buyers and keep jacking up the prices.  That is what we have been living through.

JailBank's picture

Have you not been part of the US economy the last 6 years? None of what you said is true any more.

John Law Lives's picture

"Agents are getting “multiple offers on just about everything,” said Barry Sulpor, with Shorewood Realtors."

As real estate flips occur, a seller is thinking, "I can't believe there is a greater fool who paid this much", and a buyer is thinking, "I'll hold on until the next greater fool comes along".  The bitch of it all is when the music stops.


CH1's picture

said Barry Sulpor, with Shorewood Realtors.

As a rule, I have close to zero confidence in the honesty of realtors.

John Law Lives's picture

I have used realtors to sell real estate twice in my life.  Each time, the realtor tried to convince me to list the property for well below what it was worth on the open market.  I disregarded their advice each time and ultimately got the price I wanted.  I don't think too much of their profession, but I used to travel quite a bit and it was hard to sell property by myself.

kurt's picture

Anymore, when I hear Richy Rich is snapping up Prime Malibu beachfront property, I pray and positively envision a huge mega-tsunami. 

Soul Glow's picture

Just remember Rihy RIch is playing with his daddy's money and has never held down a job in his life.

Quant Jockey's picture

My family and I just moved to Seattle from Vegas last year. When we first arrived we considered buying, but were surprised at how expensive homes are in the greater Seattle area. We ended up renting a place about an hour from town. Six months ago, there were no for sale signs anywhere and finding a house to lease was even more difficult. Now, we're seeing signs pop up and houses are starting to sit. I'm going to wait this one out a bit and see if prices do come back. No sense in getting slaughterd again.

I Write Code's picture

It's interesting, and I don't think anybody really has a clear picture on it yet.  Of course there are a lot of $200,000 homes being sold - for $500,000!  And much of the rising prices in all categories comes from the (reduced) flow of foreclosed homes to market.

And maybe Obama has finally cheesed off enough of the world that the foreign money flow in is going to be reduced, maybe there's only so much hot money and troubles in China may be slowing the outflow.  Maybe Russian counter-sanctions on Obama are reducing their purchase of US property.

RmcAZ's picture

Greater Sacramento area here... Everything in this article is true. Homes have risen 25-30% in the last year... New homes are being built out like crazy... But all of a sudden, buyers are nowhere to be found. Homes in my neighborhood have had sales signs out for 3+ months. I am only seeing a handful of houses sold in my area since the beginning of 2014. It appears as if the market has run out of "greater fools".

Skateboarder's picture

Dude, in Santa Clara we are seeing 20 to 30 offers on homes priced at 750K, being sold at 850K. It's fucking nuts out here. Raise the prices, and they keep coming in larger droves. Makes no sense.