Thursday, February 23, 2006

Mr. Castro Responds

Jimmy Castro, via Realty Times, has posted a direct response to yesterday's article. He also may be responding to a post/comments at a much bigger fish, The Housing Bubble blog. (Out at the Peak also has a permanent link for Mr. Castro on the right under "Housing Heads.")

Here is Mr. Castro's response in full (as his articles tend to change quite rapidly). If anyone cares to respond to any of Mr. Castro's points, please hit the "comments" link below.

It looks like I have captured a bit of attention concerning my thoughts on the market here in Sacramento. My article has made it on a blog called Sacramentolanding.blogspot.com.

Here is the bottom line - Sacramento is one of the fastest growing areas in the state. The Sacramento area has been named one of the Top 10 most desirable places to live in the United States and provides ample employment opportunities, great weather, low crime rates and a mix of established and newly developed communities. The area includes a wide variety of housing and commercial developments, including both newer planned communities like Folsom and older neighborhoods undergoing economic restructuring such as Del Paso Heights. The schools in the Sacramento Region are among the best in California and many institutions of higher education are nearby, including community colleges, technical schools and California State University, Sacramento.

The real estate bubble naysayers whine about the "bubble" as if the whole national real estate market were nothing more than another over-inflated stock exchange -- it's not. Real estate is local and I wish people scaring the buyers with quotes from stock market experts would just stop what they're doing and consider some real facts.

Fact: The top hot real estate markets in the U.S. are also the top hot job markets.

Fact: Houses are where the jobs go at night.

Fact: Without enough houses in a hot job market, your housing inventory will escalate in price.

Fact: Unlike the stock market -- you have to live somewhere. Whether renting or buying, there is an automatic necessity for the ownership of real estate -- either by a homeowner or an investor.

There is no built-in necessity for owning stocks, thus all comparisons between the two products is moot.

In the midst of the hot markets across the country (where the squealing is the loudest and most piercing) citizens of those jurisdictions must look to the local economy to determine their risks.

Here in California, where the big bubble bursting boom is supposed to bang the loudest, there aren't enough homes to go around.

For the past half decade, the shortage has been compounded each year by a shortfall of 50,000 housing starts, according to the California Building Industries Association.

Imagine if the shortage continues for the next two decades when the Golden State is expected to grow in population by 10 million people.

That's a forecast from experts at the Public Policy Institute of California who, along with other experts, recently testified before a state Assembly committee.

Population booms -- which typically don't come with busts -- are expected to swell the state's Inland Empire, San Joaquin Valley and Sacramento areas by 45 percent and coastal regions by 17 percent.

By 2030, the number of seniors will double and one in every six Californians will be over age 65.

In the next six years, Latinos will be the state's largest racial group.

And by 2011, public universities and colleges could run out of money to add on facilities required to meet the demand for college-educated workers.

They will all have to live somewhere!

Jimmy Castro, RE/MAX GoldTeam Leader/Owner JC& Associates

36 comments:

Anonymous said...

He has a point!

Anonymous said...

There is no built-in necessity for owning stocks, thus all comparisons between the two products is moot.

Yeah, sure. But that is a strawman argument if there ever was one. When people compare the two they are not comparing a stock (as a piece of paper) to a house. They are comparing people's psychology...investor psychology to be precise.

Anonymous said...
This comment has been removed by a blog administrator.
hemorrhoidforhousing said...

What a load, we all know this. Everybody has to live somewhere, but when costs are out of line with income things correct. This is what we are seeing now.

capitalme said...

What job market is he talking about? Everyone I know that knows someone in *any* business related to housing says they're HURTING right now. Last I checked housing related jobs accounted for upwards of 45% of the total sac job market. Does this realtorTM know how many of these jobs rely on low interest rates and flippers? I don't think he does. So much for his hot job market. And I'm tired of people talking about population growth...not population, not inventory, but population/inventory. That's how it works...get it? Does Sacramento, with its sea of annoying, empty-headed, Dr. Phil-loving, bleach blonde soccer moms, generic chain stores, and NOTHING to do aside from watch kids play soccer on weekends have the population, let alone the lure, to support this UNDENIABLY MASSIVE surplus of shoddy, overpriced tract homes? Nope! Sorry! I think we've proven that. Without flippers and stated-income I/O loans your home isn't worth half what you think it is. Sorry dudes.

