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America's "All Important" Housing Market Flashing Red After Bad Data Double Whammy
Those who read Zero Hedge regularly will be aware that for us no other regional US housing market is more important than that of the San Francisco. Recall from June:
When it comes to critical housing markets in the US, none is more important than San Francisco.
Courtesy of its location, not only does it reflect the general Fed-driven liquidity bubble which is the tide rising all housing boats across the US, but due to its proximity to both Silicon Valley and China, it also benefits from two other liquidity bubbles: that of tech, and of course, the Chinese $25 trillion financial debt monster, where since the local housing bubble has burst, local oligarchs have no choice but to dump their cash abroad.
It is no surprise that during ever single previous bubble peak, San Francisco home prices managed to post a 20% annual increase, starting with the dot com bubble in the year 2000, the first (not to be confused with the current) housing bubble peaking around 2005, and then the European sovereign debt bubble.
Which is why, while today's Case Shiller data was widely disappointing across the board, indicating a significant slowdown in price gains (and on a sequential seasonally adjusted basis, practically a decline), the one market we paid particular attention to was San Francisco. What we found is a red flag for everyone waiting to time the bursting of the latest housing bubble. Because after an unlucky 13 months of posting consecutive 20% Y/Y price gains, the San Francisco bubble appears to have finally burst, posting "just" an 18.2% price increase, the lowest since January of 2013.
Well, in the aftermath of yesterday's data which beyond a reasonable doubt showed that the Chinese housing bubble has burst, we can now report that the "flashing red" market that is San Francisco was just smacked by a "double whammy" perfect storm, when not only was the annual increase in home prices the lowest it has been since October 2012 (but in the wrong direction), and next month the July double-digit Y/Y increase of 10.3% will once again be single digits, first positive and soon negative, an inflection which has in the past only happened when a major bubble has just burst as shown below...
... but that according to the just reported Case Shiller data, San Francisco was also the only city to see a monthly decline in house prices...
... which now also means that the ultra high end of US housing is now sliding fast, and that unless some other central banks steps up and resumes the injections of some $100 billion in outside money into inflating asset prices such as stocks and billionaire mansions, then all bets are soon off.
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Housing bubble #2, Fed induced , will burst at some point. Just a matter of when.
The real fun starts when the Federal Reserve brings back QE and makes it larger triggering a cuirrency crisis.
Russia and China are waiting at the end of the alley with a bat.
We need to encourage those mysterious Belgians who have been massive & outsized buyers of U.S. Treasuries to come and delve into high end homes stateside.
"We're gonna need a bigger MBS."
Guys, I live in SF and run a real estate analytics company. As long as tech is strong and their are jobs (lots of high paying jobs) the market will remain strong. The lask of China cash inflows will hurt the very high end all cash market but won't damage the overall market. Will it keep appreciating at 20% annually? No way! That was just a rebound from 2008. The fact of the matter is there is so much money in the market that people would rather pay $1.5 million for a 1400 square foot class B condo in Pacific Heights and close in 12 days versus paying $1.15 million and closing in 52 days for a Class C that needs a little fixing up. People are busy making money and want instant gratification...they want to move into a place that's cool...fixer uppers have lower demand than high end product that is spiffed out.
I just wonder if there are enough high paying jobs to support the levels . . . and for how long. Dotcom 2,0 +housing bubble 3.0 - it has to bust
Are you kidding? Look at that classic inverted head and shoulders - we're going to the f'king MOON!
Wait a sec... shoulder... head... shoulder... uh, that can't be right.
Never mind.
Wow, thanks.
Good damn thing that adjustable rate mortgages no longer exist. And that the tech world isn't leading the charge of offshoring and/or importing lower paid entry level grads. And that the world isn't shunning Silicone Valley as, *shockingly* I know, they don't appreciate the safety and security aspect of having US.gov back up and keep track of all your business and personal dealings via telephany and 'net like we "free" 'murkins.
Looks like blue skies ahead, after all.
Enjoy them, good times. Good times.
That's been true of this damaged market since 2008, "mint on the pillow" move-ins sell immediately, and complete wrecks sell to fixer-uppers, and the middle 95% take forever to sell at weak prices.
The only exceptions have been the funds buying a hundred properties, who picked up a lot of that middle 95% at weak prices or they'd have been even weaker. But now those funds are gone, even liquidating - but they did mostly win, btw. Is the Chinese money gone from Los Angeles and Orange County (CA)? I don't know, but I don't think so, LA/OC are still seriously cheap compared to SF or NYC.
dbl post?
