Something Very Disturbing Is Happening In The California Housing Market

Tyler Durden's picture




 

Moments ago we showed that despite the rosy headline data reported by the NAR in tabulating its existing home sales, things below the surface for the US housing market were far worse than the soundbites indicate, as the only "stable" segment when it comes to existing home sales is that capturing transactions in the $1 million+ price bucket which corresponds to just 2.4% of all transactions.

Then, we decided to drill down a little more, because while the average number is certainly jarring, when it comes to housing, the US is hardly a homogeneous market, and where every region has its own supply and demand issues. And by and far, the one region that has always stood out the most when it comes to abnormalities in US housing was the "West", largely a name for the state of California: the same place where the housing bubble was spawned back in the early 2000s, and where it first popped some time around 2006.

What we found when looking at just the "West" was that the distribution of sales by price bucket is beyond ridiculous in this state. The table (from the NAR) below summarizes the results:

What stands out is that while California is by far the most vibrant market when it comes to the most expensive segment (at +6%, the highest in the nation), it is shambles when it also comes to the two lowest price buckets, both of which blow out any myth of a recovery for the "non-1%" out of the water, with a collapse of 40% in sales in the $0-100K range, and a 20% plunge in the prime $100-$250K market (the Median existing home price across the US in May was $213,400).

As usual the best way to get a sense of the surprising divergence in the Western housing market is visually. The following chart, shows the sales by bucket in the West, as well as across the US.

Clearly, something very disturbing is happening in the California housing market: on one hand the latest housing bubble for the bulk of the market has clearly burst, on the other, the bubble for the ultra-luxury segment keep soaring to new highs.

Sustainable? Or just more "noise?"

Source: NAR

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Mon, 06/23/2014 - 11:42 | 4885701 goatmug
goatmug's picture

Just noise.  

Mon, 06/23/2014 - 11:52 | 4885736 Pool Shark
Pool Shark's picture

 

 

I'm no housing expert; though I do think we're in a housing 'echo-bubble' which is overdue to pop, but couldn't the drop in sales of cheaper homes and increase of sales in more expensive homes be at least partly due to rising home prices?

 [PS: >$1-million in many parts of California is not 'ultra-luxury.']

Mon, 06/23/2014 - 11:54 | 4885765 Top Gear
Top Gear's picture

The competitive will always be better at competion as they concentrate wealth and power. "1%-er" is just another term for successful capitalist.

The rabble rousing populist attitudes of the non-competitive class here at Zero Hedge betray their envy.

 

"The masses do not like those who surpass them in any regard. The average man envies and hates those who are different." 

~Ludwig von Mises, The Ultimate Foundation of Economic Science (p. 123)

Mon, 06/23/2014 - 12:09 | 4885820 Tyler Durden
Mon, 06/23/2014 - 12:22 | 4885871 disabledvet
disabledvet's picture

There's an irreparable imbalance with the bulk if not totality of credit levered to an expansion.

We stopped growing a year ago and are not already in a major downturn. One default and we're looking at a negative 4-5% "shocker." More than sufficient to wipe Bank America of the face of the earth.

"Then things get interesting."

Mon, 06/23/2014 - 12:30 | 4885888 max2205
max2205's picture

Wow.  Losing 40k on a 100k house in commiefornia.....that's detroitish

And in one year on a leveraged loan.

Fucking Ouch!

 

 

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..............\.............\...

 

 

Mon, 06/23/2014 - 12:37 | 4885912 max2205
max2205's picture

Sorry...sales dropped 40%...sure no one wants a 100k POS

Mon, 06/23/2014 - 12:47 | 4885963 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

Right, there were 39% less sales at 0-100K. Now, I have to ask what the supply numbers were at that level. Let's say there had been 10,000 units sold at 0-100K the previous year. Now this year, only 6,100 units at 0-100K were sold, so yes a 39% decrease. But what is not clear is how many total homes 0-100K were on offer this year and last year. Were 10,000 units sold with a total pool of 11,000 on offer? Now are we saying this year that only 6,100 homes sold with a pool of 11,000 or something much lower, like 6,500? That's what I'd need to know.

Also, living in the Bay Area, 100K could only buy you something in the worst gun infested ghetto, and probably then you'd simply have an all cash buyer that's either a slumlord or a drug dealer.

Mon, 06/23/2014 - 13:05 | 4886034 Stackers
Stackers's picture

It's the drought ?

 

and are there even any homes priced under $100k in Calf. at all anymore ?

