So for folks that answered So for folks that answered “No, even though my home prices has met or exceeded peak prices”…
I’m curious what your opinion was back in 2006 or whenever peak prices was reached… Did you sell then or consider selling… If so, but you aren’t considering it now…. What’s the difference that is making you think differently now….
NotCranky
March 18, 2014 @
1:10 PM
I sold, bought a lot , and I sold, bought a lot , and built two houses almost completely with the bubble money and some skills and sweat.
I am not going to sell now. Maybe sell 1/2 the acreage and a house but I can only sell to a neighbor that way….not a huge long shot as there may be some interest. Not like a listing though where a sale would happen at the right price.
I can’t really see another desirable way to capitalize on proceeds,and we like it here, so other than that, not thinking about selling.
UCGal
March 18, 2014 @
6:32 PM
The home is back up to peak The home is back up to peak prices – but I’m not selling. It meets our needs, is almost paid off, and the granny flat generates rental income. Why would I sell?
I like living in San Diego and this is an affordable, pleasant place to live. I don’t need a bigger/fancier house that costs more in upkeep.
CA renter
March 19, 2014 @
12:37 AM
We sold our primary in 2004 We sold our primary in 2004 because we wanted to buy a bigger house in a better neighborhood (got married, had kids, etc.). Made good money on that house and then rented for almost 8 years because prices were so insane and I was convinced that we were in the middle of a housing bubble. Found our “dream home” in late 2011 (not fancy, but we’re not fancy people), and our hope is to live here for the rest of our lives.
If we were living in a house we didn’t love and intend to spend the rest of our lives in, we would be seriously thinking about selling now. One problem, though, is that rents have really risen, so it’s not as easy to justify selling and renting.
paramount
March 19, 2014 @
10:03 PM
The other question being: The other question being: what about investment properties?
Yellen has been hinting at rate hikes – something about a “6 month type of thing/time frame.”
Financial Armageddon may really be on the way.
Ok, maybe not Armageddon, but we could see a pull back in residential RE.
SD Realtor
March 20, 2014 @
10:15 AM
The correlation between The correlation between higher rates and RE pricing is a little less predictable then you would think it should be.
While many buyers get squeezed out or have to settle for less due to the higher payments, many other investors view those conditions as opportunity to move money from equities to RE if the RE pricing starts to move substantially.
The magnitude of the rates is what determines the conditions. A movement from say 4% to 6% will hurt and would probably result in a marginal price decrease. Now a movement from say 6 to 8 or 6 to 10 and then we have another ball game.
However things are much different this time. The amount of debt that the govt is carrying is fairly staggering. The short term defecits are not the problem, the long term debt coupled with the sheer number of people that will require entitlements are tsunami like.
If you top all of that off with a high interest rate environment….
That would be pretty harsh. Yellen is actually proceeding in really the only direction she can but the throttle needs to be very slow and accompanied by pretty substantial tax hikes on basically everybody or else there will be problems.
The-Shoveler
March 20, 2014 @
11:03 AM
First I don’t think they First I don’t think they “CAN” raise interest rates significantly (but maybe I am wrong)
(anything that would cause deflation cannot be afforded long term “there are long term bills to pay” and that would be too disruptive).
But if they did I think it would affect different markets much differently.
First it cost a certain amount to build a home (a lot of it being land and land entitlements etc… )
Those are fairly fixed costs and cannot be reduced significantly, so if they cannot get a certain price they will most certainly “STOP” building.
And besides those that are left standing now days most have fixed rate loans that they will not give that up easily (unless forced).
So you would just end up with very little inventory unless there was some major economic disruption which is always possible (ie.. war or something worse).
Anyway just my two cents.
CA renter
March 20, 2014 @
3:45 PM
Land costs (even entitlement Land costs (even entitlement costs) are not fixed. The price of land needs to come down as interest rates, and entitlement costs, rise.
The-Shoveler
March 20, 2014 @
4:33 PM
OK sure, the city needs it’s OK sure, the city needs it’s money though and it costs a lot to terraform a mountain with a view.
joec
March 20, 2014 @
6:37 PM
Another reason people won’t Another reason people won’t sell is Prop 13. If you are in a place you’re ok with for the next 10+ years or even longer as some posters here state (eg: found home for the rest of my life)…with the recent run up, you’ll be sitting pretty for a long time if housing either doesn’t move, goes up or goes down slowly even. Your carrying cost is cheaper than rent and I’d guess anyone who bought on this board (and there were quite a few of us), are up 25%+ if they were to sell.
Even if it drops a lot, you’re probably still ok with the payments and still “need a place to live” and your rate was probably lower too.
I have doubts that interest rates can go that high though since I have a tendency to believe we can’t take the sharp hard pain and will prolong anything like before and like Japan/Europe. It’s human nature and we’ll just do the same.
The economy is probably also recovering from everything I’ve seen so rates will probably mildly go up and settle in the 5-5.5% area…
CA renter
March 20, 2014 @
7:13 PM
What are you seeing that What are you seeing that leads you to believe that the economy is recovering?
We’re always trying to keep an eye on things and it looks to us like things have slowed down quite a bit.
I’m always interested in hearing what others are seeing/hearing, so please share if you’re seeing something different. It would be awesome if things are getting better, but haven’t really seen it, at least around here.
alf_pog
March 20, 2014 @
9:25 PM
I’m having a hard time seeing I’m having a hard time seeing where home pricing makes sense even if we are supposedly recovering.
I’m a single person approaching 30 making in the mid-70s, and home purchasing makes no sense even if there were 2% year over year increases over the next 7 years. I guess the argument would be to raise the rent, but at that point I’d move back in with family or roommates.
Rich Toscano
March 23, 2014 @
8:33 AM
flu wrote:So for folks that [quote=flu]So for folks that answered “No, even though my home prices has met or exceeded peak prices”…
I’m curious what your opinion was back in 2006 or whenever peak prices was reached… Did you sell then or consider selling… If so, but you aren’t considering it now…. What’s the difference that is making you think differently now….[/quote]
I think this is kind of a strange way of looking at it… the peak was over 8 years ago — nearly a decade now! — and since that time, both rents and per capita income in San Diego are up 20%. “Peak pricing” in nominal terms just isn’t a meaningful number, when the purchasing power of money has been declining while nominal incomes and rents have been rising over that period.
Don’t get me wrong, I think it’s an interesting question — are you selling your primary right now? But I don’t see why peak nominal pricing would really come into it. Peak “valuation” (as measured by comparing home prices to incomes/rents, or even just inflation-adjusting them) is a more meaningful comparison. This shows that in aggregate, we are nowhere close (and I doubt any area is at peak valuation):
Still, valuations have risen, so I think it’s a legit question.
Personally, fwiw, I have zero interest in selling right now. We had the good luck to lock in a low rate at the valuation low, on a house that we really like and would be happy to stay in indefinitely. If we were wanting to move anyway, it might be a different story. But as it stands valuations would have to get quite a bit higher before we were willing to go through the hassle and risk of becoming renters again.
That said, if we were to get back to peak valuation again, there is no question that I’d take the money and run!
scaredyclassic
March 23, 2014 @
9:33 AM
If things get nutty again, If things get nutty again, sell.
Ok. I’ll try to remember.
The-Shoveler
March 18, 2014 @
1:47 PM
I sold my Primary just before I sold my Primary just before the peak in 2005.
I have no plans to sell my primary anytime soon now.
IMO the bust in 2007-9 was not because of home prices.
It was because of stupid loans.
Anyway IMO for what its worth.
Good luck.
That does not mean I think home prices will rise forever though, it just means I don’t think a 30%-50% crash is likely.
IMO the gov cannot afford long term Deflation, therefore it will not be tolerated long term.
The-Shoveler
March 18, 2014 @
3:09 PM
I think the more important I think the more important questions to ask is,
If you are planning to sell your primary why ?
Is it because you feel the market topped ?
Or is it for more pedestrian reasons like relocating?
an
March 18, 2014 @
4:11 PM
The main reason why I won’t The main reason why I won’t be selling my primary is because “I have to live somewhere”. If I sell, I would have to rent and my ITI – tax deduction is cheaper than renting a 2/2 apartment in the same area. My PITI – tax deduction is only slightly more than a 2/2 apartment. I would have to pay well over $1k/month more to rent a similar sized place and the condition would be much worse (rental grade vs upgraded house). There’s also the intangible factors, such as moving kids, painting kids’ rooms, etc. Then there’s the problem of finding the right house to rent in as well. Lastly, something tells me we won’t see another 30% decrease again this soon.
Now, if you ask about investment properties, I would totally sell if we hit bubble price. It’s much easier to sell a rental, because you’re not living there and you don’t have to move when you sell. You don’t have to compare PITI vs rent but you have to compare rental income vs the amount of $ you save when you sell high and buy back lower.
Coronita
March 21, 2014 @
9:22 AM
AN wrote:
Now, if you ask [quote=AN]
Now, if you ask about investment properties, I would totally sell if we hit bubble price. It’s much easier to sell a rental, because you’re not living there and you don’t have to move when you sell. You don’t have to compare PITI vs rent but you have to compare rental income vs the amount of $ you save when you sell high and buy back lower.[/quote]
I thought about this very question but I’m not so sure about this..
Let’s say hypothetically you could sell a rental for a $100k profit…And let’s say for argument sake your net income from rental property after 20% income tax (including deductions) is around $9k/year
Does it really make sense to sell?
$100k profit (let’s say long term) is taxed at 15% + 3.8% surcharge so around 18.8%
and there’s a 25% tax on the recapture of depreciation you are going to have to pay. For argument sake, let’s just say that’s $10k (I pulled this number out of the air)…
So we’re looking at a net $72k…And you still need to figure out what to do with it. What would you end up doing with it?
scaredyclassic
March 21, 2014 @
9:40 AM
FHA loans transferable? FHA loans transferable?
an
March 21, 2014 @
9:54 AM
flu wrote:AN wrote:
Now, if [quote=flu][quote=AN]
Now, if you ask about investment properties, I would totally sell if we hit bubble price. It’s much easier to sell a rental, because you’re not living there and you don’t have to move when you sell. You don’t have to compare PITI vs rent but you have to compare rental income vs the amount of $ you save when you sell high and buy back lower.[/quote]
I thought about this very question but I’m not so sure about this..
Let’s say hypothetically you could sell a rental for a $100k profit…And let’s say for argument sake your net income from rental property after 20% income tax (including deductions) is around $9k/year
Does it really make sense to sell?
$100k profit (let’s say long term) is taxed at 15% + 3.8% surcharge so around 18.8%
and there’s a 25% tax on the recapture of depreciation you are going to have to pay. For argument sake, let’s just say that’s $10k (I pulled this number out of the air)…
So we’re looking at a net $72k…And you still need to figure out what to do with it. What would you end up doing with it?[/quote]I agree that it’s not 100% straight forward and I though about the question of “what to do” with the funds as well. I guess I would only sell if I see tide turning and prices going down. I would more likely to sell. It’s not a guarantee I would sell either. I might just HEL/Refi/2nd loan to take out most of the profit at the peak to hedge for any kind of crash and use that $ to buy back in if things does crash. If it doesn’t crash, I can always pay back the HEL/2nd loan and my cost would only be the interest for the duration I hold on to that $.
One possible reason why I would want to complete sell is if I sell and buy my dream home doing a 1031 exchange. Rent it out for a year or two, then sell my primary and essentially combine the primary + rental(s) to pay for my dream home and have the new dream hope be either paid off or nearly paid off.
Coronita
March 21, 2014 @
11:14 AM
AN wrote:flu wrote:AN [quote=AN][quote=flu][quote=AN]
Now, if you ask about investment properties, I would totally sell if we hit bubble price. It’s much easier to sell a rental, because you’re not living there and you don’t have to move when you sell. You don’t have to compare PITI vs rent but you have to compare rental income vs the amount of $ you save when you sell high and buy back lower.[/quote]
I thought about this very question but I’m not so sure about this..
Let’s say hypothetically you could sell a rental for a $100k profit…And let’s say for argument sake your net income from rental property after 20% income tax (including deductions) is around $9k/year
Does it really make sense to sell?
$100k profit (let’s say long term) is taxed at 15% + 3.8% surcharge so around 18.8%
and there’s a 25% tax on the recapture of depreciation you are going to have to pay. For argument sake, let’s just say that’s $10k (I pulled this number out of the air)…
So we’re looking at a net $72k…And you still need to figure out what to do with it. What would you end up doing with it?[/quote]I agree that it’s not 100% straight forward and I though about the question of “what to do” with the funds as well. I guess I would only sell if I see tide turning and prices going down. I would more likely to sell. It’s not a guarantee I would sell either. I might just HEL/Refi/2nd loan to take out most of the profit at the peak to hedge for any kind of crash and use that $ to buy back in if things does crash. If it doesn’t crash, I can always pay back the HEL/2nd loan and my cost would only be the interest for the duration I hold on to that $.
One possible reason why I would want to complete sell is if I sell and buy my dream home doing a 1031 exchange. Rent it out for a year or two, then sell my primary and essentially combine the primary + rental(s) to pay for my dream home and have the new dream hope be either paid off or nearly paid off.[/quote]
But in theory, even if prices go down say a modest 20% (beyond which I would find difficult to happen)/// as long as your are positive cash flowing decently, why would it matter? Over a longer period of time, the rental income ends up covering your paper loss anyway…and if we still had very little alternative uses of that money to invest during that time period, you’re in no worse shape than say having kept your money in cash for 10-15 years earning 0.0 or close to that
1031 is a completely different thought process, which I get…Just curious about when would be a good time to sell a rental.
Jazzman
March 21, 2014 @
11:16 AM
Majority so far goes with Majority so far goes with “No, [I wouldn’t sell] even though my home price has met or exceeded peak prices”. That says it all. Does it makes you feel richer, and have you been consuming more? Have you taken out a home equity loan? If the majority answer no to those questions, can someone explain the point of it all please.
flyer
March 21, 2014 @
3:25 PM
Jazzman wrote:Majority so far [quote=Jazzman]Majority so far goes with “No, [I wouldn’t sell] even though my home price has met or exceeded peak prices”. That says it all. Does it makes you feel richer, and have you been consuming more? Have you taken out a home equity loan? If the majority answer no to those questions, can someone explain the point of it all please.[/quote]
I’m sure everyone has different reasons they chose this option in the poll. In our case, we won’t ever sell our primary, because it is our dream home in RSF, and we could never replace it for what we paid for it 20+ years ago.
We would also like to pass it along to our kids, and we know a lot of people who are planning to do the same. That may only constitute a blip on the inventory radar now, but it may have a more pronounced affect over time.
UCGal
March 24, 2014 @
1:17 PM
flyer wrote:
We would also [quote=flyer]
We would also like to pass it along to our kids, and we know a lot of people who are planning to do the same. That may only constitute a blip on the inventory radar now, but it may have a more pronounced affect over time.[/quote]
I’m 2nd generation in my house, and the kids are fighting over who will buy it from us. (We didn’t inherit the house – just the prop 13 tax rates. Dad needed the cash to put into his next home when he downsized.)
On our block there are multiple 2nd gen owners. I can think of 4 others besides myself. Some inherited, some bought out their parents. Most of the parents were original owners.
It’s just boring tract homes – but in a nice location with large lots for being w/in San Diego city.
flyer
March 24, 2014 @
10:04 PM
UCGal wrote:flyer wrote:
We [quote=UCGal][quote=flyer]
We would also like to pass it along to our kids, and we know a lot of people who are planning to do the same. That may only constitute a blip on the inventory radar now, but it may have a more pronounced affect over time.[/quote]
I’m 2nd generation in my house, and the kids are fighting over who will buy it from us. (We didn’t inherit the house – just the prop 13 tax rates. Dad needed the cash to put into his next home when he downsized.)
On our block there are multiple 2nd gen owners. I can think of 4 others besides myself. Some inherited, some bought out their parents. Most of the parents were original owners.
It’s just boring tract homes – but in a nice location with large lots for being w/in San Diego city.[/quote]
I definitely think a trend is developing, UCGal. As I mentioned, we’re seeing this with most of our friends, and you are as well. It will be interesting to see if this has a strong affect on inventory/pricing going forward or not.
