San Diego Housing Bubble News and Analysis

Just under a year ago, I started seriously looking into purchasing a few small investment properties. I was working with a couple of friends and we were pooling our cash so that we could make some all cash offers. We setup an LLC and all the contracts that are prudent in this kind of arrangement.

But we haven't purchased anything. There were a couple of opportunities that seemed like OK deals, but we are reluctant to move in this environment. Something doesn't add up. We understand that, even in the strongest of buyers markets, deals aren't just going to fall on our lap -- but these bidding wars make no sense. I think it is possible to find opportunities, but we keep running the numbers and the risk/reward analysis just isn't where we want it to be.

It's frustrating when you have time/energy/capital to work with and ultimately decide to do nothing. But sometimes this is the optimal course of action. So we are waiting. I think a year from now things will be different.

This is my perspective as an investor. If you are looking to buy a residence, however, there are different factors to consider.

Pri_dk: I think you're absolutely right. I've been saying for a bit now that it seems like there are two different realities in place.

I read the news and hear all of these positive prognostications from the MSM and the pundits, but it doesn't square at all with what I'm hearing from former colleagues in banking, finance and insurance. In fact, it's the complete opposite.

I personally think all of the gubment meddling has served to do nothing than prevent the other shoe from dropping, at least for a little while. Maybe that's what Obama and Company mean by "stabilizing" things.

I think this is a classic bear trap and we're just about ready to hit the second leg down.

Cog, I think seasonally it is a horrible month to be buying, anywhere, throw in the interest rates and I guess we are where we are. The Fall/Winter is much better and may represent your best chance as far as competition goes. Inventory is lower than I've ever seen it right now. If you run a redfin of zip code 92592 and click the box to exclude the pendings and the shorts, there are four houses in redhawk for sale and 2 in morgan. On closer inspection, some were shorts but not designated on the listing except for in the narrative. under 40 south of temecula parkway total and 40 homes sold between may 1st and may 8th, so a one week supply is not a good time to sneak in and steal one.

It is actually a hotter market than it seems because of the way they list shorts, they keep them active in the mls with the low price to get bids and they just sit there active until escrow closes, sometimes many months later. When you call to inquire, there are more than a dozen offers well over that price, so it misleads you a little about what's out there, you see for sale signs but you can't buy them.

But here's the rub, it should change a little later this year, in past markets, both buyers and sellers did a lot of business this time a year, especially for family sized homes. They all wanted to move in summer. But the children of the banks aren't moving schools, so they aren't tied to the spring like the buyers are. This October/November, there will be fewer buyers just because nobody wants to move in December, there also should be a push in inventory because of the foreclosure mratoriums expiration. The interest rate may tick up a tad, sending more to the sidelines temporarily, that's the time to make offers.

It's no secret that I'm optimistic about the area and this year, but what is happening now shouldn't be trusted too much, prices should remain flat but I met my new neighbor yesterday who closed escrow last week, he paid 10% more than I did and for a smaller house (albeit his is in far better condition, almost turnkey, so it's probably a tie), even I know that appreciation shouldn't be happening, it's the spring bounce, probably best to wait it out, not just this year, but every year, avoid spring. But he did pay about 50% off peak and was the winning bid, some of these bidding wars are only over a couple grand and start pretty low, so it's not like there is a price increase frenzy.

I have another theory about spring that I've mentioned over the years. Most buyers are couples, couples often contain at least one female, the female of most mammals have a spring mating/nesting instinct. See where I'm going with this, we are still animals with some animal instincts, spring is a time to be outside, for change, for finding a new nest, to explore, while winter is a time to hunker down in the cave and stay put.

It helps to try and understand the behavior of others and to understand your own behavior, that way you can go against the grain a little. I'd give it till September at the least to see if it slows down. It will be a few years before prices go up, and even when they do it should be slow, so you have time to wait out the little upticks.

Maybe Temecula can adopt the Nebraska approach at dealing with that empty school:

http://www.unitedcountry.com/CommercialP...

Or

http://www.unitedcountry.com/CommercialP...

I ran across these a few months ago, a rich eccentric type could have a ball with these.

Thanks for the suggestion Rt.66 but it's already planned for several district uses.

Anyway - anyone ever hear more about homes in Temecula being demolished? I initially wanted to chalk the comments in the video up to fear mongering and I think I was right. It's funny how the Rt. 66's and CR folks latched onto the Temecula part ;-)

And no, the Murrieta townhomes don't count.

The Bulldozer operator had jobs in just two places, Victorville and Temecula.

Its not as if we weeded through a bunch of stats to "latch onto" a negative aspect about Temecula.

Fear mongering would be suggesting homes might be demolished, homes actually being demolishing is a different thing.

You gotta admit those schools for sale are interesting don't cha? Did'nt you for a minute dream about what you could do with a 53000 sq' school of your own priced at $4.34 a sq.

Or is your imagination stunted and absorbed with defending foreclosure central?