Anonymous said...

I can't log in under happy renter. This is freaking anoying.anyway

Incomes are lagging and have been for the past 5 years.
Rental availability is above Ten percent(no shortage of housing).
There are a few good schools but the majority aren't if you disagree look at drop out rates, exit examine pass rate, and crime within them.

Homebuilders in the area have slashed prices at a fire sale level( up to 30% on $450,000 homes).

Median price are off 5% from the peak and Price/sq.ft are dropping.

This market is falling apart!!!
For the record, We are not the ones scaring the public, the market is doing that on its own. :)

sf jack said...

Cycles and affordability. He's completely ignoring the idea that markets work this way. And the Sacramento/Valley area is not in a vacuum - it's not only a bubble area, it's completely surrounded by them. And many of its workers are bubble dependent for their jobs.

As for the idea that comparing stocks and houses is moot - well, I have some news for him. His biggest problem is going to become that people in the recent past have treated them exactly the same: as investments. And when RE as an "investment" goes out of favor, he's really SOL. At that point, it just won't matter that California doesn't build enough houses.

Oh, and some other thoughts:

"And by 2011, public universities and colleges could run out of money to add on facilities required to meet the demand for college-educated workers."

2011 could very well be about the time you want to be a homebuyer again in much of California.

And...

"By 2030, the number of seniors will double and one in every six Californians will be over age 65."

2030 could be closer to the next housing market cycle peak in California than the year 2011.

Just some things to think about.

Anonymous said...

I think Mr. Castro is posting as mrincomestream over at Ben's Blog.

Happy Renter

peterbob said...

That's a forecast from experts at the Public Policy Institute of California who, along with other experts, recently testified before a state Assembly committee.

The Public Policy Institute concludes that the shortage of housing isn't all that great, and nonexistent outside of LA, SF, and SD.

http://www.ppic.org/content/pubs/R_304HJR.pdf

Still, I am a strong believer in building more homes. Unless supply rises in the long run, housing affordability will continue to be a problem. Of course, in the short run (next few years) the bursting of the bubble may make housing MUCh more affordable.

Anonymous said...

I have no doubt that Mr. Castro has pump up RE to all his friends and family. His entire Reputation is on the line. As this falls apart it's not just be his career that's disappearing.

happy renter

Anonymous said...

I must say, homebuilders are not the bad guys. They increase the supply, which lowers prices and make housing more affordable. Not so bad.

The real problems with this bubble are the RE agents and mortgage companies who can prey on unsophisticated buyers. These buyers will be left holding the bag.

One question. Is Mr. Castro buying or selling his OWN properties? I'd like to know.

Athena said...

Houses are where the hot job markets are?

What is the hot job market in Sacramento?

Where is the hot job market in Sonoma?

In Sonoma you have a service industry population and an average income of less than $50k per year, and you have an area that benefitted with a couple thousand tech jobs during the .com boom... but tech giveth and tech taketh away, and many of those jobs were lost after the .com and telecom busts. Those jobs haven't been replaced... or were they? It seems that the jobs created in the Sonoma area in the last four years were overwhelmingly associated with the real estate, mortgage brokerage, and construction/house services industries.

Now that is a bit circular don't you think? These jobs didn't draw people to the area, and now that 7% of Sonoma can afford to buy a house it seems like the captive consumer pool is dwindling, and the layoffs are beginning.

so where are these jobs that the gentleman is talking about? There are plenty of service worker jobs, but I would like to know where those "hot jobs" are hiding... the kind that will mean people are flocking to the area for and able to buy houses with the $...?

Lander said...

Please refrain from personal attacks/name calling. Try this instead:

Anonymous said...
If he is right, then why is the housing bubble collapsing? Sounds like the talking heads over on CNBC during the nasdaq bubble; it all made perfectly good sense then too.

Lander said...

