[quote=deadzone]. . . Look, high end SD coastal properties were dirt cheap in 1994-1996 timeframe. What is the difference between then and now? (lower interest rates is the obvious). But still, even at 0% interest very few people can legitimately afford the payment on 1M house.
All the arguments that “everybody wants to live here” and “people will always pay a premium to have an ocean view” held just as true in 1995. Why then was there almost no sales activity happening in 1995 and today there are countless offers at prices much higher than 1995 (adjusted for inflation)?[/quote]
deadzone, I agree that many coastal properties were “dirt cheap” in 1994 – 1996. I will speak of Pt. Loma here because that was the market I was familiar with during that time. Jogging my memory, view properties averaged about $300-350K (Fleetridge and parts of La Playa) and non-view properties averaged about $275K (Roseville and Plumosa Park).
There are major differences in the inventory and conditions that were available and prevalent during 1994-1996 and inventory available and conditions prevalent today.
Mortgage interest rates were about 6.75 – 7% in 1994-1996, but I don’t think this had anything to do with whether coastal properties, namely Pt. Loma here, were selling or not . . . or at what price.
In 1994-1996, there were MANY cosmetic and heavy fixers available in 92106 and 92107, orig. built 1933 to 1958. The average buyer (who was purchasing there with a typical 70-80% mtg) did not have the $$, skills or equipment to tackle these properties, after depositing a down-payment to close a transaction. So most of these properties sold to either contractors or buyers that DID have the cash for a complete renovation. A few (slopeside “pier and post”) view properties on the market then needed extensive foundation work. The buyer-element that purchased these properties at that time had not only a down payment, but $250K or more left after closing (for renovations). Many of these buyers could not and did not live in their property for up to a year after closing while it was being renovated.
Even though SD Co. experienced more domestic out-migration than in-migration at that time, Pt. Loma buyers were still bullish on that micro-market during the mid-nineties, for these reasons.
The City of SD, after having recently acquired the Naval Training Center (bottom of Loma Portal), announced that they would take bids to rehab the old (and tired-looking) NTC into a multi-use property, benefitting the public.
The Navy began to undergo complete remodeling of their acres of tired WWII-era enlisted housing at the base of Pt. Loma, adjacent to MCRD.
When talks with MX collapsed on building a “twinport” at the US/MX border to share a runway with MX jets (to replace Lindbergh Field), the SD Port District announced that the City of SD would contract out double-pane window installation and move block-by-block in all the affected streets of 92106 with the “Quiet Home Program,” which would be free to homeowners, to alleviate jet take-off noise from Lindbergh Field.
Shortly after that, SDGE (now Sempra Energy) announced that they would begin undergrounding electrical lines in SD County, beginning with the Mission Hills area, then moving to Loma Portal and Pt. Loma.
Many buyers who rehabbed Pt. Loma properties during this time thought (and rightly so) that, eventually, with all the negatives removed (jet noise, ugly power-line easements, miles of tired-looking military structures), their properties and neighborhoods would eventually be worth a fortune, due to being a finite quantity.
As it stands now, SDGE is only now just entering Pt. Loma, the jets are still there and the “Quiet Home” program is all but concluded. However, THOSE WHO INVESTED, perhaps $500 – $550 ($300 purchase price $200K to $250K rehab $$) at that time were REWARDED HANDSOMELY if they chose to sell in recent years as those same (2200-2500 sf) properties were fetching $1.4M to $1.8M WITH LITTLE OR NO CHANGE TO THE ORIGINAL FOOTPRINT of the home! I haven’t studied this market lately but doubt it has fallen in price significantly, if at all. From what I HAVE seen, the properties sitting for awhile on the market have no view and are cosmetic fixers where the owners are asking too much given their current condition. They’re NOT sitting due to the economy or unemployment statistics.
Most all of the *true* fixers with great bones and unobstructed views have now been rehabbed. This micro-market has already been plundered by speculators, flippers, handymen, and “smart, brave” individuals and families who had the foresight to see the area for what it was and the resources to renovate. Hence, the only people that can purchase them now are the ONES THAT CAN – the well off, from every corner of the US and globe.
It didn’t used to be this way, deadzone.
[quote=deadzone]Also, super low interest rates only go so far. For a 1M loan, even with 5% interest the monthly payments are still near 7K per month. Let’s be realistic, there aren’t many people who can afford that payment.[/quote]
deadzone, most people who buy property in the $1M+ range put 50% or more down. These are “move-up” buyers who have cash from the sale of another property or buyers who intend to purchase with all cash. In at least 50% of buyer-households in this category, there is no “employed” person in the true sense of the word. They are business owners themselves or bringing the $$ in from a passive source. The vast majority of these buyers have no need to qualify for a jumbo mortgage or even any mortgage at all!
[quote=deadzone]Moreover, the situation is not nearly as good as your example. For one, good luck getting 4.5% on a jumbo loand. Second, you have to factor in property taxes (huge), PMI and possibly Mello Roos or HOA. Finally, the biggest risk is that real estate prices tank some more and you just traded in your safe but low interest investment income into a depreciating asset.[/quote]
Agreed, deadzone, if the “low-interest” CD holder or bondholder invested in far-flung tracts with decades of MR to pay. I don’t see PMI being too much of a factor on jumbo products, except maybe on the no-down scary mtg. products available during the RE bubble of a few years ago. But I don’t agree here for older highly desirable resale markets, where there are no builder incentives propping fake asking prices up when so comps exist and where the buyer has to come up with a 20% or more downpayment.
[quote=deadzone]In “premium” areas of SD rent is still way less than Mortgage/HOA/Tax even with 4.5% rates. [/quote]
Yes, true, that is the way its always been, deadzone, and that is the way it will continue to be. “Premium” areas of SD do not necessarily “cash-flow” unless they are well-managed multi-unit properties which have been well-maintained. Even then, I don’t see the cash flow as “great” due to vacancies.
[quote=deadzone]I definitely agree that $200/sqft is getting near bottom for premium area, but we are nowhere near that today. Maybe we have different definition of premium (mine is coastal SD). Anything approaching $200/sq foot is a dump.[/quote](emphasis added)
What were you expecting for $200 sf, deadzone? That is less than the cost to rebuild. Why don’t you avail yourself of one of these “dumps” in a premium coastal area? Heck, get your inspector out there. You might even be able to make a $185 sf deal! With your “sweat equity,” this will turn out to be a good investment in the coming years, all choices considered :=)
Are you expecting to get “Kansas City” deals in SD County?
[quote-sdr]In the Mid 90’s Encinitas and South Carlsbad barely existed in the eyes of upper middle class folks in SD County. Back then Encinitas was basically Mayberry RFD. There were working class neighborhoods and high end ranch properties in Olivenhain with no much in between.-D[/quote]
Yes, sdr, I actually observed slightly run-down trailer parks less than a block from the beach in Encinitas, Leucadia and Cardiff as late as 30 years ago. I’m sure they must have been run off by now, but these were truly little “spots in the road.” There was NOTHING east of I-5 that I can remember, except . . . swamp and lizards. Even though there are many more companies in NCC now, I STILL classify these places as a commuting nightmare for families. NCC was something you passed thru on your way to points up north . . . I DO remember stopping for split pea soup sometimes – lol.
I’m not as bullish as you are on tracts located east of the 5 as I don’t subscribe that there is a limitless supply of working families that will pay $1M+ for these properties. And I don’t see them as particularly unusual or desireable to out-of-county wealthy buyers, given all that SD County has to offer.
NCC custom properties west of the 5 are a different story. Not bullish on them, but don’t see that strip losing value, either.