NotCranky
March 25, 2014 @
10:17 AM
I am speculating that my I am speculating that my primary property will out perform pretty big in 15 to 20 years, so I won’t sell in a merely inflated local market. The other reasons people posted for not selling are important too.
Jazzman
March 25, 2014 @
12:11 PM
What’s interesting here is What’s interesting here is that home prices have not reached their peak prices (as Rich points out), but most people who voted believe they have. You could substitute the question with “if homes reached peak prices, would you sell”. But you’re still left with the nominal vs real problem.
Here’s an interactive chart from the Economist that examines this question. They state that the last nine months has pushed prices in some cities into the “over-valued” category. It’s also interesting that prices in real terms in San Diego are higher than Los Angeles, Las Vegas, and New York. But we’re clearly some way off peak prices. In real terms we’re back to 2004 and 2008 prices. How real prices are calculated, and how accurate they are is another question. http://www.economist.com/blogs/graphicdetail/2014/02/us-house-prices
Rich Toscano
March 25, 2014 @
7:09 PM
Jazzman wrote:What’s [quote=Jazzman]What’s interesting here is that home prices have not reached their peak prices (as Rich points out), but most people who voted believe they have. You could substitute the question with “if homes reached peak prices, would you sell”. But you’re still left with the nominal vs real problem.
[/quote]
Well, I wouldn’t put it that way… PRICES have reached their peak level in some areas… it’s just that VALUES haven’t. At the risk of being a bit pedantic on the terminology (but in the hopes it will clarify the conversation), here’s my take:
Price is the price — number of dollars paid. Not adjusted for anything. If something sold for $500k in 2005, that was the price, and if it sold for $501k last month, it has achieved peak “price.” (for whatever that’s worth). As I argued above, the “price” alone is a pretty meaningless number because it fails to account for changes in the factors that drive home pricing.
Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.
Many areas have achieved peak pricing, but nowhere has achieved peak valuation. Peak valuation was INSANE. I’ll trot out that graph again:
For the SD housing market to achieve peak valuation right now — ie, for home prices to be as high compared to rents/incomes as they were at the bubble peak — would require a 57% increase in (aggregate) home prices.
So yeah, if that happened, I personally think it would be crazy not to sell. But, I think there is virtually no chance of it happening, so it’s really a purely hypothetical question…
an
March 25, 2014 @
10:06 PM
I totally agree with Rich. I totally agree with Rich. If we see peak valuation again, I’d sell in a heart beat, both rentals and primary. I’ll sit tight until things crash. But if it’s only peak price, I won’t take the risk and sell a primary and rent. Too high risk and not high enough return to make me take that risk.
an
March 25, 2014 @
10:06 PM
. .
CA renter
March 25, 2014 @
11:53 PM
Rich Toscano wrote:Jazzman [quote=Rich Toscano][quote=Jazzman]What’s interesting here is that home prices have not reached their peak prices (as Rich points out), but most people who voted believe they have. You could substitute the question with “if homes reached peak prices, would you sell”. But you’re still left with the nominal vs real problem.
[/quote]
Well, I wouldn’t put it that way… PRICES have reached their peak level in some areas… it’s just that VALUES haven’t. At the risk of being a bit pedantic on the terminology (but in the hopes it will clarify the conversation), here’s my take:
Price is the price — number of dollars paid. Not adjusted for anything. If something sold for $500k in 2005, that was the price, and if it sold for $501k last month, it has achieved peak “price.” (for whatever that’s worth). As I argued above, the “price” alone is a pretty meaningless number because it fails to account for changes in the factors that drive home pricing.
Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.
Many areas have achieved peak pricing, but nowhere has achieved peak valuation. Peak valuation was INSANE. I’ll trot out that graph again:
For the SD housing market to achieve peak valuation right now — ie, for home prices to be as high compared to rents/incomes as they were at the bubble peak — would require a 57% increase in (aggregate) home prices.
So yeah, if that happened, I personally think it would be crazy not to sell. But, I think there is virtually no chance of it happening, so it’s really a purely hypothetical question…[/quote]
You have to admit, though, that this line is looking very “peak-ish” relative to the more normal RE cycles. The price deflation from those peaks was pretty damaging, even if it wasn’t as bad as the ~2008 crash. Looks like it’s rolling over, too.
Thoughts?
Rich Toscano
March 26, 2014 @
8:01 AM
CA renter wrote:
You have to [quote=CA renter]
You have to admit, though, that this line is looking very “peak-ish” relative to the more normal RE cycles. The price deflation from those peaks was pretty damaging, even if it wasn’t as bad as the ~2008 crash. Looks like it’s rolling over, too.
Thoughts?[/quote]
The 90s downturn was pretty bad, but the thing is, only about 40% of that decline (eyeballing it) was prices returning to “fair value,” while the other 60% was them falling from “fair” to “very underpriced.” So basically, that decline was only as bad as it was because homes ended up really cheap.
So to anticipate that kind of decline again, you are basically depending on houses becoming very underpriced. I wouldn’t want to do that, any more than I’d want to depend on them becoming or staying overpriced.
I can’t emphasize that enough… just because something became undervalued in the last cycle, doesn’t mean it will in this cycle. The safe assumption is that it will return to (or near) the median at some point… to assume that it will move far from the median is a much bigger speculation.
It’s only an 11% drop to get back to the median valuation, and that assumes it happens overnight (ie, if it happens over a longer time period as rents/incomes are catching up, it’s even less – in the 80s, prices never even declined nominally). (Assuming we get back to the median… I think it’s a good assumption that we probably will at some point, but we should keep in mind it’s not a guarantee).
To me that’s nowhere near compelling enough to make me want to sell my house, which I like living in and want to keep living in, and on which I have a nice low mortgage rate. To someone who was looking to move anyway, perhaps it would be different, but I’m not in that category.
However, if we were to get back up to peak bubble level valuations, that would be a very, very different story. The extent of the overvaluation then was just staggering. To put the numbers on it, to return to “fair value” (the median):
– from here, valuations would have to drop 11%. If this happened over the course of several years, we might not see a nominal price drop at all.
– from the bubble peak level, valuations would have to drop 43% — almost 4 times as much. There’s no way this is happening without a nominal price decline, and probably a significant one. But more to the point, more than anticipating price changes: it would be an extremely overvalued asset. I just don’t want to hold on to an extremely overvalued asset. My capital is best deployed elsewhere.
So to me, it’s a very, very different situation than it was at the bubble peak…
Rich Toscano
March 26, 2014 @
8:02 AM
BTW I also had some thoughts BTW I also had some thoughts in the latest in my writeup on valuations… I copied the relevant bit here:
—
Despite the recent runup, San Diego housing valuations are still
dramatically lower they were during the bubble. However, homes
are far from cheap — at 12% above the historical median valuation
(down from a recent high of 13%), housing has become nearly as
expensive as it got during the 1979 and 1990 peaks.
This isn’t a very big sample set, but for what it’s worth, here’s
what happened each of the last three times housing valuations rose
to this level:
Late 1970s –Valuations rose just a bit further, then fell
into a multi-year decline. Nominal prices actually rose
slightly during this period, but valuations dropped as high
inflation drove up incomes and rents.
Late 1980s — Once again, valuations rose a bit further then
declined for the better part of a decade. This time, there
was an actual decline in nominal home prices of 17% per the CS
index. Meanwhile, rents and incomes rose, further reducing
valutions.
Early 2000s — Valuations exploded upward during what became a
monumental bubble, eventually (many years later) crashing back
down below the historical median.
So here we are at this level once again. What will happen
next? Here are a few reasons why I don’t think that’s
knowable.
Again, small data set. I only have data on three prior
cycles, not enough to draw general conclusions from.
The first two times during the data set that we reached this
level, we saw big valuation declines. But that doesn’t
mean that valuations magically decline once you hit this
level. The 1990s bust was exacerbated by a pretty bad
local recession, and the early-80s valuation decline coincided
with both a serious recession and extremely high mortgage
rates. In other words, the outcome from here is partly
dependent on what happens in the real world. (That said,
housing’s high valuation puts it in a vulnerable situation, as a
positive economic outcome already appears to be “priced in”).
And then we have that pesky little incidence in which
valuations reached these levels, just started to falter, and
then flung up to previously undreamt-of heights. The
primary fuel for the housing bubble was an overly accomodative
central bank that was providing excess liquidity in an attempt
to mop up after that prior bubble… sound familiar?
I’ve used the historical median as a baseline for comparison,
but it’s entirely possible that the sustainable level of “fair
value” pricing could creep up over time. That can only
really be known in retrospect.
And then, of course, we have interest rates. This chart
shows how monthly payments stack up against rents and incomes:
Despite last year’s move up — a result of both rising prices and a
jump in mortgage rates — this chart shows that monthly payments are
still very much on the low side of history. For as long as
that continues to be the case, it could allow valuations to “float”
up above normal levels. When it changes, though, that will
remove a major tailwind for housing valuations. (And, that
really does seem to be a “when,” not an “if,” because rates are only
as low as they are due to central bank intervention that must end at
some point… as to when, that’s anybody’s guess.).
ocrenter
March 26, 2014 @
6:47 AM
Rich Toscano wrote:
Rich, a [quote=Rich Toscano]
[/quote]
Rich, a graph is worth a thousand words.
essentially if we look at past cycles as a guide and remove the abomination that was the bubble, the current peak is essentially the typical rise in valuation that cycles up and down every few years.
So I suppose the question to folks that would want to consider selling is would they have sold their primary resident in 1980 and 1990? and not if they would have sold in 2006.
The-Shoveler
March 26, 2014 @
7:17 AM
I sold my primary in early I sold my primary in early 2005 which was just below peak in the area where I sold it. (I must tell you though “IT WAS NOT EASY !!!”).
I would not have sold in 1990 or 1980. by the time you get done with fee’s etc… rent … convenience it would just not have been worth it (but it was a PITA going through it owning as well).
IMO very unlikely we would see a 2007-2009 crash in our life times that would make it worth it again.
So I imagine China’s RE chart must look somewhat similar, you think China’s RE will crash or be inflated away/Bailed out ?
livinincali
March 26, 2014 @
8:05 AM
The-Shoveler wrote:So I [quote=The-Shoveler]So I imagine China’s RE chart must look somewhat similar, you think China’s RE will crash or be inflated away/Bailed out ?[/quote]
It will crash. Math dictates that outcome. Hyper Inflation has not tended to be good for asset prices. Look at the chart below showing Argentina apartment prices. During the hyper inflationary even of 2002 home prices went down.
The-Shoveler
March 26, 2014 @
8:10 AM
OK just for a fun,
Cards have OK just for a fun,
Cards have been dealt, time to place your bets,
I bet China RE does not decline more then say 15-20% price wise.
IMO The China Gov has too much at stake.
Rich Toscano
March 26, 2014 @
9:20 AM
livinincali wrote: Look at [quote=livinincali] Look at the chart below showing Argentina apartment prices. During the hyper inflationary even of 2002 home prices went down.
[/quote]
That chart shows that Argentine home prices went down in DOLLAR terms… not in peso terms. IE real values declined, but nominal values did not.
livinincali
March 26, 2014 @
9:54 AM
Rich Toscano [quote=Rich Toscano][quote=livinincali] Look at the chart below showing Argentina apartment prices. During the hyper inflationary even of 2002 home prices went down.
[/quote]
That chart shows that Argentine home prices went down in DOLLAR terms… not in peso terms. IE real values declined, but nominal values did not.[/quote]
I did some more research on this and it’s not exactly that simple. Homes in Argentina were transacted in dollars during this time frame because of the previous pegging to the dollar. So you borrowed money in US dollars and bought homes using US dollars. Wages were generally paid for in pesos which then needed to be converted into dollars to pay the mortgage. Probably a bad example. Nominal prices did technically decline because they weren’t priced in pesos but the inflation rate recorded probably related to pesos purchasing power. Basically it’s not an apples to apples comparison because of some oddities with Argentina’s somewhat dual currency system at the time. One thing that did happen was rents in US dollar terms went down dramatically. So investment property performed poorly during this hyper inflationary event.
Here’s the article where I got the above information.
livinincali – I wasn’t
livinincali – I wasn’t weighing in on whether they were “good” or not… just pointing out that they did not decline in terms of the currency that hyperinflated.
livinincali
March 26, 2014 @
11:18 AM
Rich Toscano [quote=Rich Toscano]livinincali – I wasn’t weighing in on whether they were “good” or not… just pointing out that they did not decline in terms of the currency that hyperinflated.[/quote]
Yeah I agree but it’s kind of a weird case because they aren’t/weren’t transacted in pesos either. It was an my lack of understanding how real estate is transacted in Argentina. The data that says Argentina house prices in pesos performed like this doesn’t seem to exist.
Bottom line is that Argentina devalued the currency currency by giving up the dollar peg and that lead to a hyper inflationary event. Based on the information I have it would appear that almost all assets prices failed to keep up with that hyper inflationary event but many of those assets did better than cash.
My overall point is that assets that are typically highly leveraged assets aren’t necessarily going to do well in an hyper inflationary or high inflationary environment. The interest rate problem in an inflationary environment becomes a significant problem for the price of leveraged assets. Especially when that interest rate is coming from record lows. Nobody lends at an intentional loss, well except maybe Freddie and Fannie because it’s good for vote buying.
The-Shoveler
March 26, 2014 @
11:34 AM
Don’t open mortgages in a Don’t open mortgages in a currency your country does not control LOL.
I feel for the people who took out loans in Euro’s (really bad Idea IMO).
Ultimately it is the Central bank and the PTB (ie… here congress/Prez) that decide what the out come will be, it is not always a clear path, the same mantras being said today would have been disastrous advice in the 1970’s
CA renter
March 26, 2014 @
10:13 PM
Taking this…
ocrenter Taking this…
[quote=ocrenter][quote=Rich Toscano]
[/quote]
Rich, a graph is worth a thousand words.
essentially if we look at past cycles as a guide and remove the abomination that was the bubble, the current peak is essentially the typical rise in valuation that cycles up and down every few years.
So I suppose the question to folks that would want to consider selling is would they have sold their primary resident in 1980 and 1990? and not if they would have sold in 2006.[/quote]
and this…
[quote=Rich Toscano]
The 90s downturn was pretty bad, but the thing is, only about 40% of that decline (eyeballing it) was prices returning to “fair value,” while the other 60% was them falling from “fair” to “very underpriced.” So basically, that decline was only as bad as it was because homes ended up really cheap.
[/quote]
I just noticed that the price declines from the ~2005 bubble didn’t go to the same “undervalued” level seen after the late 70s and late 80s bubbles. Interesting, especially when you consider that the internet bubble was getting in full swing in the mid-90s, yet housing prices continued to decline a bit even from there. That’s when I bought my first house, FWIW, because it was obviously a good deal at the time. While we also bought in 2011, it didn’t feel like as good of a deal, especially price-wise. Yes, interest rates made things more favorable, but I always consider price over payment.
Okay, so we had the internet/stock bubble AND incredibly accommodative interest rates after we got to the “natural” peak of that housing cycle in 2001, and these two things got us out of the post 1989 bubble and ushered in the bubble of the 2000s, but what do we have now?
We’re already near historic lows on interest rates (implying that we can only go up from here over the long run), and while the tech sector seems to be going strong for the moment (looking quite a bit like a bubble to me, too), what will come next? If we see prices decline from here, either because of a recession or because interest rates rise (or both!), what would get us quickly out of the next downdraft?
I think things look worse from here than they did near the tops of past RE cycles, but could just be a pessimist. It’s easier to get out of a RE slump when rates are high because lowering rates can quickly make higher prices more affordable. And it’s easier when people have adequate savings and/or incomes are rising, but incomes have been stagnant to declining for many, many years, with the exception of a handful of sectors, mostly tech and finance.
Of course, they adjust these numbers using the CPI rates, but most of us know those numbers are far lower than what we see in real life, so it’s even worse than what they’re showing there…which is that we’re at ~1998 levels. No income growth for most people over this time.