The real estate bubble naysayers whine about the "bubble" as if the whole national real estate market were nothing more than another over-inflated stock exchange -- it's not.Real estate is local and I wish people scaring the buyers with quotes from stock market experts would just stop what they're doing

Must be talking about another blog. I agree that "real estate is local." That is why this blog covers the local ["Sacramento"] real estate market ["Land"]. OK, I admit I'm somwhat of a "naysayer" or at least a skeptic ["(ing)"].

Lander said...

Real estate is local...

I'm not sure why Mr. Castro argues this and then proceeds, for the most part, to talk about the California real estate market.

Fact: Without enough houses in a hot job market, your housing inventory will escalate in price.

Is this about Sacramento?

Perhaps OCRenter or James_in_CA can comment on that point.

bearmaster said...

Just because we "need" a certain item doesn't make a market in that item bubble-proof.

People have always "required" a place to live but that did not stop real estate and rents from collapsing during the 1930's in NYC. Under those circumstances people doubled or tripled up with relatives or they became hobos or migrants.

People had to live near and work in Tokyo too. And Hong Kong. And if I recall those markets had huge corrections in the 1990's even though people needed a place to live.

We have experienced huge rallies and crashes in agrigicultural commodities too, even though the nation's food supply "needs" cattle, wheat, and so forth.

Our real estate bubble is not merely "local froth", it is sloshed around just about everywhere and is widespread. Economists who understand what has happened would call this a horrible misallocation of resources that has caused consumers to have a false impression of wealth due to a distortion of values.

Perhaps our friend Jimmy Castro would benefit from reading some of the links off of my housing bubble page. I particularly recommend the paper on the Henry George's Theory of the Trade Cycle, and the compendium of NY Times articles about the 80's housing bubble bust by James Bednar. But I get the feeling he doesn't want the education.

Anonymous said...

"The RE market is not like the Stock market"

Thats correct. People couldn't possibly leverage themselves investing in stock to the degree they have investing in real estate.

And for those who have come to believe leverage is a good thing.
Borrowed money(i.e. leverage, buying on margin) is simply a way of compounding your risk and thus your reward.

Down payments are about to vanish over a period of days.

happy renter

1happyrenter said...

I recently purchased a new truck. The thought of having over paid kept me up at night. I think I got a good deal, but I kept going through ever word the salesmen said. I couldn't help but feel played.

Here is an example of people losing it because of this.

http://www.autoblog.com/2006/02/05/video-disgruntled-customer-rams-miami-showroom-torches-dealers/

Good luck Mr. Castro. I hope your past costumers are well adjusted and can handle having overpayed by hundreds of thousands of dollars.

Anonymous said...

Do nothing from selfishness or empty conceit, but with humility of mind.
PHILIPPIANS 2:3

Rob Dawg said...

Talk about building a shaky house of cards. -IF- there is a strong jobs market and -IF- housing demand remains strong then prices will go up. Not a word about affordability, nothing about credit worthiness and tighter standards, nothing about the financial state of the state.

For all the things that weren't mentioned there certainly were all the usual suspects lined up; it's different here, our schools are better (they are average with a few very god and bad), our population is diverse and educated and yadda, yadda....

Finally there is no shortage of housing. This is an entirely made up statistic.

Athena said...

I really would like to take this time to inform Mr. Castro, who so kindly responded to the excellent reporting done here on the Sactobubble...


Mr. Castro shared a few "facts" as he called them regarding the realities of real estate.

1. Real estate is local and I wish people scaring the buyers with quotes from stock market experts would just stop what they're doing and consider some real facts.

Right. People know this- and even the "naysayers" as he refers to the real estate bloggers know this. That is why you can find serious regional blogs that dig into the actual demographics and behavior of the economy and community of that particular area. Those things taken into consideration is how people HAVE come to determine their particular area is experiencing over-valuation and price run ups and speculation of the unsustainable sort. It just so happens that this IS happening in states all over the nation from coast to coast, but that doesn't mean the bubble is national affecting all on an equal scale. It is more a reflection that group think among real estate agents and easy lenders and people being afraid of "being priced out of the market" has touched down all over the US and exploited local areas for bubble gains that will leave lasting problems for years to come.

