Forget cheap money, exotic loans, and lax lending standards. It looks like we can blame those darn California investors for the housing bubble. At first, I only heard of this situation anecdotally. Phoenix realtors licking their chops over Californians who would come to Phoenix, accustomed to CA prices, and pay way over market. “Stupid Californians” have been considered the ideal buyer here for awhile.
 Two articles in the Wall Street Journal actually confirmed the phenomenon. One article on Landlords stated, “Landlords in California, for instance, are moving torrents of money into Arizona, Nevada, Texas and other states. Many Californians believe property values in their own market are peaking. So they want to take profits there and invest in less-expensive areas with better long-term prospects. Some of their favorite markets are Phoenix, Dallas, Las Vegas, Atlanta and Seattle.”
In another article discussing the Texas market, it says that “Investors from California have been buying houses here, especially since Bryan-College Station first hit the top of the “undervalued” chart early this year. Partly as a result, home prices ‘will be higher,” says Chris Tesch, a RE/Max agent here. ‘I can about guarantee it.’”
“Some Californians even snap up houses sight unseen. ‘We’ve sold properties through FedEx and the fax machine,’ says Eric Walley, a sales manager at Stylecraft Builders Inc.
This does beg the question, if these California investors are so stupid, where did they get all that money? The answer to that might be cheap money, exotic loans and lax lending standards. When it all hits the fan however, a lot of people will be looking for a scapegoat. Those California investors could end up being easy marks.
California “equity locusts” were buying and overpaying in NV, AZ, TX and others in 1997. 1998. 1999…. 2006. Seems to me that 80% are sitting fat with excellent investment results. Somebody had to sell those 80%. Score: California investors 20% idiots. Sellers in NV, AZ, TX, etc. 80% idiots. Just looking at the last few years doesn’t tell the story just like my ignoring the last few years in my example does not tell the whole story.
Good point. By “mark” I meant an easy mark to blame- a lot of smart Californians have made a lot of money in this market. A number of stupid ones who bought at the top are going to get burned.
I find it interesting though, that you never hear how a bunch of New Yorkers, or rich Texans or something, came in and ran up the market. I have wondered if Californians really dominate this market as much as the claims, and if so, what would account for it.
Some “stupid” Californians (Again, not an indictment of the whole group) have unquestionably not done their homework and overpaid for properties. That alone however, hardly accounts for the housing bubble. While I doubt there is actually an organized conspiracy, I think the real estate industry has found it convenient to blame the Californians- and hope people don’t look to closely at the truth.
(Next time I’ll need to post a photo of a “tongue-in-cheek.”)
If Californians own a big part of Arizona housing, do they live there? It sounds like they are mostly flippers or landlords.
Flippers boost the local economy through transaction costs. The realtors and builders they have supported will be sellers if appreciation levels off due to external causes like interest rates. Given their visible success, one has to assume that there are many more flippers, realtors and builders now than in 1997.
The landlords who bought early and held look great on paper today. Their asset accumulation should outstrip flipper profit, plus they have contributed less instability to the local economy. However they have been under amazing temptation to use leverage- it would be strange if they did not use equity gains in secured housing as deposits for available housing. The landlords who did not stop buying last year could be underwater net, even if the first house they bought in 1997 is now worth ten times what they paid then.
Increasing inventory is fact.
Inventory leaves flippers in longer term situations, which hurts their financing and income models. The weakest will have to leave, and some builders and realtors will have to follow. Inventory should not theoretically hurt landlords unless they are forced to sell.
Will enough flippers, builders, realtors and mortgage agents exit to leave landlords with empty units? Net population decrease is not required, only an inventory-to-resident ratio that drops rents too far below mortgages. In that case leveraged landlords would absorb losses on the market to liquidate quickly or accept foreclosures.
Don’t declare the Californians victors until the game ends.
Massachusan-
Some Californians stay. My father, as a young graduate from UCLA, couldn’t afford a house in CA. (Some things apparently never change.) He took his young family to AZ, where he could buy a house, save some money, and return. We liked AZ and stayed. A fair percentage of our residents are former Californians.
You are right, the issue isn’t the owner occupied homes, it’s the flippers. I was at an auction once, where my hand was up a second too late on the final bid. I ended up overpaying for the item. That’s what happened to the investors who bought last year, and are trying to sell now.
Like any pyramid scheme, the guys who get in early do alright. The smart ones came and went. The one’s that came in last though…those guys are going to be shaken out of the system. The more leveraged they were, the more “creative” the financing, the harder they are going to be hit.
I like being able to talk about “speculators” and “investors” in the generic sense- they don’t sound like real people that way. The sad reality is though, that so many of these folks were people who used their retirement, pulled equity out of their house, etc. The personal tragedies will stack up.
I concur completely that the big story is inventory. It really boils down to simple supply and demand- too many sellers competing for not enough buyers. The sellers that lose that battle are going to lose in a big way.