Mon, 06/23/2014 - 14:35 | 4886373 redpill
redpill's picture

"and a 20% plunge in the prime $100-$250K market (the Median existing home price across the US in May was $213,400)"

 

But it was ~$350k in California, so no, that's not the prime market in California.  Come on guys, don't replace real analysis with silly stuff like that just because you can get the national NAR data for free.  The California housing market certainly has its challenges, both new and existing home sales are down slightly compared to 2013, but at the same time bank sales are down 50% (the prices of which undercut the market), so prices are still higher than a year ago.


Mon, 06/23/2014 - 16:08 | 4886764 espirit
espirit's picture

Makes me wonder who can afford to drink the koolade.

 

Maybe NuKuFuKu radiation will be useful after all.

Mon, 06/23/2014 - 13:17 | 4886098 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

'Gun infested'?
Do you mean 'criminal infested'?

Mon, 06/23/2014 - 14:00 | 4886247 KidHorn
KidHorn's picture

I get where you're going, but the $100k homes last year didn't suddenly become $1mil homes this year. They would have been bumped to the next price segment which showed a 20% decline. If anything, I would guess that it's more likely homes became less expensive since if you can't sell at X, you need to reprice at X-Y.

Mon, 06/23/2014 - 15:46 | 4886668 Citxmech
Citxmech's picture

If you want to buy someplace in CA that: 1) has a house that is not a tear-down; 2) Is not located in some shithole area or way out in the boondocks; and 3) is near someplace that has actually has a job market, you are going to have to spend way more than $250k. 

Mon, 06/23/2014 - 12:31 | 4885893 CClarity
CClarity's picture

There are no homes in California that sell for less than $100K.  And, except for Modoc County or downtown Stockton, there aren't many homes under $250K.  So, those segments skew enormously.   However, it is true that the wealthy are buying like crazy.  The per square foot avg price for single family homes in nice parts of Marin County go for $1000.  On the Penninsula, heart of Silicon Valley, prices are $1,500 per square foot.  So, you get to $1mil for a cottage as small as 700 sf.  

Mon, 06/23/2014 - 13:14 | 4886078 thamnosma
thamnosma's picture

But Californians are not richer as a whole, which means more and more people are priced out of the market.  Your post effectively defines a gigantic and absurd bubble.

BTW, there are MANY homes for sale in the sub $250K bucket in California.  Vast tracts of condos, duplexes and homes in the "Inland Empire" of SoCal, the high desert sprawl of Victorville and beyond, the Central Valley, etc.   I imagine you are living in the heart of the bubble in which those $1 million shacks sold to programmers are.

I also would think that many of these lower valued homes are simply not for sale as the current residents/owners can't afford to "buy up" due to the bubble prices.  People with paid off mortgages are staying fucking put.

Mon, 06/23/2014 - 13:45 | 4886198 Poundsand
Poundsand's picture

Those homes under $250k are all inner city dumps, or in places so far from civilization that there aren't any jobs to be found to support their costs.  CClarity is right, a basic home (1000 sf) will easily run over that figure.

Mon, 06/23/2014 - 14:22 | 4886329 thamnosma
thamnosma's picture

Not true.  Many middle class people moved into the peripheries of major employment centers to afford a larger house, pool, non-urban schools, etc.  Unfortunately, they were buying into the previous bubble and overextended themselves with refi after refi to buy more expensive toys.   Lots of relatively "upscale" homes were foreclosed and were selling for under $250K.  No, they are not in the prime areas if you call living in Hollywood or Newport Beach or Silicon Valley prime, but there is much in between Malibu and Compton.

Mon, 06/23/2014 - 15:48 | 4886679 Citxmech
Citxmech's picture

Sure there are - charming places like friggen King City, Atascadero, or Lodi. . .  

Wed, 06/25/2014 - 07:23 | 4892435 o2sd
o2sd's picture

Sorry, but that just aint true. A quick Trulia search shows 286 homes in San Bernadino for less than 100K. Sure, some of them are crack houses, but plenty of livable homes in amongst it to.

For example:

http://www.trulia.com/property/3148881702-5958-Elmwood-Rd-San-Bernardino...

Not a mansion by any stretch, but who-the-fuck cannot afford $75 a month to buy a home. Assuming you can get a 30Y fixed mortgage on 15K.

(LOL, Australia you literally can't even buy a doghouse for 15K, and no bank would give you 30Y fixed on anything, much less a 15K house)

For some silicon valley tech star/aspiring slumlord, these look like a pretty good investment aside from the property taxes. (I assume property taxes in SoCal are high).Get the county/states greedy fingers out of the pot and these sub 100K properties will start selling like hot cakes.