Rich Toscano
March 27, 2014 @
7:50 AM
CA renter wrote: incomes have [quote=CA renter] incomes have been stagnant to declining for many, many years, with the exception of a handful of sectors, mostly tech and finance.
Of course, they adjust these numbers using the CPI rates, but most of us know those numbers are far lower than what we see in real life, so it’s even worse than what they’re showing there…which is that we’re at ~1998 levels. No income growth for most people over this time.[/quote]
You are doing the same thing as Jazzman did above — you are comparing REAL incomes with NOMINAL home prices. That’s just not a meaningful comparison. Additionally, I suspect you are looking at nationwide numbers… since we are talking SD home prices, I think it’s important to focus on SD income data.
The nominal per capita income for San Diego is up 73% since 1998. Those numbers come straight from the BEA, using San Diego income per capita up through 2012, and estimating based on statewide per capita income for 2013 (which makes no difference at all to the big picture).
So it is definitely not the case that nominal SD incomes are at 1998 levels! In fact, they are the highest they’ve ever been, and they are 73% above 1998 levels.
Despite this, homes are overpriced compared to incomes — that’s the point of the valuation graph, to compare actual SD incomes and rents to home prices, and that graph indicates some degree of overvaluation. I’m not arguing otherwise. But to compare nominal SD home prices with inflation-adjusted nationwide incomes is just not a meaningful comparison at all.
CA renter
March 27, 2014 @
7:52 PM
You’re correct about nominal You’re correct about nominal prices vs. real incomes, Rich. Also, I tend to look at the larger housing market, not just San Diego; you’re right about SD, too.
These home price increases are being seen across the country, and much of it is being driven by speculators/investors. That’s a trend that always raises red flags to me. Even in our neighborhood, it seems like *at least* half of the homes are being flipped. Sometimes, they are selling homes for $200K+ more than they bought them for just a few months before, which makes absolutely no sense at all. I thought the new rules for appraisers would fix this, but apparently not.
spdrun
March 27, 2014 @
8:06 PM
With the way indices have With the way indices have been going the last few months (month-on-month, not year-on-year), hopefully we can replace “are” with “were” pretty soon.
Of course, they adjust these numbers using the CPI rates, but most of us know those numbers are far lower than what we see in real life, so it’s even worse than what they’re showing there…which is that we’re at ~1998 levels. No income growth for most people over this time.[/quote]
Exactly People wonder What happen to the middle class, sure some of it was factory work going over seas etc.., but the real issue is the CPI changes in the early 1980’s
The under reporting of CPI is the real culprit,
Again OER was a really really bad Idea and no one even notices their being robbed. Inflation is not robbing workers, under reporting it is LOL.
Think of it as compound interest in reverse.
Jazzman
March 26, 2014 @
9:51 AM
“Valuation is the comparison “Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.”
Not sure I quite understand this statement. What are those factors? Income, disposable income, inflation, interest rates, supply, buyer incentives (deductibles, loan guarantees), personal debt levels? Rents are a comparison, not a cost that can be lumped in with incomes in my view, because you aren’t doing both at the same time. In terms of recent “bubble” talk, what strikes me as relevant is the very sharp increase in prices over a relatively short period, which drives at the heart of the statement “[what] long-run sustainable price should be”.
This is probably a semantic thing, but “valuation” to me is based on the cost to produce, margins, supply and demand, and in the case of RE what someone if willing to pay. Current values relate to current selling prices, and when comparing to past values, you need to take into account the cost of living. Affordability is incomes to price, and rents an indicator of what people can afford. From what I hear renters are being gauged at the moment so that might distort rents as a measure. But maybe that’s just me.
an
March 26, 2014 @
10:38 AM
Jazzman wrote:From what I [quote=Jazzman]From what I hear renters are being gauged at the moment so that might distort rents as a measure. But maybe that’s just me.[/quote]I’m not seeing renters being gouged, at least not in the areas I’m looking to buy. A 2/2 apartment on the West side of Mira Mesa for example was going for $1400/month 6-8 years ago. Today, the same apartment is going for $1550/month. That doesn’t sound like gouging to me.
Rich Toscano
March 26, 2014 @
10:45 AM
Jazzman wrote:”Valuation is [quote=Jazzman]”Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.”
Not sure I quite understand this statement. What are those factors?[/quote]
Sorry, I talk about this a lot, so I kind of glossed over it in my post. The fundamentals I like to use are rents and incomes. Incomes indicate how much potential home buyers earn to pay for housing, and rents indicate how much it costs for the competing form of putting a roof over your head in SD. This makes sense theoretically, and the relationship between home prices and rents/incomes has been highly mean-reverting over time… ie, the ratio of home prices to rents/incomes is a good measure of valuation.
an
March 26, 2014 @
11:02 AM
Rich Toscano wrote:Sorry, I [quote=Rich Toscano]Sorry, I talk about this a lot, so I kind of glossed over it in my post. The fundamentals I like to use are rents and incomes. Incomes indicate how much potential home buyers earn to pay for housing, and rents indicate how much it costs for the competing form of putting a roof over your head in SD. This makes sense theoretically, and the relationship between home prices and rents/incomes has been highly mean-reverting over time… ie, the ratio of home prices to rents/incomes is a good measure of valuation.[/quote]
I personally like to compare monthly payment to rent than income. The reason why I don’t like to compare to income is because it seems like every city have a different mortgage to income ratio. So, if there’s a change in a city in one direction or the other with regards to mortgage to income, we won’t be able to notice the change until we’re looking backward. However, if you compare mortgage to rent, you’ll see in almost real time what the people in that city is willing to pay for shelter. So if there’s a change in the amount of $ you’re willing to pay for shelter, the rent will reflect that pretty quickly. So, while mortgage to income might show that things are getting overvalued, mortgage to rent might say it’s still fair valued because the people in a particular city has changed and are will to pay more for shelter. Same can be said on the other spectrum about undervalue as well.
FlyerInHi
March 26, 2014 @
1:40 PM
AN wrote: I personally like [quote=AN] I personally like to compare monthly payment to rent than income. The reason why I don’t like to compare to income is because it seems like every city have a different mortgage to income ratio. So, if there’s a change in a city in one direction or the other with regards to mortgage to income, we won’t be able to notice the change until we’re looking backward. However, if you compare mortgage to rent, you’ll see in almost real time what the people in that city is willing to pay for shelter. So if there’s a change in the amount of $ you’re willing to pay for shelter, the rent will reflect that pretty quickly. So, while mortgage to income might show that things are getting overvalued, mortgage to rent might say it’s still fair valued because the people in a particular city has changed and are will to pay more for shelter. Same can be said on the other spectrum about undervalue as well.[/quote]
That’s a pretty good way of looking at things in my opinion — what you pay to rent vs. what you would pay to buy (and what is the norm in a certain city).
For sure, in some cities, people have more tolerance to paying more of their incomes for housing. I think the tolerance is getting higher in San Diego because of tech.
A 2/2 condo/townhouse is a pretty good gauge IMO. I would say that rent is more like $1,800 in Mira Mesa and $2,100 in UTC/La Jolla. Of course, it varies based on the condition and fit/finish of the unit. Those rents support higher house values.
Jazzman
March 26, 2014 @
11:36 AM
Rich Toscano wrote:Jazzman [quote=Rich Toscano][quote=Jazzman]”Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.”
Not sure I quite understand this statement. What are those factors?[/quote]
Sorry, I talk about this a lot, so I kind of glossed over it in my post. The fundamentals I like to use are rents and incomes. Incomes indicate how much potential home buyers earn to pay for housing, and rents indicate how much it costs for the competing form of putting a roof over your head in SD. This makes sense theoretically, and the relationship between home prices and rents/incomes has been highly mean-reverting over time… ie, the ratio of home prices to rents/incomes is a good measure of valuation.[/quote]
Real (median) incomes have been declining since 2007 in California. If house prices have been increasing, doesn’t that make houses less affordable?
Rich Toscano
March 26, 2014 @
12:16 PM
You are comparing real
You are comparing real incomes to nominal home prices…
Rich Toscano
March 26, 2014 @
12:20 PM
Also, I don’t really Also, I don’t really understand the argument… home prices are MUCH lower than in 07, hence more affordable.
If you are arguing that recent home price increases have outstripped income growth over the past couple years (and thus become less affordable over those couple years)… nobody is arguing otherwise!
The-Shoveler
March 26, 2014 @
1:31 PM
Why OER was a really really Why OER was a really really bad Idea,
It cut home prices loose and now we see over short periods of time large fluctuations and over long periods of time the loss of affordability among the lower rungs of the income ladder that rely on cost of living tied to CPI.
Well IMO anyway.
Jazzman
March 27, 2014 @
2:29 PM
Rich Toscano wrote:You are [quote=Rich Toscano]You are comparing real incomes to nominal home prices…[/quote]
Apologies! I should have said real prices. Real home prices increased as well. I don’t disagree with your findings. I just feel differently about it.
One thing a lot of the bubble One thing a lot of the bubble claimers also need to be aware of is as bad as the incomes and all that is, please note that the wealthy or decent income people who are buying homes in a lot of the desirable areas we discuss here (not the 60k home in the midwest)…are probably doing pretty darn well. Stocks are at all time highs and if anyone just stayed invested, they have near tripled their money already.
Those people’s income, I’m assuming if they had any stock assets, retirement, decent paying jobs, etc…are making very high and good incomes. Companies are getting bought out for more and more crazy stock prices which they will sell and raise cash, etc…
Please also note, NOT EVERYONE IS SUPPOSED to buy a home. Yes, I am screaming this out there. If you look at a lot of the statistics, the people who are doing poorly are mostly recent grads and NON-college educated people < age 25. As I've stated before, I don't think single men (or many young women) look to settle in an area and buy a home so they making low incomes, etc...doesn't has as much of an effect as expected (or hoped).
People who are in their 35+ or older have already established jobs and are probably doing pretty well...At least from what I see.
The main problem, again, is lack of supply, high high rents where renting cost is the same as buying costs when taxes are factored in which puts the bubble talk out of reach currently. Until rates go high enough where buying is more expensive or rents come down or something else, there is just no tracking. Case Shiller just came out and SD was up near 20% YoY. I think San Fran and San Jose were slightly higher in spots 1 and 2...
As the chart in one of the messages above shows, if you're just looking to buy a place for your family with kids in a decent school district and you don't want to rent (normal negative aspects of renting), buying could end up being cheaper for you...and yes, I do agree it's not cheap, but I think as a few have posted, people are willing to allocate more assets to housing costs...
Personally, again, if I was single/no kids, I'd lived in the cheapest shack I could find.
Jazzman
March 27, 2014 @
7:16 PM
joec wrote:One thing a lot of [quote=joec]One thing a lot of the bubble claimers also need to be aware of is as bad as the incomes and all that is, please note that the wealthy or decent income people who are buying homes in a lot of the desirable areas we discuss here (not the 60k home in the midwest)…are probably doing pretty darn well. Stocks are at all time highs and if anyone just stayed invested, they have near tripled their money already.
I’m certainly not a “bubble claimer”, and even non-bubble claimers concede homes are over-valued. The problem is that it should come so soon after a major bubble, and in an economy still struggling to recover. You need to ask yourself whether that is a healthy sign.
Many might claim that growing income disparities have priced out many who would ordinarily have been able to afford a home.
Stocks, like real estate, have benefited from monetary easing. Earnings tell a different story. You might want to ask whether that is a healthy investment environment.
Those people’s income, I’m assuming if they had any stock assets, retirement, decent paying jobs, etc…are making very high and good incomes. Companies are getting bought out for more and more crazy stock prices which they will sell and raise cash, etc…
Please also note, NOT EVERYONE IS SUPPOSED to buy a home. Yes, I am screaming this out there. If you look at a lot of the statistics, the people who are doing poorly are mostly recent grads and NON-college educated people < age 25. As I've stated before, I don't think single men (or many young women) look to settle in an area and buy a home so they making low incomes, etc...doesn't has as much of an effect as expected (or hoped).
Home ownership is encouraged by the government. Two thirds of the economy is consumer driven. Increasing home ownership, and increasing home values increases consumption. Home ownership is a good thing, but as you say, encouraging those who may be best suited to renting, may not be.
People who are in their 35+ or older have already established jobs and are probably doing pretty well…At least from what I see.
The main problem, again, is lack of supply, high high rents where renting cost is the same as buying costs when taxes are factored in which puts the bubble talk out of reach currently. Until rates go high enough where buying is more expensive or rents come down or something else, there is just no tracking. Case Shiller just came out and SD was up near 20% YoY. I think San Fran and San Jose were slightly higher in spots 1 and 2…
Low rates have driven demand, and low supply has driven up prices. Again, you need to ask whether that makes for a healthy, sustainable housing market.
As the chart in one of the messages above shows, if you’re just looking to buy a place for your family with kids in a decent school district and you don’t want to rent (normal negative aspects of renting), buying could end up being cheaper for you…and yes, I do agree it’s not cheap, but I think as a few have posted, people are willing to allocate more assets to housing costs…
I think there is a danger in this. Maxing out on a loan is a high risk venture and clearly exacerbated the housing bubble. Buyers need to keep well within their means, and not be tempted by teaser rates. It is better to lower your expectations though some, perhaps understandably, find that bitter pill to swallow.
My philosophy is that it’s better to try and understand causes than to accept things blindly. Even if you can’t do anything about it, you have the satisfaction of hopefully making better informed decisions.
Personally, again, if I was single/no kids, I’d lived in the cheapest shack I could find.[/quote]
booter1
March 20, 2014 @
9:28 PM
I think another dynamic is I think another dynamic is that a great many homeowners have “locked in” loans at all time low rates over the last few years.
We bought in 2011 in Temecula at an attractive price and have “settled in” for the long term.
If you monthly payments are low/affordable and you like your home/area then why move?
If rates move up then this will cause even fewer people to move unless they are relocating outside the area….
scaredyclassic
March 21, 2014 @
6:45 AM
Saw some retired looking Saw some retired looking people eating at Chipotle last night. Kinda looked like me and wife. I asked if we could move out, convert to rental, live in a van, retire and eat at Chipotle every night.
She didntcsnswr. I assume that’s a no.
scaredyclassic
March 21, 2014 @
6:48 AM
booter1 wrote:I think another [quote=booter1]I think another dynamic is that a great many homeowners have “locked in” loans at all time low rates over the last few years.
We bought in 2011 in Temecula at an attractive price and have “settled in” for the long term.
If you monthly payments are low/affordable and you like your home/area then why move?
If rates move up then this will cause even fewer people to move unless they are relocating outside the area….[/quote]
Even if I were to retire abroad to live cheap not sure I’d do better.
2600 total. Maybe 2000 afterctaxes. 700 equity 1300 month Lost to interest. Can’t even get a decent spot in Thailand for 1300. Maybe costa rica. But then I’d be away from chipotle.
livinincali
March 21, 2014 @
6:51 AM
booter1 wrote:I think another [quote=booter1]I think another dynamic is that a great many homeowners have “locked in” loans at all time low rates over the last few years.
We bought in 2011 in Temecula at an attractive price and have “settled in” for the long term.
If you monthly payments are low/affordable and you like your home/area then why move?
If rates move up then this will cause even fewer people to move unless they are relocating outside the area….[/quote]
I tend to believe a lot of people will stay put but what does that mean for the typical move up areas. I.e MM to RP. It’s going to be difficult to maintain pricing in those areas, because your traditional move up buyer won’t find it nearly as attractive to lose that great rate they had.
The-Shoveler
March 21, 2014 @
7:34 AM
The Upgrade/Remodel/repair The Upgrade/Remodel/repair biz should do OK I think.
Yep I think we got a whole generation with nomoveitis.
Well at least in Socal, seems the same in NorCal as well IMO.
Although I Do know I a few Boomers who are planning to cash out (sell) in a more expensive area to pay cash in lower cost area (but most still plan to stay/retire in SoCal).
Coronita
March 21, 2014 @
9:03 AM
Do people really feel that Do people really feel that the low mortgage rates (and hence presumably low mortgage payments) is what is going to keep people from selling?
Because if that’s the case, where is the inventory going to come from, even if rates move slightly higher?