Tech may or may not be the last to fail again but the economy is very uneven and those few in the upper 10% of income earners who are not old and don't statistically buy much, are not enough to keep things going. This *recovery* has been done on credit again. Credit is fun when you get the new toy but a bitch when you have to pay for it with interest. The FED was trying to engineer an inflationary environment where as debts could be repaid with inflated dollars. Didn't work. We have deflation in commodities and wages for the majority. AND now lots more debt. Way to much of this debt was leveraged against bubbled assets as in the stock market. Much of the gain in the stock market has been from repurchasing and margin. This does not portend a wonderful scenario for high end tech workers or anyone. When sound economic principles are not used to invest, when mistakes are made, things unravel fast.
So those members of the Ostrich Society who buy at or near the top of any market that is not supported by real economic fundamentals, like increasing wages and demand, will be sad that all those fine dollars that they made just went away. They may be wanting to live the good life but in an environment of funny money, wars, droughts, unequal monetary and justice systems, I guarantee that they would have been better off in the long run to have lived below their means. The consequences of giving in to instant self gratification can really suck when the world turns.
A little sanity please???
San Fransisco is not a bell-weather of the national economy! It's economics are very unique & complex and in no way represents anything but itself. The article is just based upon a very stupid premise. Using Shiller's 20 city average makes a whole lot more sense but even it uses cities that the Shillers have chosen. Choose 20 different cities and you will get a different result.
Dumb article, move on............
Very true....and the number of all cash buyers for those 'mint on the pillow' properties is ridiculously high.
Stewie wants his money!
https://www.youtube.com/watch?v=ZomwVcGt0LE
I love that bit. Probably my favorite FG of all time.
The Fed thought wage inflation would just occur out of thin air...it didn't. Now they are fucked and will have to make some drastic moves.
What? As they made millions and billions from investing in the corporations that offshored our jobs and ran our small businesses into the ground under legislation and foreign arbitrage competion, you wish to believe that they didn't KNOW?
Bullspit. Calling that absolutely BS.
Quit looking at reality through the eyes of a serf that believes his master's tales, and start seeing the truth.
We are being systematically financially destroyed and forced into government/corporate servitude, while these SOBs pocket the majority of the world's wealth and buy the very land and resources out from beneath our feet.
They have all the inflation they ever wanted. It just doesn't show up in the pretty charts (and stories) they tell us to see and believe.
You cannot tell me these Masters of the Universe are not seeing the exact things I have been seeing for over a decade. Rise in government connected, but unreported, employment hid the symptoms of the offshoring and inporting of entry level foreigners. It also hid the neverending increase in job/economy killing regulations, licenses, fines, penalties, taxes and lawsuits that have destroyed what little small biz/middle class we had left.
Didn't get what they wanted my not-so-fat-ass. This is EXACTLY what "they" wanted. Bye-bye 'murkin middle class. Hello future grateful towel boys and ass-wipers.
Where have you been the love-of-my-life for 5 Years and 5 Weeks?
The self-proclaimed tough guys from Fast Money will pick up the slack. Nothing to worry about here.
Ok, time for an EKM1 lecture:
PROFIT = SELL PRICE - COST
Profit must be >0
If you build a house that cost you $200k and you have to pay the suppliers also, then you have to sell AT A PROFIT.
But, if people can afford only to buy houses at $150k, then you are screwed.
Conclusion: If there is no profit, economic output shuts down, businesses stop employing poeople, world trade dies, economy dies.
Hence, inflation of costs of doing business is as important as inflation of sell price.
End of EKM1 lecture
Anastasiadate.com
Chinese-lady.com
More importantly, which one is better?
Chinese-lady.com for the WIN!!!!!
Since we agree the Fed sees inflation as their only way out of this mess what are the possibilities that we see the Fed begin another QE program as we once again go all in Japanese style. I'd say the chances are pretty high unless someone gets rolled at the Fed. All my humble opinion of course.
what is Fed going to buy?
What is left to buy they haven't bought yet?
They are still buying via Belgium what ever is being issued new
Unless they buy derivative contracts, which is LITERALLY illegal. Fed charter would have to be changed
That's a valid point. I suppose number one what ever US Treasury debt is issued a day later. At some point they might just begin to buy right out in the open the US stock indexes. I would not be surprised because the model is Japan.
What haven't they bought yet? LMAO... You live in a totally different world don't you? Lets see, for starters they haven't seem to buy any of the labor output of anyone in the lower 99%ile. At least if they have been, they want it for a bargain price vs. their paying top of the road for everything the other 1% have to sell. Maybe there's the real problem eh?
