The Love Song of the U.S. Home Owner
Let us go then, you and I,
While housing prices are bumping up against the evening sky;
Down the narrow-wide well-manicured, emerald-lawn suburban streets;
And, alas, prepare ourselves, if we will, for a rather large, meaningful and perhaps homely retreat.
Let us go and make our survey,
And please do not pose the one, overwhelming query:
How high is high, low is low along the way
Come hither this fall or some distant January
Let us go and make the visit
Control your urge, if you can, to know
Or ask: How high from high to low is it
And just amble on, enjoying the show
It could be quite exquisite.
With all due respect to T.S. Eliot, let us tell you why we think housing prices are receding, at least here in Southern California, one of the hotbeds of what many are calling the bicoastal housing boom.
And it has nothing to do with complex economic forecasts and indicators or reams of statistical spreadsheets and the like and everything to do with something much more simple and basic and almost always reliable: anecdotal evidence. People don't tell others what they're doing; they're actions show them.
Practically everyone knows the old saying "Actions speak louder than words." If for some twisted, off-base reason you believe that this aphorism has, like many things in life, become fallible, conveniently forget to give your spouse or significant other an anniversary card or birthday gift.
Yea, we know what most economists laboring away in their dank, dingy econometric cellars think about anecdotal evidence and practitioners of the healing art too. They mostly discount it. Whenever anyone, once diagnosed with a tragic illness, suddenly turns up disease free, medicine has only one answer: benign remission. In short, they have no explanation. If it can't be duplicated in a laboratory under strict so-called scientific conditions, again they have no explanation. It's like what goes down on Wall Street occasionally after the market sells off, the recent 2 percent one-day decline comes to mind, and pundits blame it on profit taking. They too have no explanation.
The other day leaving the gym we drove by a desirable property in a desirable community less than half a mile from the Pacific Ocean. One doesn't have to be a Southern Californian to understand that the farther inland one goes the less desirable the property unless, that is, one is talking about Las Vegas dirt. Recall what happens in Sin City stays there. Proximity to water affects property prices. Two thirds of the earth's surface may be water, but precious little of it remains affordable in real estate terms.
The sign on the tidy front lawn, the first one of its kind we've seen, announcing that the house was for sale said it all, in large, bold red letters: Price Reduced. Driving around a neighborhood for nearly a quarter of a century one gets accustomed to how fast for sale signs go up and down. Owing to the barrage of real estate mail or the lack thereof, one also over time gets a fair feeling about how much homes are selling for and how fast they're moving or how slowly. You don't need economists to tell you about backlogs of unsold houses; as they say, that's a lagging, way-lagging indicator.
There is always one or two in the neighborhood who are first to put up holiday decorations whether it's Halloween or Thanksgiving or, to be PC, Season's Greetings or Happy Kwanzaa. Before long lots of others show up. You could call it a ritual of sorts.
Driving home late one recent night we heard a talk show radio host for one of Los Angeles' largest stations explaining why he believes any and all talk about housing bubbles is wrong. Admittedly not a real estate or financial guru, as if that would lend his story any more credence, he went on to tell his audience about the appreciation of his Hollywood Hills home he purchased in 1995 and how demand has to continue outstripping supply. His reasons were legion though most reflected conventional thinking.
To put some bark in his economic bite he quoted several stories including just having had dinner a few evenings earlier with a couple of radio executives who, surprisingly, over the fine fare announced they were quitting their jobs to go into real estate. Then he relayed stories about lots of professionals, lawyers and physicians, smart folks all, he was acquainted with who had given up their practices the last couple of years to sell real estate.
His piece de resistance was a story in the LA Times set to run the next morning he quoted from. The story chronicled the 6-year real estate boom in California, pointing out that 49,000 homes in 2005 sold for one million dollars or more, a 47 percent increase from 2004 when just over 33,000 California dwellings changed hands for that amount. Going back to 2002 just under 14,000 homes sold for one million or more. So to put it another way, the 49,000 homes sold in 2005 at one million or more represents a nearly fourfold increase over 2002. According to the article, nationwide in 2005 one million homes were listed at this price, up from just 350,000 in 2000.
During the dot-com bubble the country was rife with attorneys and other professionals, smart folks all, dumping their day jobs, opting for hot opportunity and stock options on their personal nirvana to easy, certain wealth and early retirement. To be sure some will argue real estate is not dot-com. Real estate is a physical asset not an idea, they will tell you. Still the concept of buying high and expecting even higher prices is based on an idea, a belief. But we'll leave that for now for the behavioral scientists (Now there is an oxymoron for you if ever there was one.) to unravel.
We don't want to bore anyone with charts and indices showing affordability being near record lows or the amount of disposable income needed to carry a mortgage resting at record highs. Or as one recent survey pointed out, 38 percent of all mortgages originated in the U.S. last year the purchaser put less than 5 percent down. That would be too econometric-like for our taste. Nor do we have any idea how long that for sale sign was up before we first espied it. We do know this. The sign is still there. And by the way, just last evening a couple of blocks over, cropping up from a beautifully cut green lawn behind a cozy picket white fence, we spotted a second one.