If what is going to glue people from selling is the low mortgage interest/payments…Seems to me you got a lot of owners that are now going to hold on indefinitely, unless prices go even much higher much higher or unless there is a much better use of money in other investments that is safer but with a higher rate of return….
Persumably all the “new buyers” are (1) pretty strong buyers that have much more financial staying power and (2) got in at a low rate and possibly at a decent price
The-Shoveler
March 21, 2014 @
10:19 AM
flu wrote:Do people really [quote=flu]Do people really feel that the low mortgage rates (and hence presumably low mortgage payments) is what is going to keep people from selling?
Because if that’s the case, where is the inventory going to come from, even if rates move slightly higher?
If what is going to glue people from selling is the low mortgage interest/payments…Seems to me you got a lot of owners that are now going to hold on indefinitely, unless prices go even much higher much higher or unless there is a much better use of money in other investments that is safer but with a higher rate of return….
Persumably all the “new buyers” are (1) pretty strong buyers that have much more financial staying power and (2) got in at a low rate and possibly at a decent price[/quote]
I think even for move up buyers a lot will choose to rent out the “starter-house” if they got in at a decent price/rate but I could be wrong here.
Seems more popular today than it did when cash flow would be mostly neg for the first ten or so years in most cases.
This would be NoSellItis
Coronita
March 21, 2014 @
11:15 AM
The-Shoveler wrote:flu [quote=The-Shoveler][quote=flu]Do people really feel that the low mortgage rates (and hence presumably low mortgage payments) is what is going to keep people from selling?
Because if that’s the case, where is the inventory going to come from, even if rates move slightly higher?
If what is going to glue people from selling is the low mortgage interest/payments…Seems to me you got a lot of owners that are now going to hold on indefinitely, unless prices go even much higher much higher or unless there is a much better use of money in other investments that is safer but with a higher rate of return….
Persumably all the “new buyers” are (1) pretty strong buyers that have much more financial staying power and (2) got in at a low rate and possibly at a decent price[/quote]
I think even for move up buyers a lot will choose to rent out the “starter-house” if they got in at a decent price/rate but I could be wrong here.
Seems more popular today than it did when cash flow would be mostly neg for the first ten or so years in most cases.
This would be NoSellItis[/quote]
That move would however be limited based on how much one could qualify for a second loan while maintaining the first one though, right?
TheSeaward
March 21, 2014 @
12:49 PM
Put me down for “not selling Put me down for “not selling and haven’t exceeded peak price” (according to zillow). I’m not sure how long it would take to see $700k for mid 70’s construction 5/3 in MM, if ever, but I probably wouldn’t sell then either if US home prices were also similarly inflated. I’m sure my PITI would be cheaper than rent in that scenario anyway. Also it would be a shame to sell and then be priced out in the future. (Yes I know that is bubble era thinking).
Lots of people in the neighborhood seem to be celebrating the increased home values by relandscaping or remodeling their houses. New Hmart and now Daiso here too…. Might be worth sticking around to see where MM goes.
scaredyclassic
March 21, 2014 @
2:02 PM
Looking toward the future, Looking toward the future, you guys planning burials, cremation or donating to science?
Personally I’m planning to have my flesh stripped and keeping the skeleton in the family.
Coronita
March 21, 2014 @
3:24 PM
scaredyclassic wrote:Looking [quote=scaredyclassic]Looking toward the future, you guys planning burials, cremation or donating to science?
Personally I’m planning to have my flesh stripped and keeping the skeleton in the family.[/quote]
i take it you aren’t going to go for the cryongenic deep sleep preservation option?
scaredyclassic
March 21, 2014 @
4:34 PM
Actually I’m signed up with Actually I’m signed up with medcure. They do free pickup, free dissection free cremation. Cheap even in death.
Though I’d prefer to be a skeleton.
scaredyclassic
March 21, 2014 @
4:36 PM
A skeleton is actually a A skeleton is actually a valuable asset. Worth 10k or so.
The-Shoveler
March 21, 2014 @
3:08 PM
Now that is way out Now that is way out there.
you realize that three or generations down the line you will most likely end up at some med school or amusement park haunted house.
My ashes on the beach.
scaredyclassic
March 21, 2014 @
4:47 PM
The-Shoveler wrote:Now that [quote=The-Shoveler]Now that is way out there.
you realize that three or generations down the line you will most likely end up at some med school or amusement park haunted house.
My ashes on the beach.[/quote]
I would love love love to be a skeleton in a haunted house.
I’d love to be a skull on a lawyers desk.
In the future I’d prefer to be alive right here in my dream home. Napping and dreaming. Cocktails at 5. Weightlifting at 11 am. Reading at 3.
I just purchased 1 million life insurance policy though.
I have this feeling bad things can happen and plans derailed.
flyer
March 21, 2014 @
6:31 PM
Another good reason to keep Another good reason to keep the dream home in the family, scaredy. You can “visit” after you’ve moved out of this world.
scaredyclassic
March 22, 2014 @
7:28 AM
flyer wrote:Another good [quote=flyer]Another good reason to keep the dream home in the family, scaredy. You can “visit” after you’ve moved out of this world.[/quote]
let me ask you a question. if let me ask you a question. if i opened a business that turned corpses into skeletons, and it cost say 3500 to get it done, but your skeleton, which would be given to your loved ones was worth 10,000, , would you be interested? you’d be up 6500. plus th eskeleton is likely to appreciate. and you get the free body disposal thrown in….
seriously…i was thinking this would eb a neat business. im thinking here in CA, a business unfriendly state, licensing might be a problem. maybe this would be a good hot desert business…in a business friendly, decay friendly environment.
scaredyclassic
March 22, 2014 @
8:04 AM
if you dont have the cash, we if you dont have the cash, we could just do the head….
I saw a reality animal show where guys do r this process w beetles.
CA renter
March 22, 2014 @
5:17 PM
scaredyclassic wrote:let me [quote=scaredyclassic]let me ask you a question. if i opened a business that turned corpses into skeletons, and it cost say 3500 to get it done, but your skeleton, which would be given to your loved ones was worth 10,000, , would you be interested? you’d be up 6500. plus th eskeleton is likely to appreciate. and you get the free body disposal thrown in….
seriously…i was thinking this would eb a neat business. im thinking here in CA, a business unfriendly state, licensing might be a problem. maybe this would be a good hot desert business…in a business friendly, decay friendly environment.[/quote]
Definitely something to look into! I like your outside of the box thinking, scaredy. 🙂
If it’s possible, it really does make sense.
scaredyclassic
March 22, 2014 @
5:29 PM
CA renter [quote=CA renter][quote=scaredyclassic]let me ask you a question. if i opened a business that turned corpses into skeletons, and it cost say 3500 to get it done, but your skeleton, which would be given to your loved ones was worth 10,000, , would you be interested? you’d be up 6500. plus th eskeleton is likely to appreciate. and you get the free body disposal thrown in….
seriously…i was thinking this would eb a neat business. im thinking here in CA, a business unfriendly state, licensing might be a problem. maybe this would be a good hot desert business…in a business friendly, decay friendly environment.[/quote]
Definitely something to look into! I like your outside of the box thinking, scaredy. 🙂
If it’s possible, it really does make sense.[/quote]
Perhaps I could buy a 1000 acres in Nevada and just let the dead dessicate naturally. Maybe in cages to protect from predators?
It would be a little weird to have dead rotting people all over, but I bet id get used to it.
scaredyclassic
March 22, 2014 @
5:33 PM
I have a big stack of owl I have a big stack of owl pellets wit rat and gopher skulls from a palm tree nest. If only there were a way to do that with people…
I’d like to sell at peak, buy an autonomous island and produce skeletons from corpses. Or maybe I could do this unregulated on a boat ?
Could I trail the corpse in a cage in th ewater and let smaller fish eat?
paramount
March 22, 2014 @
8:54 PM
scaredyclassic wrote:I have a [quote=scaredyclassic]I have a big stack of owl pellets wit rat and gopher skulls from a palm tree nest. If only there were a way to do that with people…
[/quote]
I have an owl that lives in my palm tree, just as a fyi owls are federally protected.
scaredyclassic
March 22, 2014 @
9:18 PM
paramount [quote=paramount][quote=scaredyclassic]I have a big stack of owl pellets wit rat and gopher skulls from a palm tree nest. If only there were a way to do that with people…
[/quote]
I have an owl that lives in my palm tree, just as a fyi owls are federally protected.[/quote]
I am willing to protect my owl alongside the feds. I love our owls.
CA renter
March 22, 2014 @
6:26 PM
How do they treat the How do they treat the skeletons used in universities, etc.?
scaredyclassic
March 22, 2014 @
9:17 PM
CA renter wrote:How do they [quote=CA renter]How do they treat the skeletons used in universities, etc.?[/quote]
Not sure. I think they’re valuable cause they’re old. Some come from china. Skeletons are difficult to come by.
Perhaps I could buy a 1000 acres in Nevada and just let the dead dessicate naturally. Maybe in cages to protect from predators?
It would be a little weird to have dead rotting people all over, but I bet id get used to it.[/quote]
If you buy a whole county, you don’t have to pay property taxes and you can be your own local government.
Btw I was watching a show about leather making. They used brain oil for that
svelte
March 21, 2014 @
10:36 PM
I keep a replication skull on I keep a replication skull on my desk.
It serves to remind me of the fleeting nature of life.
scaredyclassic
March 22, 2014 @
7:26 AM
memento mori. memento mori.
ocrenter
March 23, 2014 @
3:28 PM
To me, we are seeing some To me, we are seeing some value elevation, but it is simply because of the scarce inventory artificially driving up the pricing? If you are looking at selling of the primary, for sure you will have to be looking at renting for a while.
Looking back, it would have been an easy decision to sell back in 2006. It may not have been obvious to the general public, but there were so many indicators pointing to an impending crash. What about now? I just don’t see any signs of an impending crash at this time.
As for myself, we are so comfortable right now that we would not consider it unless we can truly clear $500k of tax free profit.
flyer
March 23, 2014 @
4:02 PM
I realize everything is I realize everything is relative, but there was a time in San Diego, and in other locations, where you could buy your dream home and enjoy life, as scaredy mentioned, without incurring extreme debt, as CAR mentioned. That happened to be our experience, and the experience of many we know.
Some of us sold some of our investment properties during the peak, but none of us ever plan to sell our primary.
IMO, as long as homebuyers today go deep into debt knowing they have the resources to survive, regardless of how things go in the economy, I’d say “go for it.” If not, and they decide to “go for it” anyway, it would be my hope that we don’t have to hear them complain if things don’t work out as planned.
In about 20 years, plus or minus, I fully expect the new “complaint” to be, “I just don’t understand why I can’t afford to retire.”
elzocalo2
March 23, 2014 @
6:25 PM
I sold in 05 when my rental I sold in 05 when my rental (home for 3 years which I was able to keep when i bought another one) more than doubled in nominal purchase price (sold it on craigslist -the ultimate bubble test!!). It was a humble 800 SF home in Linda Vista built originally for WWII workers by the feds when they took the land from the City (read about the Linda Vista Housing Project one of many constructed under the 1940 Lanham Act : 3,000 dwelling units for more than 13,000 people with a 300-day construction deadline).
In 06 I sold my primary and happily rented in OB for years until i saw a chance (my one and only) to buy in OB which i did (2011). I then put the newly bought house in Craigslist rentals for what i thought was an obscene price and boom, rented it and happily stayed in my rental paying much less than my tenants were paying me (both houses in OB: about 900SF, 7k SF lot). Then, in early 2013, bought a second one (large mid-century townhome, corner unit, ocean view … back to Linda Vista). Today I still have the same original tenants in OB (got lucky w fab tenants) and moved to the LV townhome. So….. I am back where I started with two much better properties and some pesos in the bank 😉
I don’t think i would sell either one in the near future. With that said, i am with Rich: if things got nutty again, i take the cash and run with no hesitation.
dumbrenter
March 25, 2014 @
12:47 PM
elzocalo2 wrote:I sold in 05 [quote=elzocalo2]I sold in 05 when my rental (home for 3 years which I was able to keep when i bought another one) more than doubled in nominal purchase price (sold it on craigslist -the ultimate bubble test!!). It was a humble 800 SF home in Linda Vista built originally for WWII workers by the feds when they took the land from the City (read about the Linda Vista Housing Project one of many constructed under the 1940 Lanham Act : 3,000 dwelling units for more than 13,000 people with a 300-day construction deadline).
In 06 I sold my primary and happily rented in OB for years until i saw a chance (my one and only) to buy in OB which i did (2011). I then put the newly bought house in Craigslist rentals for what i thought was an obscene price and boom, rented it and happily stayed in my rental paying much less than my tenants were paying me (both houses in OB: about 900SF, 7k SF lot). Then, in early 2013, bought a second one (large mid-century townhome, corner unit, ocean view … back to Linda Vista). Today I still have the same original tenants in OB (got lucky w fab tenants) and moved to the LV townhome. So….. I am back where I started with two much better properties and some pesos in the bank 😉
I don’t think i would sell either one in the near future. With that said, i am with Rich: if things got nutty again, i take the cash and run with no hesitation.[/quote]
I’m considering the same… keep renting where I live, but buy & lease it out to tenants. But cash flow in that case is so little..
elzocalo2
March 25, 2014 @
10:40 PM
Initially there was no cash Initially there was no cash flow but it reduced my tax liabilities. I refied early last year with the master, pedelmuth@pacificinvestmentproperties.com (Peter is here occasionally) and cash has been flowing since (modest but there are many other considerations from my perspective)….
elzocalo2
March 25, 2014 @
10:40 PM
oops oops
The-Shoveler
March 24, 2014 @
2:10 PM
The only way I would sell my The only way I would sell my primary (if I was not needing to move for some other reason of course)
Is if I saw a return to No down No Doc loans and the other crazy loan products of 2005-6 era.
Without some major economic downturn (not caused by housing) I don’t see a crash coming of a size that that would warrant selling.
10%-20% would not be worth it to me anyway.
Yes it was the crazy loans that enabled the crazy prices, but it was mostly the crazy loans that caused the crash, not the prices IMO.
IMO in SD it makes it real difficult to determine fair value, You basically live in a resort most of the world would love to live in.
Well most of coastal SD anyway.
FlyerInHi
March 25, 2014 @
2:49 PM
I would sell everything I would sell everything without hesitation if there’s another bubble then wait for a market crash and buy back.
I don’t think we are at that point yet. Right now, prices are driven by low inventory and well paid folks in the big metros have no choice but to pay high prices.
If I see an increase in construction and investors buying for appreciation only, then that would be an indication to think about selling. It’s a planning process. I don’t mind renting brand new construction, or nicely remodeled housing, but I hate that typical renters’ grade rental. Yuck as far as livability.
The-Shoveler
March 25, 2014 @
3:39 PM
Very difficult that, it only Very difficult that, it only crashed because they wanted it to.
IMO anyway.
When city workers no longer worry about their pensions I would start to worry.
FlyerInHi
March 25, 2014 @
6:51 PM
The-Shoveler wrote:Very [quote=The-Shoveler]Very difficult that, it only crashed because they wanted it to.
IMO anyway.
[/quote]
Who is they?
I might not be smart enough to predict the next crash but I could buy at the next bottom. The first indications of an adjustment is when it’s much cheaper to rent than to buy at prevailing interest rates.
Real estate is all about cycles. There will be more cycles, you can bet on that.
Right now, tech companies are in growth mode. They are willing to pay high salaries to attract talent. Something could cause tech to crash and capital and jobs to dry up. Sag stagnation a slight layoffs could cause tumbling in prices. Massive layoffs, then all bets are off. Like defense layoffs in california before, or IBM layoffs back in that 90s.
Don’t know when that will happens, but when it does, we will know.
The-Shoveler
March 26, 2014 @
5:27 AM
FlyerInHi wrote:The-Shoveler [quote=FlyerInHi][quote=The-Shoveler]Very difficult that, it only crashed because they wanted it to.
IMO anyway.
[/quote]
Who is they?
[/quote]
The same people who brought you Owners Equivalent Rent and separated assets from income.
who needs assets …
The-Shoveler
March 26, 2014 @
5:34 AM
“Don’t know when that will “Don’t know when that will happens, but when it does, we will know.”