"Literally Illegal?" NOTHING is illegal when it comes to the Fed.
Agreed. We've been following the Japanese model since the '90s (10 years after their RE bubble burst) why not continue?
Yen is not world currency.
Japan had manufacturing base, whereas USA moved that base to China.
World kept supplying Japan with raw commodities and Japan kept exporting finished products
World suppliers will reduce supplying raw materials and energy to USA and it is actually happening due to QE
The more QE, the less inflow of energy and raw materials, the further the real economy dies
Except that for the time being, USA is producing lots of energy. Are we even importing energy now? I don't believe this shale/fracking "miracle" has legs in the long run, but for now it's the rosiest part of the economy. Down the line, we have the madman Obomber and his "progressive" band of criminals shutting down our coal power plants so our electric grid will be in trouble on peak days. However, all that coal can now be exported!
USA consumes 19 million barrels of crude oil every single day
it used to produce 7.5 million and now it produces 9 million barrels of crude oil every day.
Not much of a difference, still 10 million imported daily
(rough numbers)
thanks
Baaah. Everybody is working on the Amazon paradigm. Lose money on every transaction but make it up in volume.
That's the sham that they are trying to keep going right now but it's fragile and unsustainable. An economy should produce and that should drive prices down and real wages aka purchasing power up.
Housing prices over the last 30 years Killed the Americn dream -
Houses that sold for $40,000 in Portland in the mid to late 1980's now sell in the 500,000-700,000 range -
Someone do the math for me but that's about a 1,000% increase in prices -
Averge Wage growth since then? Minimal -
I say CRASH the damn prices 50%!
+100
Correct me if I am wrong but didn't someone not to long ago show a graph from like 1850 to present indicating the median home price in the US was always around $100K? This covered like almost 150 years of data. It was a long flat line for many many years. Always will revert to the mean.
Per research on 300 years of British property values (the only records available going back so far) the return on RE is NEGATIVE 0.5% a year adjusted for inflation.
What is the RE on renting?
At the end of the day it will always be the whim of only one man (as opposed to government, where it is the will of the few and supported by the many, at least that usually takes time) standing between you and being forced out.
At the end of renting, the landlord sells and walks away with something. You, on the other hand, keep paying.
I always call BS on this type of info. I have to live somewhere. Living in a place I can call my own (with all due respect to gubment theft possibilities and debts), is worth a heckuva lot more than -.5% annually.
Just sayin'
True, and after that first one is paid for, the benefits are realized.
Here's what you're looking for Caveman:
http://www.ritholtz.com/blog/wp-content/uploads/2011/04/2011-Case-SHiller-updated.png
Nice post, Woody. We've also witnessed how up to 50% of home purchases have been "all cash". Those all cash deals are NOT made by working Americans. A housing market dominated by Chinese money and hedge funds is not a healthy housing market.
The type of housing price inflation you describe (I have friends in Portland who really should sell and get out -- they were the 40K 80's purchase folks) is just insane. Midwest prices are somewhat more stable both on the up and down swings, though pockets of insanity exist there as well.
I take it you didn't buy at $40K.
Was in high school - But probably coulda shoulda bought one w spare change from delivering news papers
That is what cheap debt for all will do to prices!! Bring back normal interest rates and tighter lending standards and those will drop 50%!!!
dare to dream. it will not happen because it would kill the government. if prices dropped 50%, owners (who think they are actual owners of their homes but really just renters) could go to the municipal tax office and request a massive reduction in their property tax bill ...sorry.... rental tax bill. reduced revneue would bankrupt thousands of municipalities or they would have to expand the muni bond market even further at 0 interest rates. The fed has no choice to keep rates at 0, and property prices elevated. It all can come down in a blink of an eye. Perhaps they know this and their bankster buddies are fully prepared now...who knows....maybe Goldman, Rotthschilds, JPM are quietly preparing. WE will never know until it's too late. All one can do is own a good amount of gold and have possesion, rent a home instead of owning and keep paying attention for a slight edge when it actually happens. Luckily i dont have money or a home so i dont have anything to worry about. good luck to the rest of you
Soon? Did he say soon? Whuhu!
Soon works for me.
Now is the best time to buy a home
It must be true. Realtors have had bumper stickers proclaiming this for 40 years. They wouldn't lie, would they?
The blatant manipulation in the Metals and Mining sector is beyond laughable.
