Monday, January 22, 2007

World Class Unaffordability

We already know that affordability in the Central Valley is extremely low as compared with other places in the country. But how do Central Valley cities fare internationally? The 2007 Demographia International Housing Affordability study [pdf] compared median house prices to median household incomes in the major housing markets of the United States, Britain, Canada, Australia, Ireland, and New Zealand. Once again, the Central Valley is well represented in the top 25 least affordable housing markets. According to the report, a median multiple of 5.1 or over is considered severely unaffordable.

  • #6 Stockton: 8.6
  • #14 Modesto: 7.6
  • #18 Fresno: 7.2
  • #23 Sacramento: 6.6

(ranking, city, median multiple)

27 comments:

Anonymous said...

My two cents - One, California will always rank high in unaffordability comparisons. Two, this downturn is unlike past downturns. Most downturns are a result of economic recessions. Loss of jobs equals loss of potential buyers. The fix is to stimulate the economy, create jobs and create buyers. The early 90's was driven by a HUGE lack of liquidity with the implosion of the S&L crisis. The current downturn is almost entirely due to home prices outpacing wages. Job growth is still positive. Household formation is still positive. Interest rates will not fix the problem as they are already low. Only lower prices will "fix" the current downturn. However, I would not bet on the scope of the price declines that some have envisioned in this space. The cost to replace is still high and will eventually (sooner than later) set a floor on prices.

Anonymous said...

I would guess that a lot of the home builder profits are already gone and many projects are in the red on a real cost basis. The public builders, however, gain the benefit of large inventory writedowns now in large lump sums (as they are reporting earnings), so future sales will result in "profits" calculated on the lower, adjusted land base.

Anonymous said...

Hey Anon 2:18,

The subprime implosion is going to make the S&L crisis look like a picnic. We have had considerable job loss, all the tech jobs that are going to India.

John Doe said...

Trolls are not even worth answering any more. Their hollow arguments sound like so much MLM advertisment... only up, up, and away!!!!

It truly is different this time.

Anonymous said...

Eight States Order Crumbling MLN to Cease and Desist

State banking regulators in eight states – including Michigan, New York, Pennsylvania, and the entire New England region – have issued cease and desist orders to Mortgage Lenders Network USA, Inc. after the subprime lender left more than 1,500 customers without funds for mortgages that had been approved or even closed.

For all of you who did not know Mortgage Lender Network went belly up two weeks ago. Eight states just gave them a funeral.

There will be a lot more coming.

Anonymous said...

I don't get it. The Contra Costa/Alameda job growth is good. Silicon Valley job growth is good. Northern Nevada job growth is good. Do all new jobs skip Sacramento??

RayW said...

zsWhat do you consider a good job in Alameda county? Working at the new Walmart? Maybe the new theater in Livermore...that's a doozy!

The jobs being created are service sector jobs which pay low wages...most other jobs are moving elsewhere.

Growth in healthcare is mostly because of the aging population. Valley Care in Pleasanton can't get new doctors to come in because they can make the same wage somewhere it doesn't cost so much to live....

Get a clue...try again without flavoring you comments to the REIC side of the equation. If I'm pulling down 130k a year why do I want to live in a 3 bed 2 bath dump in Livermore? Because that is the income it takes to qualify for one of those tiny old tract homes.

Google said...

Well if you're going to cite this report...and its pretty detailed.... you need to also acknowledge what it blames price unaffordability on....land shortages and rationing.

Sippn said...

Did I do that again?

Gwynster said...

I barely bother to post here anymore due to the troll spin spam. Seems like all of the real conversation is happening over on Ben's blog (which these folks avoid)

patient renter said...

"I barely bother to post here anymore due to the troll spin spam. Seems like all of the real conversation is happening over on Ben's blog (which these folks avoid)"

I've noticed the same thing. A lot of rhetoric eerily reminiscient of stuff I hear from realtors or the NAR. Coincidence?

Perfect Storm said...

Yeah the trolls hype the same tune although the market keeps getting worse. However, I will continue to post here.

Gwynster it is nice to hear from you.

Perfect Storm said...

This market is in free fall now, nothing a troll can do to stop the crashing of the market.

Anonymous said...

Give me a break. It is refreshing to hear some balance to the comments posted. Who wants to read a bunch of parrots saying, 50% down by May, don't catch a falling knife and other tired unoriginal predictions. Ben's blog is a one sided affirmation echo chamber.

Anonymous said...

Ok how about 60% down by May, dont catch a falling grenade.

Anbody who buys now will lose tens of thousands of dollars.

anon1137 said...

Thanks Anon 6:05.

By the way, for all new readers, troll = anyone who doesn't think the sky is falling.