March 18, 2014 @ 12:57 PM
So for folks that answered
So for folks that answered “No, even though my home prices has met or exceeded peak prices”…
I’m curious what your opinion was back in 2006 or whenever peak prices was reached… Did you sell then or consider selling… If so, but you aren’t considering it now…. What’s the difference that is making you think differently now….
March 18, 2014 @ 1:10 PM
I sold, bought a lot , and
I sold, bought a lot , and built two houses almost completely with the bubble money and some skills and sweat.
I am not going to sell now. Maybe sell 1/2 the acreage and a house but I can only sell to a neighbor that way….not a huge long shot as there may be some interest. Not like a listing though where a sale would happen at the right price.
I can’t really see another desirable way to capitalize on proceeds,and we like it here, so other than that, not thinking about selling.
March 18, 2014 @ 6:32 PM
The home is back up to peak
The home is back up to peak prices – but I’m not selling. It meets our needs, is almost paid off, and the granny flat generates rental income. Why would I sell?
I like living in San Diego and this is an affordable, pleasant place to live. I don’t need a bigger/fancier house that costs more in upkeep.
March 19, 2014 @ 12:37 AM
We sold our primary in 2004
We sold our primary in 2004 because we wanted to buy a bigger house in a better neighborhood (got married, had kids, etc.). Made good money on that house and then rented for almost 8 years because prices were so insane and I was convinced that we were in the middle of a housing bubble. Found our “dream home” in late 2011 (not fancy, but we’re not fancy people), and our hope is to live here for the rest of our lives.
If we were living in a house we didn’t love and intend to spend the rest of our lives in, we would be seriously thinking about selling now. One problem, though, is that rents have really risen, so it’s not as easy to justify selling and renting.
March 19, 2014 @ 10:03 PM
The other question being:
The other question being: what about investment properties?
Yellen has been hinting at rate hikes – something about a “6 month type of thing/time frame.”
Financial Armageddon may really be on the way.
Ok, maybe not Armageddon, but we could see a pull back in residential RE.
March 20, 2014 @ 10:15 AM
The correlation between
The correlation between higher rates and RE pricing is a little less predictable then you would think it should be.
While many buyers get squeezed out or have to settle for less due to the higher payments, many other investors view those conditions as opportunity to move money from equities to RE if the RE pricing starts to move substantially.
The magnitude of the rates is what determines the conditions. A movement from say 4% to 6% will hurt and would probably result in a marginal price decrease. Now a movement from say 6 to 8 or 6 to 10 and then we have another ball game.
However things are much different this time. The amount of debt that the govt is carrying is fairly staggering. The short term defecits are not the problem, the long term debt coupled with the sheer number of people that will require entitlements are tsunami like.
See what the cbo says…
http://www.cnsnews.com/news/article/susan-jones/cbo-director-important-give-advance-warning-about-coming-changes-social
If you top all of that off with a high interest rate environment….
That would be pretty harsh. Yellen is actually proceeding in really the only direction she can but the throttle needs to be very slow and accompanied by pretty substantial tax hikes on basically everybody or else there will be problems.
March 20, 2014 @ 11:03 AM
First I don’t think they
First I don’t think they “CAN” raise interest rates significantly (but maybe I am wrong)
(anything that would cause deflation cannot be afforded long term “there are long term bills to pay” and that would be too disruptive).
But if they did I think it would affect different markets much differently.
First it cost a certain amount to build a home (a lot of it being land and land entitlements etc… )
Those are fairly fixed costs and cannot be reduced significantly, so if they cannot get a certain price they will most certainly “STOP” building.
And besides those that are left standing now days most have fixed rate loans that they will not give that up easily (unless forced).
So you would just end up with very little inventory unless there was some major economic disruption which is always possible (ie.. war or something worse).
Anyway just my two cents.
March 20, 2014 @ 3:45 PM
Land costs (even entitlement
Land costs (even entitlement costs) are not fixed. The price of land needs to come down as interest rates, and entitlement costs, rise.
March 20, 2014 @ 4:33 PM
OK sure, the city needs it’s
OK sure, the city needs it’s money though and it costs a lot to terraform a mountain with a view.
March 20, 2014 @ 6:37 PM
Another reason people won’t
Another reason people won’t sell is Prop 13. If you are in a place you’re ok with for the next 10+ years or even longer as some posters here state (eg: found home for the rest of my life)…with the recent run up, you’ll be sitting pretty for a long time if housing either doesn’t move, goes up or goes down slowly even. Your carrying cost is cheaper than rent and I’d guess anyone who bought on this board (and there were quite a few of us), are up 25%+ if they were to sell.
Even if it drops a lot, you’re probably still ok with the payments and still “need a place to live” and your rate was probably lower too.
I have doubts that interest rates can go that high though since I have a tendency to believe we can’t take the sharp hard pain and will prolong anything like before and like Japan/Europe. It’s human nature and we’ll just do the same.
The economy is probably also recovering from everything I’ve seen so rates will probably mildly go up and settle in the 5-5.5% area…
March 20, 2014 @ 7:13 PM
What are you seeing that
What are you seeing that leads you to believe that the economy is recovering?
We’re always trying to keep an eye on things and it looks to us like things have slowed down quite a bit.
I’m always interested in hearing what others are seeing/hearing, so please share if you’re seeing something different. It would be awesome if things are getting better, but haven’t really seen it, at least around here.
March 20, 2014 @ 9:25 PM
I’m having a hard time seeing
I’m having a hard time seeing where home pricing makes sense even if we are supposedly recovering.
I’m a single person approaching 30 making in the mid-70s, and home purchasing makes no sense even if there were 2% year over year increases over the next 7 years. I guess the argument would be to raise the rent, but at that point I’d move back in with family or roommates.
March 23, 2014 @ 8:33 AM
flu wrote:So for folks that
[quote=flu]So for folks that answered “No, even though my home prices has met or exceeded peak prices”…
I’m curious what your opinion was back in 2006 or whenever peak prices was reached… Did you sell then or consider selling… If so, but you aren’t considering it now…. What’s the difference that is making you think differently now….[/quote]
I think this is kind of a strange way of looking at it… the peak was over 8 years ago — nearly a decade now! — and since that time, both rents and per capita income in San Diego are up 20%. “Peak pricing” in nominal terms just isn’t a meaningful number, when the purchasing power of money has been declining while nominal incomes and rents have been rising over that period.
Don’t get me wrong, I think it’s an interesting question — are you selling your primary right now? But I don’t see why peak nominal pricing would really come into it. Peak “valuation” (as measured by comparing home prices to incomes/rents, or even just inflation-adjusting them) is a more meaningful comparison. This shows that in aggregate, we are nowhere close (and I doubt any area is at peak valuation):
Still, valuations have risen, so I think it’s a legit question.
Personally, fwiw, I have zero interest in selling right now. We had the good luck to lock in a low rate at the valuation low, on a house that we really like and would be happy to stay in indefinitely. If we were wanting to move anyway, it might be a different story. But as it stands valuations would have to get quite a bit higher before we were willing to go through the hassle and risk of becoming renters again.
That said, if we were to get back to peak valuation again, there is no question that I’d take the money and run!
March 23, 2014 @ 9:33 AM
If things get nutty again,
If things get nutty again, sell.
Ok. I’ll try to remember.
March 18, 2014 @ 1:47 PM
I sold my Primary just before
I sold my Primary just before the peak in 2005.
I have no plans to sell my primary anytime soon now.
IMO the bust in 2007-9 was not because of home prices.
It was because of stupid loans.
Anyway IMO for what its worth.
Good luck.
That does not mean I think home prices will rise forever though, it just means I don’t think a 30%-50% crash is likely.
IMO the gov cannot afford long term Deflation, therefore it will not be tolerated long term.
March 18, 2014 @ 3:09 PM
I think the more important
I think the more important questions to ask is,
If you are planning to sell your primary why ?
Is it because you feel the market topped ?
Or is it for more pedestrian reasons like relocating?
March 18, 2014 @ 4:11 PM
The main reason why I won’t
The main reason why I won’t be selling my primary is because “I have to live somewhere”. If I sell, I would have to rent and my ITI – tax deduction is cheaper than renting a 2/2 apartment in the same area. My PITI – tax deduction is only slightly more than a 2/2 apartment. I would have to pay well over $1k/month more to rent a similar sized place and the condition would be much worse (rental grade vs upgraded house). There’s also the intangible factors, such as moving kids, painting kids’ rooms, etc. Then there’s the problem of finding the right house to rent in as well. Lastly, something tells me we won’t see another 30% decrease again this soon.
Now, if you ask about investment properties, I would totally sell if we hit bubble price. It’s much easier to sell a rental, because you’re not living there and you don’t have to move when you sell. You don’t have to compare PITI vs rent but you have to compare rental income vs the amount of $ you save when you sell high and buy back lower.
March 21, 2014 @ 9:22 AM
AN wrote:
Now, if you ask
[quote=AN]
Now, if you ask about investment properties, I would totally sell if we hit bubble price. It’s much easier to sell a rental, because you’re not living there and you don’t have to move when you sell. You don’t have to compare PITI vs rent but you have to compare rental income vs the amount of $ you save when you sell high and buy back lower.[/quote]
I thought about this very question but I’m not so sure about this..
Let’s say hypothetically you could sell a rental for a $100k profit…And let’s say for argument sake your net income from rental property after 20% income tax (including deductions) is around $9k/year
Does it really make sense to sell?
$100k profit (let’s say long term) is taxed at 15% + 3.8% surcharge so around 18.8%
and there’s a 25% tax on the recapture of depreciation you are going to have to pay. For argument sake, let’s just say that’s $10k (I pulled this number out of the air)…
So we’re looking at a net $72k…And you still need to figure out what to do with it. What would you end up doing with it?
March 21, 2014 @ 9:40 AM
FHA loans transferable?
FHA loans transferable?
March 21, 2014 @ 9:54 AM
flu wrote:AN wrote:
Now, if
[quote=flu][quote=AN]
Now, if you ask about investment properties, I would totally sell if we hit bubble price. It’s much easier to sell a rental, because you’re not living there and you don’t have to move when you sell. You don’t have to compare PITI vs rent but you have to compare rental income vs the amount of $ you save when you sell high and buy back lower.[/quote]
I thought about this very question but I’m not so sure about this..
Let’s say hypothetically you could sell a rental for a $100k profit…And let’s say for argument sake your net income from rental property after 20% income tax (including deductions) is around $9k/year
Does it really make sense to sell?
$100k profit (let’s say long term) is taxed at 15% + 3.8% surcharge so around 18.8%
and there’s a 25% tax on the recapture of depreciation you are going to have to pay. For argument sake, let’s just say that’s $10k (I pulled this number out of the air)…
So we’re looking at a net $72k…And you still need to figure out what to do with it. What would you end up doing with it?[/quote]I agree that it’s not 100% straight forward and I though about the question of “what to do” with the funds as well. I guess I would only sell if I see tide turning and prices going down. I would more likely to sell. It’s not a guarantee I would sell either. I might just HEL/Refi/2nd loan to take out most of the profit at the peak to hedge for any kind of crash and use that $ to buy back in if things does crash. If it doesn’t crash, I can always pay back the HEL/2nd loan and my cost would only be the interest for the duration I hold on to that $.
One possible reason why I would want to complete sell is if I sell and buy my dream home doing a 1031 exchange. Rent it out for a year or two, then sell my primary and essentially combine the primary + rental(s) to pay for my dream home and have the new dream hope be either paid off or nearly paid off.
March 21, 2014 @ 11:14 AM
AN wrote:flu wrote:AN
[quote=AN][quote=flu][quote=AN]
Now, if you ask about investment properties, I would totally sell if we hit bubble price. It’s much easier to sell a rental, because you’re not living there and you don’t have to move when you sell. You don’t have to compare PITI vs rent but you have to compare rental income vs the amount of $ you save when you sell high and buy back lower.[/quote]
I thought about this very question but I’m not so sure about this..
Let’s say hypothetically you could sell a rental for a $100k profit…And let’s say for argument sake your net income from rental property after 20% income tax (including deductions) is around $9k/year
Does it really make sense to sell?
$100k profit (let’s say long term) is taxed at 15% + 3.8% surcharge so around 18.8%
and there’s a 25% tax on the recapture of depreciation you are going to have to pay. For argument sake, let’s just say that’s $10k (I pulled this number out of the air)…
So we’re looking at a net $72k…And you still need to figure out what to do with it. What would you end up doing with it?[/quote]I agree that it’s not 100% straight forward and I though about the question of “what to do” with the funds as well. I guess I would only sell if I see tide turning and prices going down. I would more likely to sell. It’s not a guarantee I would sell either. I might just HEL/Refi/2nd loan to take out most of the profit at the peak to hedge for any kind of crash and use that $ to buy back in if things does crash. If it doesn’t crash, I can always pay back the HEL/2nd loan and my cost would only be the interest for the duration I hold on to that $.
One possible reason why I would want to complete sell is if I sell and buy my dream home doing a 1031 exchange. Rent it out for a year or two, then sell my primary and essentially combine the primary + rental(s) to pay for my dream home and have the new dream hope be either paid off or nearly paid off.[/quote]
But in theory, even if prices go down say a modest 20% (beyond which I would find difficult to happen)/// as long as your are positive cash flowing decently, why would it matter? Over a longer period of time, the rental income ends up covering your paper loss anyway…and if we still had very little alternative uses of that money to invest during that time period, you’re in no worse shape than say having kept your money in cash for 10-15 years earning 0.0 or close to that
1031 is a completely different thought process, which I get…Just curious about when would be a good time to sell a rental.
March 21, 2014 @ 11:16 AM
Majority so far goes with
Majority so far goes with “No, [I wouldn’t sell] even though my home price has met or exceeded peak prices”. That says it all. Does it makes you feel richer, and have you been consuming more? Have you taken out a home equity loan? If the majority answer no to those questions, can someone explain the point of it all please.
March 21, 2014 @ 3:25 PM
Jazzman wrote:Majority so far
[quote=Jazzman]Majority so far goes with “No, [I wouldn’t sell] even though my home price has met or exceeded peak prices”. That says it all. Does it makes you feel richer, and have you been consuming more? Have you taken out a home equity loan? If the majority answer no to those questions, can someone explain the point of it all please.[/quote]
I’m sure everyone has different reasons they chose this option in the poll. In our case, we won’t ever sell our primary, because it is our dream home in RSF, and we could never replace it for what we paid for it 20+ years ago.
We would also like to pass it along to our kids, and we know a lot of people who are planning to do the same. That may only constitute a blip on the inventory radar now, but it may have a more pronounced affect over time.
March 24, 2014 @ 1:17 PM
flyer wrote:
We would also
[quote=flyer]
We would also like to pass it along to our kids, and we know a lot of people who are planning to do the same. That may only constitute a blip on the inventory radar now, but it may have a more pronounced affect over time.[/quote]
I’m 2nd generation in my house, and the kids are fighting over who will buy it from us. (We didn’t inherit the house – just the prop 13 tax rates. Dad needed the cash to put into his next home when he downsized.)
On our block there are multiple 2nd gen owners. I can think of 4 others besides myself. Some inherited, some bought out their parents. Most of the parents were original owners.
It’s just boring tract homes – but in a nice location with large lots for being w/in San Diego city.
March 24, 2014 @ 10:04 PM
UCGal wrote:flyer wrote:
We
[quote=UCGal][quote=flyer]
We would also like to pass it along to our kids, and we know a lot of people who are planning to do the same. That may only constitute a blip on the inventory radar now, but it may have a more pronounced affect over time.[/quote]
I’m 2nd generation in my house, and the kids are fighting over who will buy it from us. (We didn’t inherit the house – just the prop 13 tax rates. Dad needed the cash to put into his next home when he downsized.)
On our block there are multiple 2nd gen owners. I can think of 4 others besides myself. Some inherited, some bought out their parents. Most of the parents were original owners.
It’s just boring tract homes – but in a nice location with large lots for being w/in San Diego city.[/quote]
I definitely think a trend is developing, UCGal. As I mentioned, we’re seeing this with most of our friends, and you are as well. It will be interesting to see if this has a strong affect on inventory/pricing going forward or not.
