Tuesday, June 24, 2014

It has to be a one off.

When the data came out this morning that new homes sales surged almost 19% over the previous month - I was stunned. You read this blog, right? It was almost a fantastical number considering the other numbers we've gotten this year. Just six days ago I was writing about price declines. Read: It's Spreading.

The numbers sent me into a self doubt spiral. Which IMO is an extremely healthy thing and not the negative it seems to imply. The world changes. Sometimes you don't see the whole picture. There are tons of reasons you should have healthy self doubt. And after all - I'm not an economist. I'm just someone that got trapped in the market who's had to learn more about the housing market than I ever wanted to know.

I was the only one who had faith when absolutely no one had faith. (and not the godly kind). When everyone on earth was saying houses would never be worth what you paid for them, I was saying that was complete bullshit. I didn't know when that day would come. For a few years the stress was unbearable. It was like a vice grip. No one wants the housing market to normalize more than I do. I'm just tired of needing to parse the data all the time to figure out reality is.

First let me start out with how these numbers are probably true, but temporary. Especially because the West seemed unusually strong.

I don't remember when exactly (but within the last year maybe) I noticed a really odd thing happening in Silicon Valley. At the time we still had a huge glut of commercial real estate sitting around. All of a sudden these huge commercial building were being razed and condo's were being built in that spot. It caught my attention because we've been through a lot of boom and bust cycles in the Valley, and I've never seen them raze commercial real estate to make way for residential housing. It's always been the other way around. Always.

The other odd thing was apartments and condo's were being built in odd places. Well... maybe odd is a bad word. Lets just say really undesirable places. California is getting away from the clover leaf highway entrances and exits, and that tiny bit of extra land next to the freeway was being built on. This is also happening with new commercial buildings now too. There's a building in Cupertino that just popped up one day next to the freeway. It stands out because it's unusual for them them build commercially that close to the freeway. Even the new Apple campus is next to, but somewhat away from the freeway. Not right up on it. There are tons of apartments and small business that sit next to the freeway, but Silicon Valley campuses tend to be more park like oases.  To me it seemed obvious that land was becoming sort of hard to obtain. Otherwise why would you build in  these places? Next to railroad tracks and places like that. They were building on all the little tiny bits of land that used to be a buffer from from stuff that sucked like train and traffic noise.

A lot of these developments are now coming on line. And while they are not in the most desirable places - they still are in the hearth of Silicon Valley which will make people snap them up quickly. Obviously Silicon Valley doesn't make the whole market, but there is really a lot of new inventory coming on line.

Now, existing homes. I generally don't believe that lack of inventory is why existing sales are not doing well. Even though the new housing sales numbers should actually enforce that belief. I've been trying to get PMI off my rental for almost this whole year. I've been watching prices especially carefully. May is the first month I started seeing price declines. June there were more and the price declines were more substantial. I've seen a lot of bloggers talking about how the rich 1% are the only ones out buying houses. I suspect this is because it's where a lot of the price declines are most prevalent. I'm starting to see a lot of million dollar houses being marked down. But it's not the only area. The price declines started out pretty small, and have gotten bigger this month. Thankfully I'm not the only person seeing this because the cheerleaders can really make you feel like you've gone insane sometimes. Today is one of those days.

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