Mon, 06/23/2014 - 12:34 | 4885907 BurningFuld
BurningFuld's picture

Ya, if you are king the only reason you would want to give the peasants a fair shake is so they don't rise up and kill you. Other than that small detail keep on stealing................

Mon, 06/23/2014 - 12:34 | 4885894 TBT or not TBT
TBT or not TBT's picture

One thing that distorts the single family housing market in the SF Bay Area is government intervention that restricts supply of new single family housing.   Which drives up prices of what is allowed to be built, increasing the size of the 1million+ bucket.  

There are political battles right here in my outlying bedroom community over competing development plans for big swaths of land that in Texas would be covered with half million dollar homes with a reasonable price per square foot, meeting the pent up demand of bay area middle manager types to raise families in good school systems and comfortable modern housing among their peers.   But supply is restricted by the central planners and ostensibly ecological groups, not to mention existing home owners who like to see new supply restricted.

 I guess I should be one of the latter motherfuckers, in my 1million plus house,  but I hate central planning too much and fear for the economic catastrophe to come.   The job market will not grow here, and might shrink, ala Detroit.  Detroit was the world's richest city in the 1950's.  What silicon valley does is being done well and sometimes better offshore now.   It is a horrendously pricey place.  

Mon, 06/23/2014 - 13:16 | 4886094 thamnosma
thamnosma's picture

Man, a +million dollar house buys you a ranch just about anywhere in the US.  Wish I were in your position.  The sale sign would be out tomorrow.

Mon, 06/23/2014 - 12:09 | 4885826 pods
pods's picture

Nice entrance and welcome to ZH.

The non-competative class?

You mean like Rockefeller?

"Competition is a sin."

We here are pissed not at success, but at what I have come to call "Nerf Capitalism" where everyone has fun but nobody gets hurt.

Most here and me on a normal day would consider them the skimmer class, parasites, etc.

pods

Mon, 06/23/2014 - 12:38 | 4885918 BlindMonkey
BlindMonkey's picture

Is "Nerf Capitalism" trademarked??? I intend to use it in conversation. In fact, I will endeavor to make it a daily part of my speech for the next 30 days just to make it sink in.

Mon, 06/23/2014 - 13:33 | 4886165 pods
pods's picture

I read it and ran with it. Saw it here (I think) circa 08.  

I would tread lightly around the Patent and trademark office at the moment, I think they have their hands full.

Rumors abound about the trademarking legalities of "The CRACKER Barrel" now.

pods

Mon, 06/23/2014 - 19:06 | 4887351 BlindMonkey
BlindMonkey's picture

If they get rid of "Cracker Barrel" where will the real rednecks register for their weddings?

Mon, 06/23/2014 - 12:39 | 4885919 Top Gear
Top Gear's picture

Nerf? Awe, that's cute. So you're with Rockerfeller?

Because, in competition, the losers do get hurt.

Mon, 06/23/2014 - 12:43 | 4885938 BlindMonkey
BlindMonkey's picture

I like your style so far son. Come to play and come strong. You seem to not be the same level of poo-flinging monkey that comes from the disinformation centers.

Mon, 06/23/2014 - 15:48 | 4886680 Bananamerican
Bananamerican's picture

Yea, I'd say he's more of a "monkey flinging SHIT"

Mon, 06/23/2014 - 13:32 | 4886161 The Most Intere...
The Most Interesting Frog in the World's picture

Loud Mouth = Big Pussy

I learned that in grade school...

Mon, 06/23/2014 - 13:39 | 4886178 pods
pods's picture

Hence why Rockefeller may (or may not have) said that quote.

Competition is for the plebes.  Why do you think the FED was introduced?  COMPETITION.  At the turn of the century, many companies were actually starting to self-finance expansion and bypassing banks.

Enter the Panic of 1907 and voila.

The 1% love competition.  That way they have an endless supply of dupes to work their asses off for them, just not competition AMONG themselves.

For the 1% and I argue most Capitalists, the most effective use of capital (ain't that the Capitalist mantra?) is to buy the government and protect or increase their market share.

I mean, if the best use of your surplus capital is to protect your market share by limiting competition, you would be a fool not to undertake it.

pods

Wed, 06/25/2014 - 08:02 | 4892491 o2sd
o2sd's picture

Almost.

For the 1% and I argue most Capitalists, the most effective use of capital (ain't that the Capitalist mantra?) is to buy the government and protect or increase their market share.

Actually, the "most effective use of capital" is NOT the Capitalist mantra. The capitalist mantra is to preserve and extend capital. In that order. To preserve capital, you must defend your current market share/value against competion. To extend capital, you must increase your market share/value through competition. Therefore, a small or medium size company agressively seeks to compete, and a large entrenched company aggressively seeks to restrict or repress potential competition. In the short run, the latter is a lot less risky than the former. In the long run, it is the inverse.