March 25, 2014 @ 10:17 AM
I am speculating that my
I am speculating that my primary property will out perform pretty big in 15 to 20 years, so I won’t sell in a merely inflated local market. The other reasons people posted for not selling are important too.
March 25, 2014 @ 12:11 PM
What’s interesting here is
What’s interesting here is that home prices have not reached their peak prices (as Rich points out), but most people who voted believe they have. You could substitute the question with “if homes reached peak prices, would you sell”. But you’re still left with the nominal vs real problem.
Here’s an interactive chart from the Economist that examines this question. They state that the last nine months has pushed prices in some cities into the “over-valued” category. It’s also interesting that prices in real terms in San Diego are higher than Los Angeles, Las Vegas, and New York. But we’re clearly some way off peak prices. In real terms we’re back to 2004 and 2008 prices. How real prices are calculated, and how accurate they are is another question. http://www.economist.com/blogs/graphicdetail/2014/02/us-house-prices
March 25, 2014 @ 7:09 PM
Jazzman wrote:What’s
[quote=Jazzman]What’s interesting here is that home prices have not reached their peak prices (as Rich points out), but most people who voted believe they have. You could substitute the question with “if homes reached peak prices, would you sell”. But you’re still left with the nominal vs real problem.
[/quote]
Well, I wouldn’t put it that way… PRICES have reached their peak level in some areas… it’s just that VALUES haven’t. At the risk of being a bit pedantic on the terminology (but in the hopes it will clarify the conversation), here’s my take:
Price is the price — number of dollars paid. Not adjusted for anything. If something sold for $500k in 2005, that was the price, and if it sold for $501k last month, it has achieved peak “price.” (for whatever that’s worth). As I argued above, the “price” alone is a pretty meaningless number because it fails to account for changes in the factors that drive home pricing.
Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.
Many areas have achieved peak pricing, but nowhere has achieved peak valuation. Peak valuation was INSANE. I’ll trot out that graph again:
For the SD housing market to achieve peak valuation right now — ie, for home prices to be as high compared to rents/incomes as they were at the bubble peak — would require a 57% increase in (aggregate) home prices.
So yeah, if that happened, I personally think it would be crazy not to sell. But, I think there is virtually no chance of it happening, so it’s really a purely hypothetical question…
March 25, 2014 @ 10:06 PM
I totally agree with Rich.
I totally agree with Rich. If we see peak valuation again, I’d sell in a heart beat, both rentals and primary. I’ll sit tight until things crash. But if it’s only peak price, I won’t take the risk and sell a primary and rent. Too high risk and not high enough return to make me take that risk.
March 25, 2014 @ 10:06 PM
.
.
March 25, 2014 @ 11:53 PM
Rich Toscano wrote:Jazzman
[quote=Rich Toscano][quote=Jazzman]What’s interesting here is that home prices have not reached their peak prices (as Rich points out), but most people who voted believe they have. You could substitute the question with “if homes reached peak prices, would you sell”. But you’re still left with the nominal vs real problem.
[/quote]
Well, I wouldn’t put it that way… PRICES have reached their peak level in some areas… it’s just that VALUES haven’t. At the risk of being a bit pedantic on the terminology (but in the hopes it will clarify the conversation), here’s my take:
Price is the price — number of dollars paid. Not adjusted for anything. If something sold for $500k in 2005, that was the price, and if it sold for $501k last month, it has achieved peak “price.” (for whatever that’s worth). As I argued above, the “price” alone is a pretty meaningless number because it fails to account for changes in the factors that drive home pricing.
Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.
Many areas have achieved peak pricing, but nowhere has achieved peak valuation. Peak valuation was INSANE. I’ll trot out that graph again:
For the SD housing market to achieve peak valuation right now — ie, for home prices to be as high compared to rents/incomes as they were at the bubble peak — would require a 57% increase in (aggregate) home prices.
So yeah, if that happened, I personally think it would be crazy not to sell. But, I think there is virtually no chance of it happening, so it’s really a purely hypothetical question…[/quote]
You have to admit, though, that this line is looking very “peak-ish” relative to the more normal RE cycles. The price deflation from those peaks was pretty damaging, even if it wasn’t as bad as the ~2008 crash. Looks like it’s rolling over, too.
Thoughts?
March 26, 2014 @ 8:01 AM
CA renter wrote:
You have to
[quote=CA renter]
You have to admit, though, that this line is looking very “peak-ish” relative to the more normal RE cycles. The price deflation from those peaks was pretty damaging, even if it wasn’t as bad as the ~2008 crash. Looks like it’s rolling over, too.
Thoughts?[/quote]
The 90s downturn was pretty bad, but the thing is, only about 40% of that decline (eyeballing it) was prices returning to “fair value,” while the other 60% was them falling from “fair” to “very underpriced.” So basically, that decline was only as bad as it was because homes ended up really cheap.
So to anticipate that kind of decline again, you are basically depending on houses becoming very underpriced. I wouldn’t want to do that, any more than I’d want to depend on them becoming or staying overpriced.
I can’t emphasize that enough… just because something became undervalued in the last cycle, doesn’t mean it will in this cycle. The safe assumption is that it will return to (or near) the median at some point… to assume that it will move far from the median is a much bigger speculation.
It’s only an 11% drop to get back to the median valuation, and that assumes it happens overnight (ie, if it happens over a longer time period as rents/incomes are catching up, it’s even less – in the 80s, prices never even declined nominally). (Assuming we get back to the median… I think it’s a good assumption that we probably will at some point, but we should keep in mind it’s not a guarantee).
To me that’s nowhere near compelling enough to make me want to sell my house, which I like living in and want to keep living in, and on which I have a nice low mortgage rate. To someone who was looking to move anyway, perhaps it would be different, but I’m not in that category.
However, if we were to get back up to peak bubble level valuations, that would be a very, very different story. The extent of the overvaluation then was just staggering. To put the numbers on it, to return to “fair value” (the median):
– from here, valuations would have to drop 11%. If this happened over the course of several years, we might not see a nominal price drop at all.
– from the bubble peak level, valuations would have to drop 43% — almost 4 times as much. There’s no way this is happening without a nominal price decline, and probably a significant one. But more to the point, more than anticipating price changes: it would be an extremely overvalued asset. I just don’t want to hold on to an extremely overvalued asset. My capital is best deployed elsewhere.
So to me, it’s a very, very different situation than it was at the bubble peak…
March 26, 2014 @ 8:02 AM
BTW I also had some thoughts
BTW I also had some thoughts in the latest in my writeup on valuations… I copied the relevant bit here:
—
Despite the recent runup, San Diego housing valuations are still
dramatically lower they were during the bubble. However, homes
are far from cheap — at 12% above the historical median valuation
(down from a recent high of 13%), housing has become nearly as
expensive as it got during the 1979 and 1990 peaks.
This isn’t a very big sample set, but for what it’s worth, here’s
what happened each of the last three times housing valuations rose
to this level:
into a multi-year decline. Nominal prices actually rose
slightly during this period, but valuations dropped as high
inflation drove up incomes and rents.
declined for the better part of a decade. This time, there
was an actual decline in nominal home prices of 17% per the CS
index. Meanwhile, rents and incomes rose, further reducing
valutions.
monumental bubble, eventually (many years later) crashing back
down below the historical median.
So here we are at this level once again. What will happen
next? Here are a few reasons why I don’t think that’s
knowable.
cycles, not enough to draw general conclusions from.
level, we saw big valuation declines. But that doesn’t
mean that valuations magically decline once you hit this
level. The 1990s bust was exacerbated by a pretty bad
local recession, and the early-80s valuation decline coincided
with both a serious recession and extremely high mortgage
rates. In other words, the outcome from here is partly
dependent on what happens in the real world. (That said,
housing’s high valuation puts it in a vulnerable situation, as a
positive economic outcome already appears to be “priced in”).
valuations reached these levels, just started to falter, and
then flung up to previously undreamt-of heights. The
primary fuel for the housing bubble was an overly accomodative
central bank that was providing excess liquidity in an attempt
to mop up after that prior bubble… sound familiar?
but it’s entirely possible that the sustainable level of “fair
value” pricing could creep up over time. That can only
really be known in retrospect.
shows how monthly payments stack up against rents and incomes:
Despite last year’s move up — a result of both rising prices and a
jump in mortgage rates — this chart shows that monthly payments are
still very much on the low side of history. For as long as
that continues to be the case, it could allow valuations to “float”
up above normal levels. When it changes, though, that will
remove a major tailwind for housing valuations. (And, that
really does seem to be a “when,” not an “if,” because rates are only
as low as they are due to central bank intervention that must end at
some point… as to when, that’s anybody’s guess.).
March 26, 2014 @ 6:47 AM
Rich Toscano wrote:
Rich, a
[quote=Rich Toscano]
[/quote]
Rich, a graph is worth a thousand words.
essentially if we look at past cycles as a guide and remove the abomination that was the bubble, the current peak is essentially the typical rise in valuation that cycles up and down every few years.
So I suppose the question to folks that would want to consider selling is would they have sold their primary resident in 1980 and 1990? and not if they would have sold in 2006.
March 26, 2014 @ 7:17 AM
I sold my primary in early
I sold my primary in early 2005 which was just below peak in the area where I sold it. (I must tell you though “IT WAS NOT EASY !!!”).
I would not have sold in 1990 or 1980. by the time you get done with fee’s etc… rent … convenience it would just not have been worth it (but it was a PITA going through it owning as well).
IMO very unlikely we would see a 2007-2009 crash in our life times that would make it worth it again.
So I imagine China’s RE chart must look somewhat similar, you think China’s RE will crash or be inflated away/Bailed out ?
March 26, 2014 @ 8:05 AM
The-Shoveler wrote:So I
[quote=The-Shoveler]So I imagine China’s RE chart must look somewhat similar, you think China’s RE will crash or be inflated away/Bailed out ?[/quote]
It will crash. Math dictates that outcome. Hyper Inflation has not tended to be good for asset prices. Look at the chart below showing Argentina apartment prices. During the hyper inflationary even of 2002 home prices went down.
March 26, 2014 @ 8:10 AM
OK just for a fun,
Cards have
OK just for a fun,
Cards have been dealt, time to place your bets,
I bet China RE does not decline more then say 15-20% price wise.
IMO The China Gov has too much at stake.
March 26, 2014 @ 9:20 AM
livinincali wrote: Look at
[quote=livinincali] Look at the chart below showing Argentina apartment prices. During the hyper inflationary even of 2002 home prices went down.
That chart shows that Argentine home prices went down in DOLLAR terms… not in peso terms. IE real values declined, but nominal values did not.
March 26, 2014 @ 9:54 AM
Rich Toscano
[quote=Rich Toscano][quote=livinincali] Look at the chart below showing Argentina apartment prices. During the hyper inflationary even of 2002 home prices went down.
That chart shows that Argentine home prices went down in DOLLAR terms… not in peso terms. IE real values declined, but nominal values did not.[/quote]
I did some more research on this and it’s not exactly that simple. Homes in Argentina were transacted in dollars during this time frame because of the previous pegging to the dollar. So you borrowed money in US dollars and bought homes using US dollars. Wages were generally paid for in pesos which then needed to be converted into dollars to pay the mortgage. Probably a bad example. Nominal prices did technically decline because they weren’t priced in pesos but the inflation rate recorded probably related to pesos purchasing power. Basically it’s not an apples to apples comparison because of some oddities with Argentina’s somewhat dual currency system at the time. One thing that did happen was rents in US dollar terms went down dramatically. So investment property performed poorly during this hyper inflationary event.
Here’s the article where I got the above information.
http://www.globalpropertyguide.com/Latin-America/argentina/Price-History
March 26, 2014 @ 10:39 AM
livinincali – I wasn’t
livinincali – I wasn’t weighing in on whether they were “good” or not… just pointing out that they did not decline in terms of the currency that hyperinflated.
March 26, 2014 @ 11:18 AM
Rich Toscano
[quote=Rich Toscano]livinincali – I wasn’t weighing in on whether they were “good” or not… just pointing out that they did not decline in terms of the currency that hyperinflated.[/quote]
Yeah I agree but it’s kind of a weird case because they aren’t/weren’t transacted in pesos either. It was an my lack of understanding how real estate is transacted in Argentina. The data that says Argentina house prices in pesos performed like this doesn’t seem to exist.
Bottom line is that Argentina devalued the currency currency by giving up the dollar peg and that lead to a hyper inflationary event. Based on the information I have it would appear that almost all assets prices failed to keep up with that hyper inflationary event but many of those assets did better than cash.
My overall point is that assets that are typically highly leveraged assets aren’t necessarily going to do well in an hyper inflationary or high inflationary environment. The interest rate problem in an inflationary environment becomes a significant problem for the price of leveraged assets. Especially when that interest rate is coming from record lows. Nobody lends at an intentional loss, well except maybe Freddie and Fannie because it’s good for vote buying.
March 26, 2014 @ 11:34 AM
Don’t open mortgages in a
Don’t open mortgages in a currency your country does not control LOL.
I feel for the people who took out loans in Euro’s (really bad Idea IMO).
Ultimately it is the Central bank and the PTB (ie… here congress/Prez) that decide what the out come will be, it is not always a clear path, the same mantras being said today would have been disastrous advice in the 1970’s
March 26, 2014 @ 10:13 PM
Taking this…
ocrenter
Taking this…
[quote=ocrenter][quote=Rich Toscano]
[/quote]
Rich, a graph is worth a thousand words.
essentially if we look at past cycles as a guide and remove the abomination that was the bubble, the current peak is essentially the typical rise in valuation that cycles up and down every few years.
So I suppose the question to folks that would want to consider selling is would they have sold their primary resident in 1980 and 1990? and not if they would have sold in 2006.[/quote]
and this…
[quote=Rich Toscano]
The 90s downturn was pretty bad, but the thing is, only about 40% of that decline (eyeballing it) was prices returning to “fair value,” while the other 60% was them falling from “fair” to “very underpriced.” So basically, that decline was only as bad as it was because homes ended up really cheap.
[/quote]
I just noticed that the price declines from the ~2005 bubble didn’t go to the same “undervalued” level seen after the late 70s and late 80s bubbles. Interesting, especially when you consider that the internet bubble was getting in full swing in the mid-90s, yet housing prices continued to decline a bit even from there. That’s when I bought my first house, FWIW, because it was obviously a good deal at the time. While we also bought in 2011, it didn’t feel like as good of a deal, especially price-wise. Yes, interest rates made things more favorable, but I always consider price over payment.
Okay, so we had the internet/stock bubble AND incredibly accommodative interest rates after we got to the “natural” peak of that housing cycle in 2001, and these two things got us out of the post 1989 bubble and ushered in the bubble of the 2000s, but what do we have now?
We’re already near historic lows on interest rates (implying that we can only go up from here over the long run), and while the tech sector seems to be going strong for the moment (looking quite a bit like a bubble to me, too), what will come next? If we see prices decline from here, either because of a recession or because interest rates rise (or both!), what would get us quickly out of the next downdraft?
I think things look worse from here than they did near the tops of past RE cycles, but could just be a pessimist. It’s easier to get out of a RE slump when rates are high because lowering rates can quickly make higher prices more affordable. And it’s easier when people have adequate savings and/or incomes are rising, but incomes have been stagnant to declining for many, many years, with the exception of a handful of sectors, mostly tech and finance.
See per capita income here:
https://www.census.gov/hhes/www/income/data/historical/people/
Of course, they adjust these numbers using the CPI rates, but most of us know those numbers are far lower than what we see in real life, so it’s even worse than what they’re showing there…which is that we’re at ~1998 levels. No income growth for most people over this time.
March 27, 2014 @ 7:50 AM
CA renter wrote: incomes have
[quote=CA renter] incomes have been stagnant to declining for many, many years, with the exception of a handful of sectors, mostly tech and finance.