2. Fact: The top hot real estate markets in the U.S. are also the top hot job markets.


Well just because you say it Mr. Castro doesn't mean it is a fact, and you can repeat something you have pulled from your bum over and over again and it will get no closer to true.

REAL Fact Sonoma added .5% new jobs in 2005. It will add 1% for 2006 Not an amount that could even remotely be defined as a HOT JOB market considering that .5% amounted to only 1000 jobs county wide. I would say those jobs were likely accounted for by the real estate industry, mortgage companies and contstruction- so what now will happen to those jobs as this bubble loses more air?

What's more...high-paying jobs are not plentiful, and many of the new jobs pay less than the average wage. Second, there is a disparity between the competency of the available workforce and the specific skills required for many of the new jobs.

When the tech bubble burst, the Bay Area, according to a study by the San Francisco Chronicle, lost more than 400,000 jobs from 2001 to 2003.



The Median Price for a home in Sonoma is right about $600k

For an area that has anything BUT hot jobs going on and a per capita income of about $29k and an average household income of $46k

I'm going to have to call BS on Mr. Castro's facts so far.

Fact 3: Houses are where the jobs go at night.

Fact 4: Without enough houses in a hot job market, your housing inventory will escalate in price.



go back and re-read the real facts for this over-valued over-priced real estate market... the inventory is escalating in number of available houses for sale... right around 4 times the usual inventory, and the prices are jacked up, but not for the reasons you give. BS on facts 3 & 4

Fact: Unlike the stock market -- you have to live somewhere. Whether renting or buying, there is an automatic necessity for the ownership of real estate -- either by a homeowner or an investor.


bahahaha... funny you would use a comparison with a stockbroker, and drop the word investor... Have you noticed that stock brokers are licensed and regulated regarding the actual investment advice they give? I fully believe that when the fecal matter hits the ventilator on the real estate and mortgage industry who have been acting as unlicensed financial advisers there will be some pain involved and the fed regulators will be crawling up the orafices with microscopes... I fully predict of a parade of token perps doing the perp walk in a perp parade as those home debting masses scream when they find they bought into bum advice.

That's it for now as he didn't say anything else that couldn't be easily dismissed by someone who is simply awake.

Athena said...

Info above was for Sonoma County's Bubble...

While Mr. Castro wants to make sure that we all know that real estate isn't a national product- it seems his pseudo facts are meant to apply generally and to all areas...

Those pseudo-facts will likely turn out to be false in most areas.

1happyrenter said...
This comment has been removed by a blog administrator.
1happyrenter said...

"2. Fact: The top hot real estate markets in the U.S. are also the top hot job markets."

Fact: Most of the "hot jobs" were RE related.

Most of the jobs are workers looking to build this house of cards higher.

arizonadude said...

WEll hopefully the market corrects and homes become affordable soon.

I really think the bigger problem here is lack of homes being built in sacramento. There was a lot of demand when rates went so low and not enough homes to go around. I really think you have to look at the time, fees and review a developer has to go through these days. Local governments are charging big bucks for fees these days. Review can take years on these projects. They could even take longer if they are non liked by extreme environmentalists. I think we real need to fix this part of the system somehow.

Marinite said...

For all the things that weren't mentioned there certainly were all the usual suspects lined up; it's different here, our schools are better (they are average with a few very god and bad), our population is diverse and educated and yadda, yadda....

No, no, no, no... He must be confused. He must be talking about Marin because that is what all the housing bulls here say to justify Marin prices. And SD, and NY, and VA, and FLA, and...

Marinite
Marin Real Estate Bubble

Athena said...

no no no marinite, those are the arguments of the Sonoma Bulls, and I am sure Marin cannot be just like Sonoma, I mean we don't have a bubble, and if we did, it wouldn't burst because we really ARE different. :-D

Anonymous said...