If you were shorting the miners and accumulating physical you'd be happy about it, but yes, I agree - it's laughable. Antique cars, Balloon dog art, everything imaginable is in a bubble, but gold, the easiest wealth transfer mechanism to hold, is inexplicably in a downtrend and the bull is over. Go figure...
The bull is over until it's not. When the herd turns, and it always does, it will be amazing to behold.
2011 stick save is the goal line. It has a way to go before another implosion. Maybe in another year we'll see?
waiting for the blue light special
POMO must have started? going green still.
Relax little fishies, the struggle only sinks the hook deeper.
The New Math.
Borrowed Money @ 0 + Swap = House Price Doesn’t Matter
LIBOR Manipulation = Bigger House + Moar Land.
At 3.5%, the real rate is about 0.5%, not 0%, but I get your point. Still gotta make the payments though.
My take on this new found DXY glory. Recall the last time the dollar was strong, lots of traders were in long as it was almost a one sided trade and then they pulled the rug...careful out there.
I vote we call this one the Unsurprising Bubble...
or the Insanity bubble - in which the same thing was done, over and over, and Krugman et al expected different results while throwing rhetorical meat to his obtuse, myopic readership by blaming everything on "the right."
Eh?
Come now. I can see 5-6 brand new towers in midtown manhattan. Surely they wouldn't be building those just in front of a market downturn.
Don't call millionaire developers Shirley.
Hey Astoriajoe,
The Developers build those towers even when they're going to lose big Bucks because they steal 30 to 40 percent of the construction loans. Giving bloated consulting contracts and fees to their friends and families, building on the cheap when the towers are specked out at premium qualities and overpaying themselves out of the borrowed money at every step of the way. They walk away from the whole Pile O'S**t with a big pocket full of other peoples money and don't give a rats if any of the units rent or sell and the same people do this same process over and over again. The lenders just end up holding the bags on these Overpriced Ivory Towers :) MartyFlesh
Sounds like The Revel in Atlantic City
Epic disaster in one chart
https://www.tradingview.com/x/76pAAtnw/
A house. A place of shelter, maybe raise a family,take a shit and cook meals. Over priced shelter market. And those socialist/fascist taxes to boot. Who the fuck cares, let it burn.
Is housing a leading indicator? If so that chart was doom porn.
Either way, San Francisco is a hub of the newly rich digital intelligentsia and if the these young lords of tech can't keep that market afloat with the full faith and qe equity buying program of the fed behind them this may truly be the big one.
Housing is a lagging indicator. Any data reflecting actual activity is lagging by definition. The stock market is a leading indicator as it reflects expectations, at least in a free market. Does that help? It shouldn't. It's all illusion now.
How many "young lords of tech" do you think there are that make any sort of serious money? Like every other business, it's a handful of people. Most of those geeks go around saying they're rich because they make $100k. And 99% of them take first and second mortgages. The few exceptions cannot drive the entire market. So, even in San Francisco, the market is being driven by low interest rates, and by private equity moving into real estate speculation. That's it.
long story short
i've been keeping an eye on property in a vacation/2nd home locale ... a weekly spreadsheet since march 2007 ... inventory for sale back to 2010 levels (over 15% higher than 2013) ... homes with price changes (95% of which are price cuts) skyrocketing ...
tick tock tick tock tick tock ...
Different markets. SF is a jobs driven market. Vacation homes is an I'm-so-rich-I-can-throw-it-away market.
SF, a earthquake delight.
We just pulled the trigger on a small Rincon PR beach condo. Closed last week at 44% of original asking price. Don't really give a flip what's it is "worth"....We will enjoy and leave it to the family.
Sometimes being a saver works out ok.
Jeffrey Saut... Paging Jeffrey Saut...
Stocks green across the board. Silver prices plummeting. Zerohedge furious. Cranks up the RPM on the broken record.
Ha! And the clicks keep on a comin'.
I seem to recall back in the 80's the Japanese rushed into the USA to snap up all kinds of commercial real estate at inflated prices only to see them drop drastically and eventually losing a lot of their investment. I think the same is happening again but for the Chinese and big investors. Screw them.
Foreigners rushing in and buying up all the overpriced real estate is a sign that we have reached a top. This is a very bad time to purchase a house. Stay liquid and wait. Also a bad time to be in paper assets. Sometimes doing nothing is the smartest move.
The European sovereign debt bubble didn't register as a blip on this side of the Atlantic. Better luck next time.
Don't know about "all bets are off". Clearly, bets on billionaire housing are off, at this point.
I can't even afford a house in Second Life...