See per capita income here:
https://www.census.gov/hhes/www/income/data/historical/people/
Of course, they adjust these numbers using the CPI rates, but most of us know those numbers are far lower than what we see in real life, so it’s even worse than what they’re showing there…which is that we’re at ~1998 levels. No income growth for most people over this time.[/quote]
You are doing the same thing as Jazzman did above — you are comparing REAL incomes with NOMINAL home prices. That’s just not a meaningful comparison. Additionally, I suspect you are looking at nationwide numbers… since we are talking SD home prices, I think it’s important to focus on SD income data.
The nominal per capita income for San Diego is up 73% since 1998. Those numbers come straight from the BEA, using San Diego income per capita up through 2012, and estimating based on statewide per capita income for 2013 (which makes no difference at all to the big picture).
So it is definitely not the case that nominal SD incomes are at 1998 levels! In fact, they are the highest they’ve ever been, and they are 73% above 1998 levels.
Despite this, homes are overpriced compared to incomes — that’s the point of the valuation graph, to compare actual SD incomes and rents to home prices, and that graph indicates some degree of overvaluation. I’m not arguing otherwise. But to compare nominal SD home prices with inflation-adjusted nationwide incomes is just not a meaningful comparison at all.
March 27, 2014 @ 7:52 PM
You’re correct about nominal
You’re correct about nominal prices vs. real incomes, Rich. Also, I tend to look at the larger housing market, not just San Diego; you’re right about SD, too.
These home price increases are being seen across the country, and much of it is being driven by speculators/investors. That’s a trend that always raises red flags to me. Even in our neighborhood, it seems like *at least* half of the homes are being flipped. Sometimes, they are selling homes for $200K+ more than they bought them for just a few months before, which makes absolutely no sense at all. I thought the new rules for appraisers would fix this, but apparently not.
March 27, 2014 @ 8:06 PM
With the way indices have
With the way indices have been going the last few months (month-on-month, not year-on-year), hopefully we can replace “are” with “were” pretty soon.
March 27, 2014 @ 5:42 PM
CA renter wrote:
See per
[quote=CA renter]
See per capita income here:
https://www.census.gov/hhes/www/income/data/historical/people/
Of course, they adjust these numbers using the CPI rates, but most of us know those numbers are far lower than what we see in real life, so it’s even worse than what they’re showing there…which is that we’re at ~1998 levels. No income growth for most people over this time.[/quote]
Exactly People wonder What happen to the middle class, sure some of it was factory work going over seas etc.., but the real issue is the CPI changes in the early 1980’s
The under reporting of CPI is the real culprit,
Again OER was a really really bad Idea and no one even notices their being robbed. Inflation is not robbing workers, under reporting it is LOL.
Think of it as compound interest in reverse.
March 26, 2014 @ 9:51 AM
“Valuation is the comparison
“Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.”
Not sure I quite understand this statement. What are those factors? Income, disposable income, inflation, interest rates, supply, buyer incentives (deductibles, loan guarantees), personal debt levels? Rents are a comparison, not a cost that can be lumped in with incomes in my view, because you aren’t doing both at the same time. In terms of recent “bubble” talk, what strikes me as relevant is the very sharp increase in prices over a relatively short period, which drives at the heart of the statement “[what] long-run sustainable price should be”.
This is probably a semantic thing, but “valuation” to me is based on the cost to produce, margins, supply and demand, and in the case of RE what someone if willing to pay. Current values relate to current selling prices, and when comparing to past values, you need to take into account the cost of living. Affordability is incomes to price, and rents an indicator of what people can afford. From what I hear renters are being gauged at the moment so that might distort rents as a measure. But maybe that’s just me.
March 26, 2014 @ 10:38 AM
Jazzman wrote:From what I
[quote=Jazzman]From what I hear renters are being gauged at the moment so that might distort rents as a measure. But maybe that’s just me.[/quote]I’m not seeing renters being gouged, at least not in the areas I’m looking to buy. A 2/2 apartment on the West side of Mira Mesa for example was going for $1400/month 6-8 years ago. Today, the same apartment is going for $1550/month. That doesn’t sound like gouging to me.
March 26, 2014 @ 10:45 AM
Jazzman wrote:”Valuation is
[quote=Jazzman]”Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.”
Not sure I quite understand this statement. What are those factors?[/quote]
Sorry, I talk about this a lot, so I kind of glossed over it in my post. The fundamentals I like to use are rents and incomes. Incomes indicate how much potential home buyers earn to pay for housing, and rents indicate how much it costs for the competing form of putting a roof over your head in SD. This makes sense theoretically, and the relationship between home prices and rents/incomes has been highly mean-reverting over time… ie, the ratio of home prices to rents/incomes is a good measure of valuation.
March 26, 2014 @ 11:02 AM
Rich Toscano wrote:Sorry, I
[quote=Rich Toscano]Sorry, I talk about this a lot, so I kind of glossed over it in my post. The fundamentals I like to use are rents and incomes. Incomes indicate how much potential home buyers earn to pay for housing, and rents indicate how much it costs for the competing form of putting a roof over your head in SD. This makes sense theoretically, and the relationship between home prices and rents/incomes has been highly mean-reverting over time… ie, the ratio of home prices to rents/incomes is a good measure of valuation.[/quote]
I personally like to compare monthly payment to rent than income. The reason why I don’t like to compare to income is because it seems like every city have a different mortgage to income ratio. So, if there’s a change in a city in one direction or the other with regards to mortgage to income, we won’t be able to notice the change until we’re looking backward. However, if you compare mortgage to rent, you’ll see in almost real time what the people in that city is willing to pay for shelter. So if there’s a change in the amount of $ you’re willing to pay for shelter, the rent will reflect that pretty quickly. So, while mortgage to income might show that things are getting overvalued, mortgage to rent might say it’s still fair valued because the people in a particular city has changed and are will to pay more for shelter. Same can be said on the other spectrum about undervalue as well.
March 26, 2014 @ 1:40 PM
AN wrote: I personally like
[quote=AN] I personally like to compare monthly payment to rent than income. The reason why I don’t like to compare to income is because it seems like every city have a different mortgage to income ratio. So, if there’s a change in a city in one direction or the other with regards to mortgage to income, we won’t be able to notice the change until we’re looking backward. However, if you compare mortgage to rent, you’ll see in almost real time what the people in that city is willing to pay for shelter. So if there’s a change in the amount of $ you’re willing to pay for shelter, the rent will reflect that pretty quickly. So, while mortgage to income might show that things are getting overvalued, mortgage to rent might say it’s still fair valued because the people in a particular city has changed and are will to pay more for shelter. Same can be said on the other spectrum about undervalue as well.[/quote]
That’s a pretty good way of looking at things in my opinion — what you pay to rent vs. what you would pay to buy (and what is the norm in a certain city).
For sure, in some cities, people have more tolerance to paying more of their incomes for housing. I think the tolerance is getting higher in San Diego because of tech.
A 2/2 condo/townhouse is a pretty good gauge IMO. I would say that rent is more like $1,800 in Mira Mesa and $2,100 in UTC/La Jolla. Of course, it varies based on the condition and fit/finish of the unit. Those rents support higher house values.
March 26, 2014 @ 11:36 AM
Rich Toscano wrote:Jazzman
[quote=Rich Toscano][quote=Jazzman]”Valuation is the comparison between the price and factors that determine what a home’s long-run sustainable price should be. This is the number that matters when trying to figure out if homes are expensive or cheap.”
Not sure I quite understand this statement. What are those factors?[/quote]
Sorry, I talk about this a lot, so I kind of glossed over it in my post. The fundamentals I like to use are rents and incomes. Incomes indicate how much potential home buyers earn to pay for housing, and rents indicate how much it costs for the competing form of putting a roof over your head in SD. This makes sense theoretically, and the relationship between home prices and rents/incomes has been highly mean-reverting over time… ie, the ratio of home prices to rents/incomes is a good measure of valuation.[/quote]
Real (median) incomes have been declining since 2007 in California. If house prices have been increasing, doesn’t that make houses less affordable?
March 26, 2014 @ 12:16 PM
You are comparing real
You are comparing real incomes to nominal home prices…
March 26, 2014 @ 12:20 PM
Also, I don’t really
Also, I don’t really understand the argument… home prices are MUCH lower than in 07, hence more affordable.
If you are arguing that recent home price increases have outstripped income growth over the past couple years (and thus become less affordable over those couple years)… nobody is arguing otherwise!
March 26, 2014 @ 1:31 PM
Why OER was a really really
Why OER was a really really bad Idea,
It cut home prices loose and now we see over short periods of time large fluctuations and over long periods of time the loss of affordability among the lower rungs of the income ladder that rely on cost of living tied to CPI.
Well IMO anyway.
March 27, 2014 @ 2:29 PM
Rich Toscano wrote:You are
[quote=Rich Toscano]You are comparing real incomes to nominal home prices…[/quote]
Apologies! I should have said real prices. Real home prices increased as well. I don’t disagree with your findings. I just feel differently about it.
[img_assist|nid=17972|title=Real Prices|desc=|link=node|align=left|width=595|height=576]
March 27, 2014 @ 2:59 PM
One thing a lot of the bubble
One thing a lot of the bubble claimers also need to be aware of is as bad as the incomes and all that is, please note that the wealthy or decent income people who are buying homes in a lot of the desirable areas we discuss here (not the 60k home in the midwest)…are probably doing pretty darn well. Stocks are at all time highs and if anyone just stayed invested, they have near tripled their money already.
Those people’s income, I’m assuming if they had any stock assets, retirement, decent paying jobs, etc…are making very high and good incomes. Companies are getting bought out for more and more crazy stock prices which they will sell and raise cash, etc…
Please also note, NOT EVERYONE IS SUPPOSED to buy a home. Yes, I am screaming this out there. If you look at a lot of the statistics, the people who are doing poorly are mostly recent grads and NON-college educated people < age 25. As I've stated before, I don't think single men (or many young women) look to settle in an area and buy a home so they making low incomes, etc...doesn't has as much of an effect as expected (or hoped). People who are in their 35+ or older have already established jobs and are probably doing pretty well...At least from what I see. The main problem, again, is lack of supply, high high rents where renting cost is the same as buying costs when taxes are factored in which puts the bubble talk out of reach currently. Until rates go high enough where buying is more expensive or rents come down or something else, there is just no tracking. Case Shiller just came out and SD was up near 20% YoY. I think San Fran and San Jose were slightly higher in spots 1 and 2... As the chart in one of the messages above shows, if you're just looking to buy a place for your family with kids in a decent school district and you don't want to rent (normal negative aspects of renting), buying could end up being cheaper for you...and yes, I do agree it's not cheap, but I think as a few have posted, people are willing to allocate more assets to housing costs... Personally, again, if I was single/no kids, I'd lived in the cheapest shack I could find.
March 27, 2014 @ 7:16 PM
joec wrote:One thing a lot of
[quote=joec]One thing a lot of the bubble claimers also need to be aware of is as bad as the incomes and all that is, please note that the wealthy or decent income people who are buying homes in a lot of the desirable areas we discuss here (not the 60k home in the midwest)…are probably doing pretty darn well. Stocks are at all time highs and if anyone just stayed invested, they have near tripled their money already.
I’m certainly not a “bubble claimer”, and even non-bubble claimers concede homes are over-valued. The problem is that it should come so soon after a major bubble, and in an economy still struggling to recover. You need to ask yourself whether that is a healthy sign.
Many might claim that growing income disparities have priced out many who would ordinarily have been able to afford a home.
Stocks, like real estate, have benefited from monetary easing. Earnings tell a different story. You might want to ask whether that is a healthy investment environment.
Those people’s income, I’m assuming if they had any stock assets, retirement, decent paying jobs, etc…are making very high and good incomes. Companies are getting bought out for more and more crazy stock prices which they will sell and raise cash, etc…
Please also note, NOT EVERYONE IS SUPPOSED to buy a home. Yes, I am screaming this out there. If you look at a lot of the statistics, the people who are doing poorly are mostly recent grads and NON-college educated people < age 25. As I've stated before, I don't think single men (or many young women) look to settle in an area and buy a home so they making low incomes, etc...doesn't has as much of an effect as expected (or hoped). Home ownership is encouraged by the government. Two thirds of the economy is consumer driven. Increasing home ownership, and increasing home values increases consumption. Home ownership is a good thing, but as you say, encouraging those who may be best suited to renting, may not be.
People who are in their 35+ or older have already established jobs and are probably doing pretty well…At least from what I see.
The main problem, again, is lack of supply, high high rents where renting cost is the same as buying costs when taxes are factored in which puts the bubble talk out of reach currently. Until rates go high enough where buying is more expensive or rents come down or something else, there is just no tracking. Case Shiller just came out and SD was up near 20% YoY. I think San Fran and San Jose were slightly higher in spots 1 and 2…
Low rates have driven demand, and low supply has driven up prices. Again, you need to ask whether that makes for a healthy, sustainable housing market.
As the chart in one of the messages above shows, if you’re just looking to buy a place for your family with kids in a decent school district and you don’t want to rent (normal negative aspects of renting), buying could end up being cheaper for you…and yes, I do agree it’s not cheap, but I think as a few have posted, people are willing to allocate more assets to housing costs…
I think there is a danger in this. Maxing out on a loan is a high risk venture and clearly exacerbated the housing bubble. Buyers need to keep well within their means, and not be tempted by teaser rates. It is better to lower your expectations though some, perhaps understandably, find that bitter pill to swallow.
My philosophy is that it’s better to try and understand causes than to accept things blindly. Even if you can’t do anything about it, you have the satisfaction of hopefully making better informed decisions.
Personally, again, if I was single/no kids, I’d lived in the cheapest shack I could find.[/quote]
March 20, 2014 @ 9:28 PM
I think another dynamic is
I think another dynamic is that a great many homeowners have “locked in” loans at all time low rates over the last few years.
We bought in 2011 in Temecula at an attractive price and have “settled in” for the long term.
If you monthly payments are low/affordable and you like your home/area then why move?
If rates move up then this will cause even fewer people to move unless they are relocating outside the area….
March 21, 2014 @ 6:45 AM
Saw some retired looking
Saw some retired looking people eating at Chipotle last night. Kinda looked like me and wife. I asked if we could move out, convert to rental, live in a van, retire and eat at Chipotle every night.
She didntcsnswr. I assume that’s a no.
March 21, 2014 @ 6:48 AM
booter1 wrote:I think another
[quote=booter1]I think another dynamic is that a great many homeowners have “locked in” loans at all time low rates over the last few years.
We bought in 2011 in Temecula at an attractive price and have “settled in” for the long term.
If you monthly payments are low/affordable and you like your home/area then why move?
If rates move up then this will cause even fewer people to move unless they are relocating outside the area….[/quote]
Even if I were to retire abroad to live cheap not sure I’d do better.
2600 total. Maybe 2000 afterctaxes. 700 equity 1300 month Lost to interest. Can’t even get a decent spot in Thailand for 1300. Maybe costa rica. But then I’d be away from chipotle.
March 21, 2014 @ 6:51 AM
booter1 wrote:I think another
[quote=booter1]I think another dynamic is that a great many homeowners have “locked in” loans at all time low rates over the last few years.
We bought in 2011 in Temecula at an attractive price and have “settled in” for the long term.
If you monthly payments are low/affordable and you like your home/area then why move?
If rates move up then this will cause even fewer people to move unless they are relocating outside the area….[/quote]
I tend to believe a lot of people will stay put but what does that mean for the typical move up areas. I.e MM to RP. It’s going to be difficult to maintain pricing in those areas, because your traditional move up buyer won’t find it nearly as attractive to lose that great rate they had.
March 21, 2014 @ 7:34 AM
The Upgrade/Remodel/repair
The Upgrade/Remodel/repair biz should do OK I think.
Yep I think we got a whole generation with nomoveitis.
Well at least in Socal, seems the same in NorCal as well IMO.
Although I Do know I a few Boomers who are planning to cash out (sell) in a more expensive area to pay cash in lower cost area (but most still plan to stay/retire in SoCal).
March 21, 2014 @ 9:03 AM
Do people really feel that
Do people really feel that the low mortgage rates (and hence presumably low mortgage payments) is what is going to keep people from selling?
Because if that’s the case, where is the inventory going to come from, even if rates move slightly higher?
