California Goes Dry, But The East Bay Has Plenty Of Water

84531-004-A65B8F51This January will be the driest every recorded in California, with essentially zero rain in the Bay Area. California is preparing for drought conditions, and water rationing. However, thanks to good planning and conservation,  East Bay has plenty of water.

From the Mercury News:

Like big earthquakes and budget deficits, droughts are a part of life in California that seem to come back around every decade or so.

Remember not flushing the toilet? Putting a bucket in the shower? It’s time to dust off those tips, as California finds itself in a brutally dry spell. On Friday, following the lowest rainfall year in the state’s 163-year history, and with the Sierra snow pack at 17 percent of normal, Gov. Jerry Brown called a drought emergency and asked California residents to cut their water use by 20 percent.

Some areas are getting hit worse than others. Willits, in Mendocino County, is down to just 100 days left in their water supply.

California’s reservoirs are low and falling, with little hope of improvement. Our snow-pack is about 13% of normal.

res snow

The good news for those of us in the East Bay is that we should be fine for 2014, without any drastic drought restrictions imposed.

Tom Barnidge explains:

The Contra Costa Water District keeps a month-by-month graph that charts the average precipitation in its northern Sierra watershed. A wavy line above shows the wettest year on record, and another below shows the driest. Down at the bottom, barely detectable, is the flat line tracking 2013-14.

If it were any lower, it would fall off the page.

“It’s been dry,” said the district’s planning manager, Jeff Quimby. “There’s no doubt about that. So far this water year is shaping up to be one of the driest on record.”

Dry, in this case, means 3.2 inches of precipitation in the last three months. A year ago, that total exceeded 30. An average year brings 44 inches, so there’s a lot of catching up to do.

This would have been a big problem in the past, but expanded reservoirs and improved water conservation have had enormous impacts.

“People use water a lot differently than they did in 1977,” Quimby said. “We’ve made significant investments in conservation and we use water more efficiently. We’ve made investments in recycled water and in offstream storage.”

The Los Vaqueros Reservoir southwest of Brentwood stands as testimony to lessons learned. Originally built in the late 1980s with a capacity of 100,000 acre feet, it was enlarged by 60 percent in 2012.

“Before the original reservoir was completed,” Quimby said, “we were entirely dependent on the Delta — whatever water and water quality was available when we needed it.”

Los Vaqueros currently has 130,000 acre feet, brimming with water harvested when it was cleanest and most desirable. That enormous reserve — paid for through increased user fees — is one reason the Contra Costa district envisions no need this year for rationing.

EBMUD anticipates no rationing in its near future, either. That’s largely because consumers have embraced conservation techniques — high-efficiency showers, low-flow toilets, drought-resistant plants — that have reduced water demands by one-third of what they were 40 years ago. EBMUD’s reservoirs currently stand at 66 percent of capacity, which is nearly normal for this time of year.

As for the City of San Francisco? Maybe fog catchers are the answer.

(hat-tip Burrito Justice)

 

A Bear Turns Bull: There Is No Trigger For Another Housing Crash

foreclosure_massacreHome prices are basically back to where they were at the peak of the housing bubble, so why aren’t people afraid of another housing crash?

Larry Roberts, one of the most popular “bubble bloggers” explains:

I have a challenge for housing bears: outline a realistic scenario where prices crash from here. I’m an old housing bear; I would be happy to carefully and loudly pontificate on an upcoming market crash, but I simply can’t come up with a realistic scenario whereby it occurs. Sure, there are implausible scenarios, mass investor exodus, suicidal lender policy changes, sudden interest rate spike to 7%+, but nothing that seems very likely — or possible at all.

The premise of the original housing market collapse went something like this: People took on mortgage debt which couldn’t be sustained by current income; those borrowers were going to default, lenders would foreclose, lenders would liquidate their inventory, and the resulting flood of must-sell inventory would push prices lower quickly. For the most part, the bust played out in that fashion until the rules were changed — mark-to-fantasy accounting, loan modifications, shadow inventory, long-term squatting. Once the rules were changed, lenders were able to gain control of the flow of inventory, and house prices bottomed and the bubble reflated strongly. With all these measures in place, and with no pressure to remove them, a housing bust with rapidly declining house prices is very unlikely in the foreseeable future.

I don’t see a crash coming any time soon. As long as supply continues to be restricted and the percentage of all-cash purchases is high, prices simply won’t go down. Sales volumes may continue to decline, but prices will remain suspended where more buyers can’t afford them unless something changes at the banks and they begin approving more short sales or foreclosing on their delinquent borrowers rather than modifying their loans. At some point, we may see a medium-term slow-burn decline like the mid 90s, but a 00s type crash isn’t forthcoming.

Back in 2005, there was a trigger for a collapse: resetting subprime loans. Borrowers had to either sell or be foreclosed on, causing inventory to spike and prices to begin their tumble. Today, however, there is no trigger. Most troubled loans have been modified to the point where owners have zero interest in ever selling. Instead of homeowners being incentivized to sell, they are incentivized to stay. The result is that our normal housing inventory is down by 50-75% across the Bay Area. 

It makes sense that, at some point, prices will become so high that even people with modified 2% interest rates will decide to cash out. At that point, we should see inventory normalize and the rally cool off. 

That point doesn’t appear to be coming any time soon.

Fewer Bay Area Home Sales In December

As the Bay Area’s housing inventory continued to decline through the end of 2013, so did the number of homes sold. December’s existing home sales fell 12.7 percent from 2012. Meanwhile, home prices exploded 23.9% year-over-year.

More, from DataQuick:

Sales almost always increase from November to December, usually around 8 percent. Last month’s sales were 21.3 percent below the December average of 8,529 since 1988, when when DataQuick’s statistics begin. Bay Area sales haven’t been above average for any particular month in more than seven years. The most active December was in 2003 when 12,349 homes sold, while the least active was in 2007, when 5,065 sold.

The median price paid for a home in the Bay Area last month was $548,500. That was 0.3 percent lower than $550,000 in November, and 23.9 percent above $442,750 for December 2012. While the median has been at roughly the current level since last summer, it has increased year-over-year for 21 consecutive months.

The Bay Area median peaked at $665,000 in June and July 2007, then dropped to a low of $290,000 in March 2009. While much of the median’s ups and downs in recent years can be attributed to shifts in the types of homes sold, it now appears most of the current year-over-year gain reflects a rise in home values.

For 14 consecutive months the Bay Area median has risen more than 20 percent on a year-over-year basis.

“If current trends hold, including year-over-year price appreciation of 20-plus percent, the typical home would be selling for $50,000 to $60,000 more by spring. Perhaps twice that at the upper end of the market. That could loosen up quite a bit of inventory. The question then is, how much of the pent-up demand that accumulated during the down years is still there? An additional issue is the fussy mortgage market, although things are moving in the right direction there, slowly,” said John Walsh, DataQuick president.

I can tell you from in the trenches, typical homes are already selling for $50,000 more and we’re still in January. The market is absolutely on fire.

 Bay Area December 2014 Home Sales

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