Because large corporations whose strategy is to preserve rather than extend capital represent lower risk in the short run, conservative capital will flow towards large corporations, and risk capital will flow towards small/medium size corporations.  

As a general rule, people are risk averse (as opposed to profit seeking), so conservative capital tends to outstrip risk capital by a large margin. Ironically, it is large, risk averse, capital preserving corporations that have the least productive use for the capital they have access to. They perform relatively little R&D, have little room to expand market share (because they are a monopoly or part of an oligopoly), employ middle of the road mediocre employees and push risk-takers out.

So, what to do with all this conservative capital, with no desire to take any risk? Go into politics of course! Demand stringent and expensive safety regulations that your products have already passed. Lobby for regulation and licensing to increase the barriers to entry.

Capitalism's greatest weakness is its spectacular success. Capitalism rewards the winners, but it disproportionately punishes the losers. So the winners (large successful corporations) become increasing conservative as their access to capital improves (the paradox of capitalism).

Eventually, however, some highly disruptive science or technology breaks everything. It unleashes an unstoppable force that no amount of cronyism, nepotism, corruption or stagnation can dissuade or prevent. Then the cycle starts over with a new cohort of capitalists and former revolutionaries. (Well, that is how it has played out so far in capitalism's admittedly short history.)

Mon, 06/23/2014 - 14:23 | 4886334 thamnosma
thamnosma's picture

Thanks for that response pods.  Nope, not jealous of the crony capitalist class and its government collaborators.  Free market would have flushed a lot of them down the drain a few years ago and new competitors wouldn't be stymied by regulations written by the cronies.

Mon, 06/23/2014 - 12:10 | 4885828 LawsofPhysics
LawsofPhysics's picture

Indeed, glad I went long black markets and sharecropping already.

Remember, that which cannot be sustained, won't be.

Trust me, the "competitive class" has already hedged accordingly.  Let the "culling" begin!!

Mon, 06/23/2014 - 12:23 | 4885870 nmewn
nmewn's picture

Competitive meaning, trying to outrun dollar destruction by being hooked into the statist-crony class? Kinda like a mini-me or wanna-be oligarch then...lol.

"Saved capital" to put at risk falls into this equation, where exactly? And when its just handed to you on a silver platter and you fail, you just go back to Uncle Sugar?

Is that how it works?

Mon, 06/23/2014 - 12:33 | 4885898 orangegeek
orangegeek's picture

in a keynesian world, don't quote von mises - you butcher von mises - it makes you sound stupid

 

government and big money create a system to lock out the rest - europe has this, asia has this - the lands of communism and socialism (same thing actually)

 

the good news is that when wealth concentrates, depressions occur short thereafter and big wealth transfers

 

so your successful capitalist (ask how many aren't doing business with the gewbermint) will get fed to the dogs eventually

 

and when it all collapses and keynes is recognized as dogshit, then you can start quoting von mises, but not before

 

get it?

Mon, 06/23/2014 - 12:40 | 4885922 BlindMonkey
BlindMonkey's picture

Envy from the ZH crowd? Sorry son. Wrong blog. This ain't HuffPo...

Mon, 06/23/2014 - 12:50 | 4885970 MarsInScorpio
MarsInScorpio's picture

Top Gear:

 

Pretty foolish on your part. You act as if the opportunities are equally open to all, with everyone given an equal chance to win the race.

 

The truth is that while the 99% run a 50-yard dash, the 1% write the rules through their control of the rule-writers to make their course only 40-yards.

 

In addition, they get a 2-second head start, and are not weighted down with burdensome luggage (such as paying taxes like the rest of the 99%).

 

They have spent their lives in training at the finest networked academies - educated up , not dumbed down - and  know the course well, with sycophants all along to coach them every step.

 

So yes they are different – but not for any morally defensible reasons.

 

They lie, they steal, they cheat . . . they are “Too Big To Prosecute,” or are able to get law enforcement agencies to buy the lie that some lone, rouge, executive committed all the crimes singlehandedly, with no supervision over him or her making them accountable throughout their career.

 

The LEOs buy it, because those corporate institutions are their next stop after they start dipping into the federal retirement fund. No use making enemies with your future employer – just ask Eric Holder and his white-collar defense firm.

 

Sorry, but when I hear or read something like what you posted, I know you are living in a Fantasy Land totally disconnected from the Real World of today.