If what is going to glue people from selling is the low mortgage interest/payments…Seems to me you got a lot of owners that are now going to hold on indefinitely, unless prices go even much higher much higher or unless there is a much better use of money in other investments that is safer but with a higher rate of return….
Persumably all the “new buyers” are (1) pretty strong buyers that have much more financial staying power and (2) got in at a low rate and possibly at a decent price
March 21, 2014 @ 10:19 AM
flu wrote:Do people really
[quote=flu]Do people really feel that the low mortgage rates (and hence presumably low mortgage payments) is what is going to keep people from selling?
Because if that’s the case, where is the inventory going to come from, even if rates move slightly higher?
If what is going to glue people from selling is the low mortgage interest/payments…Seems to me you got a lot of owners that are now going to hold on indefinitely, unless prices go even much higher much higher or unless there is a much better use of money in other investments that is safer but with a higher rate of return….
Persumably all the “new buyers” are (1) pretty strong buyers that have much more financial staying power and (2) got in at a low rate and possibly at a decent price[/quote]
I think even for move up buyers a lot will choose to rent out the “starter-house” if they got in at a decent price/rate but I could be wrong here.
Seems more popular today than it did when cash flow would be mostly neg for the first ten or so years in most cases.
This would be NoSellItis
March 21, 2014 @ 11:15 AM
The-Shoveler wrote:flu
[quote=The-Shoveler][quote=flu]Do people really feel that the low mortgage rates (and hence presumably low mortgage payments) is what is going to keep people from selling?
Because if that’s the case, where is the inventory going to come from, even if rates move slightly higher?
If what is going to glue people from selling is the low mortgage interest/payments…Seems to me you got a lot of owners that are now going to hold on indefinitely, unless prices go even much higher much higher or unless there is a much better use of money in other investments that is safer but with a higher rate of return….
Persumably all the “new buyers” are (1) pretty strong buyers that have much more financial staying power and (2) got in at a low rate and possibly at a decent price[/quote]
I think even for move up buyers a lot will choose to rent out the “starter-house” if they got in at a decent price/rate but I could be wrong here.
Seems more popular today than it did when cash flow would be mostly neg for the first ten or so years in most cases.
This would be NoSellItis[/quote]
That move would however be limited based on how much one could qualify for a second loan while maintaining the first one though, right?
March 21, 2014 @ 12:49 PM
Put me down for “not selling
Put me down for “not selling and haven’t exceeded peak price” (according to zillow). I’m not sure how long it would take to see $700k for mid 70’s construction 5/3 in MM, if ever, but I probably wouldn’t sell then either if US home prices were also similarly inflated. I’m sure my PITI would be cheaper than rent in that scenario anyway. Also it would be a shame to sell and then be priced out in the future. (Yes I know that is bubble era thinking).
Lots of people in the neighborhood seem to be celebrating the increased home values by relandscaping or remodeling their houses. New Hmart and now Daiso here too…. Might be worth sticking around to see where MM goes.
March 21, 2014 @ 2:02 PM
Looking toward the future,
Looking toward the future, you guys planning burials, cremation or donating to science?
Personally I’m planning to have my flesh stripped and keeping the skeleton in the family.
March 21, 2014 @ 3:24 PM
scaredyclassic wrote:Looking
[quote=scaredyclassic]Looking toward the future, you guys planning burials, cremation or donating to science?
Personally I’m planning to have my flesh stripped and keeping the skeleton in the family.[/quote]
i take it you aren’t going to go for the cryongenic deep sleep preservation option?
March 21, 2014 @ 4:34 PM
Actually I’m signed up with
Actually I’m signed up with medcure. They do free pickup, free dissection free cremation. Cheap even in death.
Though I’d prefer to be a skeleton.
March 21, 2014 @ 4:36 PM
A skeleton is actually a
A skeleton is actually a valuable asset. Worth 10k or so.
March 21, 2014 @ 3:08 PM
Now that is way out
Now that is way out there.
you realize that three or generations down the line you will most likely end up at some med school or amusement park haunted house.
My ashes on the beach.
March 21, 2014 @ 4:47 PM
The-Shoveler wrote:Now that
[quote=The-Shoveler]Now that is way out there.
you realize that three or generations down the line you will most likely end up at some med school or amusement park haunted house.
My ashes on the beach.[/quote]
I would love love love to be a skeleton in a haunted house.
I’d love to be a skull on a lawyers desk.
In the future I’d prefer to be alive right here in my dream home. Napping and dreaming. Cocktails at 5. Weightlifting at 11 am. Reading at 3.
I just purchased 1 million life insurance policy though.
I have this feeling bad things can happen and plans derailed.
March 21, 2014 @ 6:31 PM
Another good reason to keep
Another good reason to keep the dream home in the family, scaredy. You can “visit” after you’ve moved out of this world.
March 22, 2014 @ 7:28 AM
flyer wrote:Another good
[quote=flyer]Another good reason to keep the dream home in the family, scaredy. You can “visit” after you’ve moved out of this world.[/quote]
im gonna wear this shirt, too…
https://store.theonion.com/p-4816-mens-when-i-die-t-shirt.aspx
March 22, 2014 @ 7:30 AM
let me ask you a question. if
let me ask you a question. if i opened a business that turned corpses into skeletons, and it cost say 3500 to get it done, but your skeleton, which would be given to your loved ones was worth 10,000, , would you be interested? you’d be up 6500. plus th eskeleton is likely to appreciate. and you get the free body disposal thrown in….
seriously…i was thinking this would eb a neat business. im thinking here in CA, a business unfriendly state, licensing might be a problem. maybe this would be a good hot desert business…in a business friendly, decay friendly environment.
March 22, 2014 @ 8:04 AM
if you dont have the cash, we
if you dont have the cash, we could just do the head….
I saw a reality animal show where guys do r this process w beetles.
March 22, 2014 @ 5:17 PM
scaredyclassic wrote:let me
[quote=scaredyclassic]let me ask you a question. if i opened a business that turned corpses into skeletons, and it cost say 3500 to get it done, but your skeleton, which would be given to your loved ones was worth 10,000, , would you be interested? you’d be up 6500. plus th eskeleton is likely to appreciate. and you get the free body disposal thrown in….
seriously…i was thinking this would eb a neat business. im thinking here in CA, a business unfriendly state, licensing might be a problem. maybe this would be a good hot desert business…in a business friendly, decay friendly environment.[/quote]
Definitely something to look into! I like your outside of the box thinking, scaredy. 🙂
If it’s possible, it really does make sense.
March 22, 2014 @ 5:29 PM
CA renter
[quote=CA renter][quote=scaredyclassic]let me ask you a question. if i opened a business that turned corpses into skeletons, and it cost say 3500 to get it done, but your skeleton, which would be given to your loved ones was worth 10,000, , would you be interested? you’d be up 6500. plus th eskeleton is likely to appreciate. and you get the free body disposal thrown in….
seriously…i was thinking this would eb a neat business. im thinking here in CA, a business unfriendly state, licensing might be a problem. maybe this would be a good hot desert business…in a business friendly, decay friendly environment.[/quote]
Definitely something to look into! I like your outside of the box thinking, scaredy. 🙂
If it’s possible, it really does make sense.[/quote]
Perhaps I could buy a 1000 acres in Nevada and just let the dead dessicate naturally. Maybe in cages to protect from predators?
It would be a little weird to have dead rotting people all over, but I bet id get used to it.
March 22, 2014 @ 5:33 PM
I have a big stack of owl
I have a big stack of owl pellets wit rat and gopher skulls from a palm tree nest. If only there were a way to do that with people…
I’d like to sell at peak, buy an autonomous island and produce skeletons from corpses. Or maybe I could do this unregulated on a boat ?
Could I trail the corpse in a cage in th ewater and let smaller fish eat?
March 22, 2014 @ 8:54 PM
scaredyclassic wrote:I have a
[quote=scaredyclassic]I have a big stack of owl pellets wit rat and gopher skulls from a palm tree nest. If only there were a way to do that with people…
[/quote]
I have an owl that lives in my palm tree, just as a fyi owls are federally protected.
March 22, 2014 @ 9:18 PM
paramount
[quote=paramount][quote=scaredyclassic]I have a big stack of owl pellets wit rat and gopher skulls from a palm tree nest. If only there were a way to do that with people…
[/quote]
I have an owl that lives in my palm tree, just as a fyi owls are federally protected.[/quote]
I am willing to protect my owl alongside the feds. I love our owls.
March 22, 2014 @ 6:26 PM
How do they treat the
How do they treat the skeletons used in universities, etc.?
March 22, 2014 @ 9:17 PM
CA renter wrote:How do they
[quote=CA renter]How do they treat the skeletons used in universities, etc.?[/quote]
Not sure. I think they’re valuable cause they’re old. Some come from china. Skeletons are difficult to come by.
March 23, 2014 @ 11:52 AM
scaredyclassic wrote:
Perhaps
[quote=scaredyclassic]
Perhaps I could buy a 1000 acres in Nevada and just let the dead dessicate naturally. Maybe in cages to protect from predators?
It would be a little weird to have dead rotting people all over, but I bet id get used to it.[/quote]
If you buy a whole county, you don’t have to pay property taxes and you can be your own local government.
Btw I was watching a show about leather making. They used brain oil for that
March 21, 2014 @ 10:36 PM
I keep a replication skull on
I keep a replication skull on my desk.
It serves to remind me of the fleeting nature of life.
March 22, 2014 @ 7:26 AM
memento mori.
memento mori.
March 23, 2014 @ 3:28 PM
To me, we are seeing some
To me, we are seeing some value elevation, but it is simply because of the scarce inventory artificially driving up the pricing? If you are looking at selling of the primary, for sure you will have to be looking at renting for a while.
Looking back, it would have been an easy decision to sell back in 2006. It may not have been obvious to the general public, but there were so many indicators pointing to an impending crash. What about now? I just don’t see any signs of an impending crash at this time.
As for myself, we are so comfortable right now that we would not consider it unless we can truly clear $500k of tax free profit.
March 23, 2014 @ 4:02 PM
I realize everything is
I realize everything is relative, but there was a time in San Diego, and in other locations, where you could buy your dream home and enjoy life, as scaredy mentioned, without incurring extreme debt, as CAR mentioned. That happened to be our experience, and the experience of many we know.
Some of us sold some of our investment properties during the peak, but none of us ever plan to sell our primary.
IMO, as long as homebuyers today go deep into debt knowing they have the resources to survive, regardless of how things go in the economy, I’d say “go for it.” If not, and they decide to “go for it” anyway, it would be my hope that we don’t have to hear them complain if things don’t work out as planned.
In about 20 years, plus or minus, I fully expect the new “complaint” to be, “I just don’t understand why I can’t afford to retire.”
March 23, 2014 @ 6:25 PM
I sold in 05 when my rental
I sold in 05 when my rental (home for 3 years which I was able to keep when i bought another one) more than doubled in nominal purchase price (sold it on craigslist -the ultimate bubble test!!). It was a humble 800 SF home in Linda Vista built originally for WWII workers by the feds when they took the land from the City (read about the Linda Vista Housing Project one of many constructed under the 1940 Lanham Act : 3,000 dwelling units for more than 13,000 people with a 300-day construction deadline).
In 06 I sold my primary and happily rented in OB for years until i saw a chance (my one and only) to buy in OB which i did (2011). I then put the newly bought house in Craigslist rentals for what i thought was an obscene price and boom, rented it and happily stayed in my rental paying much less than my tenants were paying me (both houses in OB: about 900SF, 7k SF lot). Then, in early 2013, bought a second one (large mid-century townhome, corner unit, ocean view … back to Linda Vista). Today I still have the same original tenants in OB (got lucky w fab tenants) and moved to the LV townhome. So….. I am back where I started with two much better properties and some pesos in the bank 😉
I don’t think i would sell either one in the near future. With that said, i am with Rich: if things got nutty again, i take the cash and run with no hesitation.
March 25, 2014 @ 12:47 PM
elzocalo2 wrote:I sold in 05
[quote=elzocalo2]I sold in 05 when my rental (home for 3 years which I was able to keep when i bought another one) more than doubled in nominal purchase price (sold it on craigslist -the ultimate bubble test!!). It was a humble 800 SF home in Linda Vista built originally for WWII workers by the feds when they took the land from the City (read about the Linda Vista Housing Project one of many constructed under the 1940 Lanham Act : 3,000 dwelling units for more than 13,000 people with a 300-day construction deadline).
In 06 I sold my primary and happily rented in OB for years until i saw a chance (my one and only) to buy in OB which i did (2011). I then put the newly bought house in Craigslist rentals for what i thought was an obscene price and boom, rented it and happily stayed in my rental paying much less than my tenants were paying me (both houses in OB: about 900SF, 7k SF lot). Then, in early 2013, bought a second one (large mid-century townhome, corner unit, ocean view … back to Linda Vista). Today I still have the same original tenants in OB (got lucky w fab tenants) and moved to the LV townhome. So….. I am back where I started with two much better properties and some pesos in the bank 😉
I don’t think i would sell either one in the near future. With that said, i am with Rich: if things got nutty again, i take the cash and run with no hesitation.[/quote]
I’m considering the same… keep renting where I live, but buy & lease it out to tenants. But cash flow in that case is so little..
March 25, 2014 @ 10:40 PM
Initially there was no cash
Initially there was no cash flow but it reduced my tax liabilities. I refied early last year with the master, pedelmuth@pacificinvestmentproperties.com (Peter is here occasionally) and cash has been flowing since (modest but there are many other considerations from my perspective)….
March 25, 2014 @ 10:40 PM
oops
oops
March 24, 2014 @ 2:10 PM
The only way I would sell my
The only way I would sell my primary (if I was not needing to move for some other reason of course)
Is if I saw a return to No down No Doc loans and the other crazy loan products of 2005-6 era.
Without some major economic downturn (not caused by housing) I don’t see a crash coming of a size that that would warrant selling.
10%-20% would not be worth it to me anyway.
Yes it was the crazy loans that enabled the crazy prices, but it was mostly the crazy loans that caused the crash, not the prices IMO.
IMO in SD it makes it real difficult to determine fair value, You basically live in a resort most of the world would love to live in.
Well most of coastal SD anyway.
March 25, 2014 @ 2:49 PM
I would sell everything
I would sell everything without hesitation if there’s another bubble then wait for a market crash and buy back.
I don’t think we are at that point yet. Right now, prices are driven by low inventory and well paid folks in the big metros have no choice but to pay high prices.
If I see an increase in construction and investors buying for appreciation only, then that would be an indication to think about selling. It’s a planning process. I don’t mind renting brand new construction, or nicely remodeled housing, but I hate that typical renters’ grade rental. Yuck as far as livability.
March 25, 2014 @ 3:39 PM
Very difficult that, it only
Very difficult that, it only crashed because they wanted it to.
IMO anyway.
When city workers no longer worry about their pensions I would start to worry.
March 25, 2014 @ 6:51 PM
The-Shoveler wrote:Very
[quote=The-Shoveler]Very difficult that, it only crashed because they wanted it to.
IMO anyway.
[/quote]
Who is they?
I might not be smart enough to predict the next crash but I could buy at the next bottom. The first indications of an adjustment is when it’s much cheaper to rent than to buy at prevailing interest rates.
Real estate is all about cycles. There will be more cycles, you can bet on that.
Right now, tech companies are in growth mode. They are willing to pay high salaries to attract talent. Something could cause tech to crash and capital and jobs to dry up. Sag stagnation a slight layoffs could cause tumbling in prices. Massive layoffs, then all bets are off. Like defense layoffs in california before, or IBM layoffs back in that 90s.
Don’t know when that will happens, but when it does, we will know.
March 26, 2014 @ 5:27 AM
FlyerInHi wrote:The-Shoveler
[quote=FlyerInHi][quote=The-Shoveler]Very difficult that, it only crashed because they wanted it to.
IMO anyway.
[/quote]
Who is they?
[/quote]
The same people who brought you Owners Equivalent Rent and separated assets from income.
who needs assets …
March 26, 2014 @ 5:34 AM
“Don’t know when that will
“Don’t know when that will happens, but when it does, we will know.”
Sure OK.