WSJ: The Decline of California

The Wall Street Journal had the following opinion article about the downfall of California and how the politicos in Sacramento are trying to fix the budget issues, and how they are continue to destroy California.   Here is the full article

The Golden State -- which a decade ago was the booming technology capital of the world -- has been done in by two decades of chronic overspending, overregulating and a hyperprogressive tax code...

California now has the worst credit rating in the nation -- worse even than Louisiana's. It also has the nation's fourth highest unemployment rate of 9.3% (after Michigan, Rhode Island and South Carolina) and the second highest home foreclosure rate (after Nevada).

California is suffering more than most states from the housing bust, but its politicians also showed less spending restraint during the boom...

Mr. Schwarzenegger has won at least some concessions from Democrats, who run the most liberal legislature this side of Trenton. The budget deal contains a handful of useful tax breaks for job creation and the first public union workplace reforms in a decade; it also creates a new rainy day fund. These taxpayer victories wouldn't have been possible if Republicans in the legislature hadn't held out for them.


But the plan is still far short of the radical tax and spending surgery the state needs. It's loaded with short-term gimmicks -- such as $5 billion of borrowing from future lottery receipts and nearly $10 billion in one-time federal stimulus cash. Even proponents concede the plan doesn't balance spending and revenues 18 months from now...

The tax increases will continue to chase even more productive people out of the state. For at least two years, the sales tax would rise by one percentage point to 8.25% and the income tax by 0.3% to a top marginal rate of 10.56%. These will both be the highest statewide rates in the nation.

The tragedy of this gamesmanship is that the political class still won't address the root cause of its financial problems, which is that the state is becoming less economically competitive. California businesses and high-income families already pay a surtax for locating inside the state. The new budget deal raises that tax toll higher still.


It's no surprise that most CEOs we talk to, many of whom live in California, say they'd be foolish to build another plant in the state. California's budget crisis is the inevitable result of runaway liberal governance, and the state's voters will keep paying for it until they reduce their tax burden and adopt more radical spending controls.

MLS Sales Data: Prices continue to drop, Sales numbers rebounding

The following data is collected from ZipRealty for SFR only Condos are excluded from the data.

Sales Numbers

Across the Bay Area many communities that have had their prices dragged down have seen an increase in sales activity.  Antioch, Oakland, and Hayward were the three largest increases as prices returned to more affordable levels has drawn people back to the market.  The higher priced areas are still seeing prices fall which can be expected since they were later to see price declines, buyers in these markets are finally starting to realize that prices have further to fall.  

Median List Price

Across the East Bay list prices have fallen this year.  In areas which saw increases in sales activity these prices were lowered the most.  Oakland has seen a 60% drop in listing price year over year.  Where only modest declines were seen in the more sought after areas.  Pleasanton (-2.8%).  This may be caused by sellers not fully understanding how prices have dropped or the lack of foreclosures in these areas to drive prices down as fast as the other areas are seeing.

Median Sales Price

There is clearly a separation between the top three areas and the rest were declines seem to be deep and continuing.  LAMORINDA, Pleasanton, and Alamo/Danville have only seen modest declines in sales price while the other areas have all seen declines in the median prices.

Median Price Per SqFt

Universally the Median Price per square foot fell across the East Bay.  

Why couldn't we just listen to President Reagan?

I was too young to pay attention when Reagan came to office, and it seems like ages ago, but from his speech it sounds like we have all the same problems.





Here are some quotes from the speech that I feel like we are reliving.

You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we're not bound by that same limitation? We must act today in order to preserve tomorrow.

The government continues to live well beyond it's means extending social programs with no meaningful way to pay for them except by borrowing and inflating our dollars in the future.

In this present crisis, government is not the solution to our problem; government is the problem. From time to time we've been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. The solutions we seek must be equitable, with no one group singled out to pay a higher price.

Obama and the Liberals continue to grow the government and pander to their "elites" that got them elected rather then getting the heck out of the way and letting the people solve the issues.

It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government. It is time for us to realize that we're too great a nation to limit ourselves to small dreams. We're not, as some would have us believe, doomed to an inevitable decline. I do not believe in a fate that will fall on us no matter what we do. I do believe in a fate that will fall on us if we do nothing. So, with all the creative energy at our command, let us begin an era of national renewal. Let us renew our determination, our courage, and our strength. And let us renew our faith and our hope.