Re: the Demographia International Housing Affordability study, I think we can predict which markets will be quickest to correct. Just look down the list and notice which cities have nothing in common with the rest: LA - yes, San Diego - yes, Honolulu - definitely, SF - YES, London - yes, San Jose - yes, Stockton - HUH?, Modesto - HUH?, Fresno - HUH?, Sacramento - WHAT?

Can you imagine being a FIT in Fresno? Burn baby, burn.

Anonymous said...

An online troll is anyone who tries to cause disruption by being inflammatory. Offering a reasonable opinion is not trollish behavior. If folks cry troll every time someone veers from the established bubble talking points, this will turn into a pretty dull blog. Bottom line with all this stuff, if you can afford your payment (fewer and fewer can) and plan on sticking in the house for a while, you will be okay. People that bought expecting immediate returns with toxic mortgages are screwed.

waiting_for_the_fall said...

at least it's not London.
http://www.msnbc.msn.com/id/16757133/

Anonymous said...

The gist of the article is that the high prices are artificial caused by a limitation of supply due to government regulation. We continue to encourage job creation, but not housing creation. Seems real dumb to me.

Prices will come down some, but not to the extent many in this blog would like (myself included) until the root of the problem is fixed.

JR said...

Gwynster, It is good to see you back. I like Ben's Blog too, but you must admit it is pretty homogonous. One the best things about Lander's site is that Sippin, Dr. Brightside and Anon 1137 keep posting and adding to the thoughtful mix.

The fact is that none of us know where this market is going and what may happen. History and the current data indicates the market will experience a deeper downturn over the next few years and travel along the bottom for a few years more. And that is why I will not buy any more real estate for a while.

It is refreshing to see some people believe the worst is behind us and the market is recovering. I like to look at the supporting data behind those projections and make up my own mind.

Gwynster said...

Thanks Jr and Perfect,

As most of you know, I work in the social sciences and 2 of my projects are located in Sac.

I look at the whole housing conundrum from the viewpoint of economic fundamentals. No amount of wishful thinking can remove those restraints.

Talking with cheerleaders has begun to feel like trying to get Bush to admit there were no WMDs.

I guess this means we're still in the denial phase. I'd hoped we'd have moved on already.

Sippn said...

Geez JR, I almost feel like Sally Field.

Wondering where you were Gwynster.

rayw said...

Regarding governmental/institutional obstacles to building more housing it was reported in a small blurb in the Valley Times(aka Contra Costa Times) about the lawsuit filed against the city of Pleasanton to overturn its voter approved housing cap and force the city to comply with its obligations to building housing based on its General Plan.

Pleasanton is one of the cities which built a huge business park but had no intentions to build its share of housing to support the businesses in the park. Now 580 and 680 are clogged with cars going to and from the San Jaquin valley. Livermore is the same way, the people there are fighting a cemetary being built there. Dead people can't even live in Livermore.

Until the ability of the NIMBY's is reduced to block new housing developments and cities are forced to supply at least 60% of the housing a new business park or building will require to house the workers the housing/traffic problem will not be eliminated or reduced.

rayw said...

As for the troll/otherside issue, it's good to have differing opinions but if the person offering the otherside is only doing so to be contrary then their position to me isn't valid.

I see both sides of the issue but to me affordablity will be the determining factor in this mess. If mortgage rates are at 8.5% in two years....the entire state of California will be buried in bad paper and home prices will be dropping like crystal from a shelf....

Anonymous said...

You are so right rayw. It is an affordability issue.

I run a collection agency. The debt loads people are carrying is staggering. I'm also very aware of incomes levels for most industries.

The economy is a house of cards built with debt. Lending needs to tighten up and not just for housing but for autos, boats etc.

We've become an entitlement nation thirsting for instant gratification. Nobody saves to buy they just whip out the plastic or HELOC.

OK, I'm done ranting.

drwende said...

If there was a land shortage, renting would also be expensive. Instead, renting costs about half of buying a comparable place even in San Francisco, the city that should be hardest hit by any shortage of housing.

Housing prices were driven up by a combination of low interest rates; lax lending standards; buyer terror that if they didn't buy now, prices would keep going up (while if they did, their equity would soar); and the hopefulness of small-time investors who didn't realize that the Central Valley was being overbuilt in relation to demand.

Sippn said...

drwende

I didn't write the article and do the research - lander cited it. Please read it. It explains how effecient builders are at delivering cheaply if land is not rationed (as it is in CA and other progressive states).


By rationing , they mean the 10-15 years it takes to get a major plot of land from the purchase phase, through planning, Army COrp of Engineers, lawsuits, Sierra Club, etc. The land itself is relatively cheap.