Wednesday, July 06, 2005

Secondary Bubble Markets

At first the speculators bought up in the orginal bubble markets (San Fransisico, LA, San Diego). Now, speculators have descended on other real estate markets and turned them into bubbles. Places like Bakersfield, Merced. These are secondary bubble markets. In fact some places like Bakersfield are likely to see more of a price decline then the primary bubble markets. Why? Since, the primary markets still have supply constraints and a solid number of high paying jobs which the secondary bubble markets do not. Furthermore, the degree of speculation is larger as some speculators get priced out of LA market they may move on to cheaper markets. The percentage of speculators is higher in many of these secondary bubble markets.


  1. So now the San Joaquin Valey is now secondary!.
    I do agree that the Socal/Norcal specker have screwed up the local markets even thoughs areas one can't commute from. Why do you think the imfamous Peterson House in Modesto went for 390 K cause that area of the North Valley one can commute 1-2 hours to the Bay Area. But areas south are experiencing crazy increases due soley to the specker. These areas of Madera, Fresno, Tukare-Kings and Kern county simple can't maintain the increase. The jobs and wages simply are not here. The only reason the area finally has single digit unemployment number is due to RE & Construction. This area is nice to live in..too many posters on Ben's site dis this area. I believe an area/region is what one makes of it! It will be interesting how this all works out... I don't want a Depression since the kids would be super-preditors... I would like to see the speckers get creamed and leave this area as fly over/drive through area..


  2. Coastal refugees and RE investment funds... coming soon to an unlikely neighborhood near you.

    The Central Valley of California has seen enormous jumps in housing prices in the past 2 years. This isn't the California most people think of, and it's not a place that people have generally wanted to live in. Several areas had 40%+ yoy price gains in May. Why? Because housing was comparatively cheaper to the people who "invested" there.

    Supply constraints? These places are surrounded by farmland and dairies. Many people have cashed out of coastal locations and moved inland to purchase bigger houses for less. Construction is now booming, known speculators account for at least 25% of the houses sold in Visalia and 20%+ in Bakersfield. Fresno has seen huge median housing price gains.

    Why were these places cheaper just a few years ago? There were some solid reasons that have been largely ignored over the idea that "People have to live someplace." There's nothing outstanding about these places. Good paying jobs are scarce, and wages are on the low side. The educational levels of the residents are some of the lowest in the state. Unemployment is high, and the local economies are largely agriculturally centered. For example, Tulare County (Visalia/Tulare)is one of the poorest counties in CA.

    The jobs that have been created there recently have been largely related to building, financing, furnishing, buying/selling or remodeling houses. When the housing liquidity dries up, it's going to get ugly. What will these areas have to fall back on? Not much. The unsustainability of this is nothing short of scary.

    The run-ups have already happened in these cities, and the speculation has already moved on to other places and states. It's starting to vaguely remind me of the spread of a contagious disease.

  3. anon 6:45,

    terrific post. :-) Thanks for stopping by.

  4. Hi David,

    A lot of the condos in Vancouver are going to Americans, so the story goes. Some buildings as much as 50%. I'm sure a lot of that money comes from Cali.

    When Cali blows, the stench will blow North in short order.

  5. "Property prices bid up in an unlikely place," another good post on this topic at this sight:

    Real estate markets in back-country places like Marfa, Texas, are becoming ridiculously inflated. How badly are these places actually going to be hurt when it all falls apart?

  6. The thing that really bothers me about all this is the residents left in the wake of the speculators. CA Central Valley is now at 19% affordability and the median-priced house has more than doubled in just a couple of years in a place where double digit unemployment is the norm.

    I don't even want to think about the HELOC partying that has gone on...

  7. To anon 7/6 645P

    You hit right on the head..The Central Valley is mainly agricultural in its economy..Nothing wromg with that since people like to eat and wear cotton jean!! I recently saw an expose in the Fresno Bee that covered a Brain/Culture drain out of the Valley yet the headlines that very same day lamented the hugh increases in Reedley's median price..The paper some how did not pick up the incongruency in these two aticles... I live in the CV and it is not that bad... I agree with the previous post that aregion is what you you make of it...
    It will be bad here when the speculators decide the ride is over...

  8. Anon 7/6 6:45 here,

    Hi David. Thanks! I like it here.

    Anon 5:29--
    As the first poster pointed out, many people love to bash places like Bakersfield and Fresno. My own opinion is that the Central San Joaquin Valley is a love it or hate it sort of place.

    It may surprise you, but I have a great affection for the Valley, despite its problems that are reflected in the statistics for the area. I lived there for 20 years and have the allergies to prove it. *chuckle* Agribusiness feeds, clothes and shelters 3 generations of my family who are living there.

    "The paper some how did not pick up the incongruency in these two aticles (sic)..."
    "It will be bad here when the speculators decide the ride is over..."

    Hopefully more people will clue in to what's going on. The effects of this bubble will be especially felt in areas like the San Joaquin Valley.