-30-

 

Mon, 06/23/2014 - 13:54 | 4886226 First There Is ...
First There Is A Mountain's picture

This turd is none other than Million Dollar Bonus. I'd bet on it....

Mon, 06/23/2014 - 14:34 | 4886367 FLHRS
FLHRS's picture

Tell that to my educated (no tuition loans) kids who (husband and wife) work at least 40 hours a week and make just enough to pay over 25% of their pay to the federal government.  Their country is now $17,000,000,000,00.00 in debt.  The federal reserve had decimated their currency.  Their 401K's don't have enough value to take advantage of the stock market surge.  Stagflation is hitting them harder then ever and they barely make enough in wages to live a descent life.  We won't even address the other byproducts of your 'successful capitalist' system like the fact that the incentive scale has tipped towards the non productive part of society, porous borders, inept education system, lawless government, spying, ..........   give me a break.  Don't get me wrong.  I'm for free enterprise but government, PC, cronyism and society overall needs to get the hell out of these peoples way.

Mon, 06/23/2014 - 12:04 | 4885795 sleigher
sleigher's picture

3 bedroom 2 bath in 1159 sq feet, 1950's built, leaky windows, roof leaks on 5k sq foot lot.  Price reduced to $750k.  Contact blowme@imouttahere.com  (boy am I glad I left that place)

Mon, 06/23/2014 - 12:41 | 4885911 John Law Lives
John Law Lives's picture

If you want to see another remarkable example of pricing in housing these days, check this one out:

 

http://www.lambertgrouprealestate.com/listing/700761-46-tupelo-st-santa-...

Features (as per listings):

854 sq. foot unit built in 1992 that sits on a lot that is listed at 59 feet x 51 feet.

There is no garage or covered parking (you are allotted 2 parking spaces outside along the street).

You pay an annual HOA fee of $3,850.

All this can be yours for the (recently reduced) price of...  $899,900.

Mon, 06/23/2014 - 12:47 | 4885962 BlindMonkey
BlindMonkey's picture

WTF?? I am guessing that anything sub-100k at this point in California is not habitable. That could explain why the drop in prices.

That does beg a question though: where, exactly, do the illegal infants that are currently invading our border expect to live? Hard to earn enough to pay a 900k mortgage when you are still in diapers.

Mon, 06/23/2014 - 13:20 | 4886074 John Law Lives
John Law Lives's picture

"WTF?? I am guessing that anything sub-100k at this point in California is not habitable."

I can't imagine what sub-100k would get you in California.  I wouldn't live in it in California if someone gave it to me.  BTW, the listing I referenced was in Florida (in case you didn't have a chance to click on the link).

"That does beg a question though: where, exactly, do the illegal infants that are currently invading our border expect to live?"

Wherever they can find a place to crash.  I don't begrudge people wanting a better life for themselves, but it is beneath contempt that our Federal government refuses to crack down on the invasion.  It seems obvious that corporations are behind this (i.e. they want more consumers and cheap labor), and corporate lobbyists will lobby Republicans and Democrats alike in their pursuit of more consumers and cheap labor.

Mon, 06/23/2014 - 12:41 | 4885930 DeadFred
DeadFred's picture

LOL the article talks about California houses below 100K. You can find them in the classifieds right next to "unicorns for sale". The Cali market is booming because the floods of fiat money is moving into equities and much of it comes to roost in LA and the Bay Area. My daughter just gave up on looking for a house after offering the ask price and getting out bid by 100K on a 500K as is house that never even had an open house. No froth here. A 100K house in California is a one bedroom cabin on a postage stamp lot somewhere in the outback on an unpaved road. Hope I don't sound bitter.

Mon, 06/23/2014 - 13:14 | 4886081 malek
malek's picture

Ahem - unless it's in tear-down state, you never offer the ask price on the left coast.

Mon, 06/23/2014 - 13:51 | 4886214 RobD
RobD's picture

Lol, my neighbors cabin is exactly what you describe and he is asking $190k and you don't even own the land. It's on a Forest Service Recreational lease in Lassen National Forest.

Mon, 06/23/2014 - 14:27 | 4886351 Hydesrevenge
Hydesrevenge's picture

I think the consideration of Value needs to be looked at, with the devaluation of the US Dollar, Quantative Easing and rampant inflation in sectors the FED considers as " Noise"... I would not classify housing prices as an increase, the fact of the matter is you get less with the dollar. We couldnt have deflation... so we've printed the middle class into poverty.

 

Mon, 06/23/2014 - 11:54 | 4885763 SuperRay
SuperRay's picture

The $1+ million home have built-in radiation protection. Worth it at twice the price...

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