Arionadude-

Lack of homes being built in Sacto? Then where did all of these brand new subdivisions in West Sac, Natomas, Laguna, Elk Grove, Rancho Cordova, Folsom, Roseville, Rocklin And Granite Bay come from? Not to mention the smaller infill projects built all over in established neighborhoods?
The issue of environmental concerns is def. overblown. This is just another way for developers to justify selling shoddy cr@pboxes at grossly overinflated prices over cost. I don't completely dismiss the cost and time required, but I'd love to see the actual numbers.
Do those permits even get reviewed by anyone? This week it was discovered that all of those new homes in Natomas are behind levees that are seriously weakened by seepage from the river. OOPS!

ocrenter said...

The schools in the Sacramento Region are among the best in California and many institutions of higher education are nearby, including community colleges, technical schools and California State University, Sacramento.

Now since when is Sacramento known as the craddle of higher education? Is the new name for Sacramento "Cambridge of the West?" And CalStates, community colleges, and DeVry? You got to be kidding me. As if Sacramento isn't overpopulated with Hmong high school drop outs.

Hey, this would explain Bakersfield's boom!! It's got Cal State Bakersfield!! And Cal State Dominguez Hill is responsible for Watts being the fastest appreciating community in LA county!! And let's not forget the impact Cal State San Bernardino has had in San Bernardino's 40% increase in real estate prices last year.

Lander said...

Do nothing from selfishness or empty conceit, but with humility of mind.
PHILIPPIANS 2:3


And ye shall know the truth, and the truth shall make you free.
JOHN 8:32

Lander said...

His watchmen are blind: they are all ignorant, they are all dumb dogs, they cannot bark; sleeping, lying down, loving to slumber.

Yea, they are greedy dogs which can never have enough, and they are shepherds that cannot understand: they all look to their own way, every one for his gain, from his quarter.

Come ye, say they, I will fetch wine, and we will fill ourselves with strong drink; and tomorrow shall be as this day, and much more abundant.

Isaiah 56:10-12

arizonadude said...

Anonymous said...
Arionadude-

Lack of homes being built in Sacto? Then where did all of these brand new subdivisions in West Sac, Natomas, Laguna, Elk Grove, Rancho Cordova, Folsom, Roseville, Rocklin And Granite Bay come from? Not to mention the smaller infill projects built all over in established neighborhoods?
The issue of environmental concerns is def. overblown. This is just another way for developers to justify selling shoddy cr@pboxes at grossly overinflated prices over cost. I don't completely dismiss the cost and time required, but I'd love to see the actual numbers.
Do those permits even get reviewed by anyone? This week it was discovered that all of those new homes in Natomas are behind levees that are seriously weakened by seepage from the river. OOPS!

Anonymous:
Yes they built some somes but not near;y enogh for the demand.

I don't think the environmental concerns are overblown at all. It is costing the consumer thousands of dollars for review. Developers own the property and are in the business to build. And why are the prices so grossly overinflated? Not enough supply to meet demand.

It seems like they aren't reviewing much if they screwed up that bad in natomas. So I wonder what is happening to all the money they are getting for fees?

1happyrenter said...

I hope he's reading all this.

1happyrenter said...

"I wish people scaring the buyers with quotes from stock market experts would just stop what they're doing and consider some real facts."

I've been scaring buyers with market statistics such as close to record breaking inventory , price escalation(close to 50% over historical trend), high price to income and or rent levels, dramatic shift towards subprime loans, sudden drop in new home purchases and prices.

Then I usually get into the financial scandles of Fannie Mae and compare those to the savings and loan scandal of the late 80's.

They usually bring up the similarity to the stock bubble all on their own to which I agree.

capitalme said...

So...is anyone going with me to hand out "informative" flyers at the housing fair this weekend? Maybe we can sell "sacramentolanding" t-shirts at 40% above actual value, too.

Out at the peak said...

Thanks for props. :)

The big question is where does all this extra money come from to keep prices going up 10%+ each year? If wages and other payouts were on a similar track record, it would all make sense. Not to mention the increase on the property tax basis.

It must be fearful to see more and more housing bubble blogs and readers thriving. Back in October/November 2005, I was able to read every bubble article, post, and comments. Doing that now is impossible. I should make that my next topic. :)