DQNews December Sales Data : Back to the year 2000

Sales Numbers

Sales numbers across the Bay Area continued to improve with Alameda and Conta Costa seeing >25% month over month sales growth. Most of this was "bargin" hunting driving by the massive amounts of foreclosures and short sales on the market. These dramatic increases in month over month are still far below the peak sales numbers we saw back in 2004-2005.


Here's the sales data in graphical format for those of you who are more graphically minded. This clearly shows that the last year has been completely irregular if you look at sales patterns. Even in 2007 when the numbers were depressed, they still has some semblance of a regular sales pattern. Not so in 2008.


Median Home Prices

Welcome to the Year 2000. At least in most Bay Area counties that is what could be written on all those For Sale signs. House prices continued their free fall in December of 2008. Most Bay Area counties have now reverted back to prices not seen since 2000. The month over month declines seen across the bay area are quite staggering if you put it into perspective. Most counties saw an entire year of "equity" erased in a single month!!



Below is the graph of the falling knifes around the Bay Area. The most staggering declines show Santa Clara county separating itself from the three "expensive" counties of San Francisco, San Mateo, and Marin.


Conclusion

Another month like December and I'll be out of data to see where the prices have fallen back to...

A sip of Ron Paul Kool-Aid

Sorry to step away from housing related posts, but I was watching some clips on YouTube and stumbled upon a particularly great clip of Dr. Paul discussing the over regulation of the financial sector. This is a particularly isolating opinion in times where the Dem's are working on plans to bring in new "improved" regulatory over-site of Wall Street




Dr. Paul has a post up on his blog that was also quite interesting in response to the ridiculous "Stimulus" Package that Pres. Obama plans to push through congress, "American Recovery and Reinvestment Plan" should really be something like "The Destruction of the Dollar and Waste More Taxpayer Money Plan"

Stimulating Our Way to Rock Bottom

by Ron Paul

With attention turning to the next big economic stimulus package, questions are still swirling about our economic troubles. How did we get here? How do we get out? As usual, Washington has all the wrong answers. According to many politicians, we got here by not spending enough, not consuming enough, and not regulating enough. Now government, like some mythical white knight, is going to ride in to save the day by blanketing the economy with dollars, hiring an army of new bureaucrats, creating make-work jobs, and sending everyone some form of a bailout check. The debate seems to focus on whether this will cost enough to save the economy, or if this is just a “down payment” with much more government spending to come. Talk like that would be comical, if the results weren’t going to be so tragic.

The results will be worsening economic woes until we learn our lesson. But instead Congress is behaving like drug addicts who must hit rock bottom before they are ready to face reality. They are playing foolish games with the economy now because they are thinking only of political expedience. This talk of job creation is a perfect example.

Contrary to the belief of many, the goal of the economy is not job creation. Jobs can be a sign of a healthy economy, as a high energy level can be a sign of a healthy body. But just as unhealthy substances can artificially give the addict that burst of energy that has nothing to do with health, artificially created jobs just exacerbate our problems. The goal of a healthy economy is productivity. Jobs are a positive outcome of that. A “job” could be to dig a hole one day, and fill it back up the next, or perhaps the equivalent at a desk. This does no one any good. But the value in that paycheck ultimately has to come from taxing someone productive. Some think this round-robin type of economic model is supposed to get us somewhere.

Politicians and bureaucrats have already done their fair share to ensure that jobs in the private sector are prohibitively complicated and expensive to create. They are now shocked that the economy is shedding jobs, and want to simply create hundreds of thousands of jobs to make up for the job losses, through another so-called economic stimulus package. The private sector must be permitted to do that, but instead they are massively burdened with taxes and webs of red tape and regulation. Washington’s bandaids will only prolong this agony. The Austrian school of economics teaches that only a free market economy, unencumbered by onerous government controls, creates long-term prosperity. Politicians, however, tend to be notoriously short-sighted.

I am left with these questions - who is going to be left standing to tax in the private sector to pay for all these public sector make-work jobs? Is Washington really to be considered some sort of savior for creating unproductive jobs in place of the productive jobs they eliminated?

We are at an economic dead-end and those in power are in denial. The truth is our economic problems are due to loose monetary policy, central economic planning, and the parasitic expenses of government. Unless we assess these problems honestly, we unfortunately have a long way to go until, like the junkie, we hit rock bottom.

