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Negative Absorption...

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June 05, 2008 – Comments (6)

I was reading Calculated Risk on negative absorption rates in Santa Maria

Certianly through the history that any of us can remember there has always been a demand for increased housing for population growth.  There have been a few areas with negative population growth, but mostly the increase in the number of people every year has meant that there has been constant increasing demand and price support.

I think we are coming to the end of the era where population growth carries investments.  I think we are moving into an investment world where population stabilizes, and has many more areas with negative absorption rates or flat populations.

I think this is going to change people's understanding of investments. 

6 Comments – Post Your Own

#1) On June 05, 2008 at 10:17 AM, alstry (35.98) wrote:

The one thing I like about you is that you actually think.

Thinking is a dying quality in our wonderful nation.  We simply hear and act....rarely do we question.

Negative absorbtion is going on in Florida as well.  Yes that is right....Florida........where all the retirees are supposed to be going but can no longer afford to live on their own so they are doubling up with their children.

You think we have an oversupply of houses now, just wait until more move in together.

We can argue pro and con the positive social implications....but that is for another post.....as far as house prices go

Negative absorbtion, rising interest rates and rising non housing related expenses.....whattta you tink?

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#2) On June 05, 2008 at 10:21 AM, alstry (35.98) wrote:

By the way, as an aside...............population is still growing..........and as long as their isn't a rapid migration towards homosexuality or other alternative lifestyles....population will likely continue to grow......

population growth and economic growth are often disconnected......population growth tied to growing productivity is more correlated.

If you want to take a look at population growth without economic growth.....big parts of Africa can give you excellent examples.

It is an issue that Warren Buffet is profoundly aware of.

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#3) On June 05, 2008 at 10:22 AM, saunafool (98.74) wrote:

Santa Maria is a perfect example of what the bubble did in California housing. In the cities, it takes a long time to get building permits (but they do eventually get issued, which is why San Francisco is going to have thousands of condo units coming onto the market in the next couple of years).

Anyway, during 2002--2005, there was huge development of all of these areas like Santa Maria (which is nowhere near anything) and the Inland Empire (with horrendous commutes to Los Angeles) or Modesto/Stockton/Tracy (with horrendous commutes to San Francisco or Silicon Valley) or around Sacramento (with an even worse commute to San Francisco or lower paying jobs near Sac.) The developers built tens of thousands of houses--like 20,000 in Sacramento alone because outside of the major cities they could get their permits quickly.

The buyers went along for the ride because prices were going up rapidly in the euphoria, and even though their commutes were 60 miles (about 100 km) one way, they just had to buy a house. As one person told me, "if you don't buy a house, you'll never build equity." That person used a no money down, interest only loan in the suburbs of Sacramento in September 2005. I think they currently have negative equity of $140,000.

Anyway, there was never the need for all that housing that far away from the jobs.

 That said, Santa Maria wouldn't be such a bad place to retire (if you ignore the oil refinery) for $160,000 near the ocean. If they are smart, they should start a marketing campaign in  North Dakota or something...

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#4) On June 05, 2008 at 10:26 AM, saunafool (98.74) wrote:

alstry,

I think there might be a rapid migration towards homosexuality. Everyone in San Francisco insists that the Bay Area population is constantly increasing:-)

The "constant population growth" was one of the standard reasons given of why it was supposed to make sense to pay $800,000 for a 2 bedroom bungalow.

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#5) On June 05, 2008 at 10:48 AM, alstry (35.98) wrote:

Just to look at the issue mathematically.  Population growth could actually be increasing in San Franscisco, especially the homosexual population growth, and homosexuality could actually be decreasing.

I have no idea one way or the other, just looking at it objectively.  San Francisco is a beautiful area with wonderful activities.  If you are so inclined, may people from all parts of America could be migrating there at the expense of their current domiciles.

So we could have a net decrease in population in other parts of the country and a net rise in population in San Francisco.

That said, just because the population is growing in San Francisco, it doesn't mean that house prices will increase.

House prices is a function of affordibility.  If people can't afford to pay, the house won't sell.

Plain and simple.

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#6) On June 06, 2008 at 10:00 AM, dwot (65.40) wrote:

alstry, you mention negative growth of housing because of more sharing rather then moving.  That would have different affects of different industries. Many services would probably be more stable.

I predict people move from California to avoid taxes. 

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