TG: Couple of things. First off, if the Lakers lose today, I'm driving to your house and holding you personally responsible. I'm not entirely sure what that means, but I have to blame somebody and I don't know where Phil Jackson lives.

Secondly, I do think there is a sizable inventory of shadow inventory in both Temecula and Murrieta and I think the banks haven't released it yet. I don't think there is an ulterior motive here, I think it's more a function of staffing and logistics, but it's been propping prices up by restraining supply.

I spoke with a friend of mine who works at Wells Fargo and he confirmed that the banks are in complete disarray right now regarding REOs. He says there are lawsuits flying every which way right now regarding who was responsible for what and, in some instances, there are no clear answers as to who, exactly, owns the various properties in question. This probably goes to the heart of why some folks have been living in homes for the past year or two that they haven't been paying on and no one has contacted them regarding foreclosure.

Scarlet: I'm gonna buy you a nice bottle of Merlot and some Xanax. Pull your fangs in, hon.

I think you're bang on the money as regards shadow inventory, but not for the reasons you think. I do believe that the banks understand that releasing massive amounts of inventory would further depress prices and by a significant degree, but, in many cases, the banks aren't controlling the majority of the inventory. Huge percentages of those mortgage backed securities (MBS) are in the hands of various investors and all over the world and lawsuits are now working their way through the courts right now as the parties try to determine responsibility and ownership.

A friend of mine at Wells Fargo told me about a huge lawsuit involving Deutschebank and their attempts to foreclose on properties in the South and Midwest. As it turns out, Deutschebank didn't have the right to pursue foreclosure and the courts are trying to separate the pepper from the flyshit. This kind of thing will drag on for at least a few years. That, combined with gubment meddling, will continue to muddy the waters and futz with prices.

Following the area, T Valley, for the past year & this site too - excellent insider info ... looking to purchase a family residence in the Fall of 2010 for the long term as a place to put down roots and get the kids thru school. My research has been from a far up to this point but I have a 6 week trip in July/Aug to the area for first hand "eyes-on" review. Cannot believe the amount of info gathered from this site - feel like I owe a few people a "round" or a bottle of wine from what I have learned here!

JR

As I said, any info on how accurate the bulldozer's statements were?

Yes, my imagination is stunted and absorbed with defending foreclosure central!

Have a good one!

I think the bulldozer statement is accurate. I am familiar w/the Victorville area and spoke w/a realtor up there who I know and she filled me in w/what's going on up there in Victorville..

The bulldozer operator divulged having other places in Temecula scheduled to be demolished. But I'm not sure if it's Temecula proper. Sure would like to know where. I guess we'll be seeing a video of that when it happens.

pri_dk, when I was looking for houses last year, I had same puzzle: something doesn't add up. There are tons of investors flocking into the valley (I have a friend who is looking for house in Temecula, and she said that her realtor told her that she is now the only client buying for primary residence). I bought not because I think it was the price bottom but more for family reasons. It just doesn't make sense to sign a rental contract when the monthly payment for buying is cheaper. But I'm always puzzled why the investors were my competitor. They have management fees to worry about, they have vacancy rate to worry about...after all, for primary residence you get the best tenant in the world, but investors do not have such luxury.

So far however, the investors seem to be correct as the price is stabilizing. Yet I do believe the bank shadow inventory theory, but at the same time, things do not add up there. If banks are really limited by the staffs or government regulation issues, so they couldn't release the inventory. If things are really that bad...shouldn't there be more inventory coming that are in pre-foreclosure stage? And what are the owners doing, not trying to sell their houses in the best seller environment in the last few years? I think Adam (SDR) shed us some light on this (in that many short sellers are still trying to get their loan re-modified back and forth)...but I think it is fair to say that the sellers are not that desperate yet, so maybe they do have a fair good chance getting a loan mod with their lenders. And there wouldn't be tsunami of foreclosure activities coming our way.

I still believe that inflation-adjusted, this won't be the price bottom...but at the same time, I also start to believe that the worst is really behind us. We will never see the same rate of price decline (30-40% yoy) that we saw in 2008.

No, but the reporter who put the newspaper article on the front page did just that.

Perhaps the media wasn't targeting any specific cities, but they were looking for drama. That's what they sell, and it is clear that some folks are buying it.

There will likely be more homes demolished in Temecula. In wine country there are several incomplete "estate" developments that have failed. Most of these are out of the way and I only know about them because I occasionally ride my bike through the dirt roads in wine country. When the city gets around to condemning them, the story will make the papers.

When this happens, some will point to this news as evidence that Temecula is on the same trajectory as the Salton Sea was in the 1960s. Ho hum.

Agreed. Congrats on your house purchase. If was looking for a home I wouldn't hesitate to buy right now either. If you plan to live there for the long term, it makes sense.

As an investor, I don't see any solid cash-flow positive deals out there, so any returns must rely on price appreciation. I agree that the worst declines are over but, without immediate cash-flow, there is seems to be no advantage to buy now vs. a year from now. (Low interest rates could be a justification to invest now, but we are targeting all cash, and even if we financed some portion I don't think low rates are compelling enough.)