Good School District Predictions

Hi All I received the following email, and the question is a good one so I thought I'd post my response here to get more comments.

HI, Eastbaybubble,

I am also live in east bay and have been following your blog for quite a while.

I have a question, in your prediction/opinion, when/how much will the house price of "good school district area", (such as Albany, Moraga, orinda, ) drop?

As mentioned in your blog, and by DQ, the bay area November median sale price "was 47.4 percent below the peak median of $665,000". But break it down, I feel/find in "good school district area", such as Albany, Moraga, orinda, etc, the price haven't fall very much. In my personal experience, I am specifically looking for 300-400 k townhouse in Moraga, I found more inventory 6 months ago than now, and I feel the price of townhouse in Moraga haven't dropped compare to half year ago. My friend bought a 1 million house in Moraga a couple of months ago, he has to BID and added 5000$ to get it!

As we know, foreclosure, high unemployment etc, will pull down the house price in all area, but on the other hand, the demand, esp. the demand for good area, will pull the price up in some specific area. 40-50% bay area residents are renting, so more people want the ownership of a house. And like magnet, the good area will [attract] all the rich people there. One of my friend said, "everyone wants go to Albany, so the price won't fall too much".

What do you think about the price trend for next 1-2 years for the good area? Do you foresee a 30-40% drop like Antioch? Do you have some numbers to prove you prediction?

-Ming D

Ming's questions are good and an issue that probably has many opinions out there. I've talked with a number of people who believe that these areas simply won't be effected by foreclosures etc. Which probably has some merit, but there are still foreclosures in these areas, and that tends to bring prices down.

Here is a quick look at the foreclosure activity in Orinda. From ForeclosureRadar.com


Foreclosure activity is across all ranges of homes in Orinda from modest 600k - 700k Homes/Townhomes to the multi-million dollar homes. Here is one example of the high-end homes coming down.



26 Oakwood, Orinda CA. A 4 bed, 6.5 bath 4400 sqft house on a 33000 sqft lot. This home had a loan value of $6,250,000. The original land transfer was for 3.5 mil instead of the 6.25 mil the 1st loan was for, so maybe there was some other funny business going on here, but let's just assume that the 3.5 mil was the purchase price on 12/19/2005. The house currently has a Zestimate (from Zillow) of 2.3 mil, and is a bank owned home (not currently MLS listed). So even the high side of things is seeing some loosing in the market.

My predictions:
For owners who are paying cash for houses in the million-plus range home prices will come down, but not nearly seen in the low-mid markets. Continued weakening of the economy will of course stagnate sales as job insecurity increases. In these areas I would expect to see 10-20% declines in 2009, which would be better then the 20-30% slides that will be seen in outlying areas. Most of my reason is because I believe that when the Option-ARM loans begin to reset this summer these higher cost areas will be hit much more dramatically then they were during the sub-prime resets because people stretched to get into mil-plus houses using those vehicles and even during times of loose lending few sub-prime buyers were going into these areas.

I also firmly believe in this statement from Christopher Thornberg (Beacon Economics)
"You can't have plummeting prices in San Joaquin and East Contra Costa counties that don't affect Western Contra Costa and Alameda counties," he said. "And you can't have plummeting prices in Alameda and Contra Costa counties that don't affect San Mateo and Marin."

DQNews: Contra Costa county 52.5% off peak

DataQuick released the October Sales data for the Bay Area here. The Bay Area sales numbers improved as foreclosures were bought up in the inland counties, which also is driving down the median home prices.

Sales Numbers

The sales numbers improved Month over month between September and October except for in Marin and Santa Clara counties. The biggest Month over month jumps were seen in San Mateo, Solano, and Sonoma counties. However even after the big jumps the sales numbers are still way below the peak numbers from 4 years ago.

Contra Costa county continues to climb the sales number ladder. Perhaps indicating that some areas have finally hit affordable levels, which is likely true in Antioch, Pittsburgh, and Richmond areas.


Median Home Prices

Even though sales number showed improvement the median home prices have continued to slide and search for a floor. Most counties posted near a 5-6% decline. San Francisco and San Mateo were the sole stabilizing factors. I'm going to disregard the number for Marin for a couple of months, which is very volatile because of the low volumes.

The sales graph shows the steep price declines in many of the areas. Contra Costa has now crossed my inflation line (compounded 3% from the median price in December 1999), and most every county