About as crazy as ever

[SD Transplant]

Insane indeed in the PUSD. On my street, there were 2 houses for sale (1 in around 3,100 sqf & the other in the 1,600 sqf). They both went pending 1 day after having open houses. The asking prices (I thought) were insane. That doesn’t mean anything to young buyers who are fed up w/ the current market. I would not want to be a buyer in today’s RE market. Happy to have purchased a bit over 2 years ago.

NOTE: I’m in the refi process right now, and I should close this week. I’m telling you that I was shocked that my appraisal was about 45K higher than aticipated. Having the houses on my street for sale this month may soon set a new reality for priceses in this area…….crazy times are back again & low rates make it possible.

[livinincali]

[quote=SD Realtor]
So absent of that event or “until that event happens” the San Diego housing market will move forward, driven by an excessive demand that has far outstripped supply. Prices have chunked forward and an equilibrium will be reached as the buyers pool will simply be reduced by many being priced out. Then we will level out and the inventory will catch up. We may see a modest dip but that is just the settling to the new equilibium and then a more subdued appreciation.

Now when the explosion happens…. wowsers it will be ugly. Unless the govt pulls their heads out of their ass and figures out we need to reduce spending and increase taxes and stop monetizing our debt.[/quote]

I tend to agree. We’ll see the number of sales start to drop before you see any dips in prices. Probably better to look at the lower end markets for signs that sales are slowing down. That will mean the investors and FHA buyers just can’t make it work financially anymore.

The fear of inflation and search for yield are significant driving factors in today’s market. There’s plenty of people hiding out in real estate as a safe haven that would probably rather be invested in something else. I honestly think investor speculators looking for yield are probably much weaker hands than traditional owner occupiers. It will be the perfect storm when rates rise. Not only will mortgage rates go up but at the same time those that were looking for yield are going to try to exit.

[bearishgurl]

[quote=livinincali] . . . The fear of inflation and search for yield are significant driving factors in today’s market. There’s plenty of people hiding out in real estate as a safe haven that would probably rather be invested in something else. I honestly think investor speculators looking for yield are probably much weaker hands than traditional owner occupiers. It will be the perfect storm when rates rise. Not only will mortgage rates go up but at the same time those that were looking for yield are going to try to exit.[/quote]

livinincali, I disagree that free-and-clear RE owners are “weaker hands.”

It doesn’t matter that these “investors” were/are seeking yield. If it is not a good time to sell, they don’t have to. If rates go up, they can continue to rent their propertie(s) out in lieu of investing in something more passive. I just don’t see CD’s, MM funds and bond yields going so high as to rival rental income from an investment property purchased right and with all cash.

“Traditional owner occupiers” didn’t buy to “make the numbers work.” They bought what they liked where they personally wanted to live (within the confines of their qualifications).

[bearishgurl]

Folks, I’m now seeing multiple posts on this site about recent SFR cash investors, big and small, at risk of implosion. I just don’t see this constellation. EVERYONE needs a place to live and there are a LOT MORE people now who can’t qualify for a purchase money mortgage and have no choice but to rent or stay with relatives and friends.

Certainly, we have all learned by now that free-and-clear owners can do whatever they wish in ALL markets. In the absence of CA coastal counties drifting off the mainland into the ocean, the vast majority of the free-and-clear RE owners within them can just tell everyone to take a hike as I believe they are truly immune from the vagaries in the broader economy.

Cash and equity talks and other stuff walks.

[livinincali]

[quote=bearishgurl]
livinincali, I disagree that free-and-clear RE owners are “weaker hands.”

It doesn’t matter that these “investors” were/are seeking yield. If it is not a good time to sell, they don’t have to. If rates go up, they can continue to rent their propertie(s) out in lieu of investing in in something more passive. I just don’t see CD’s, MM’s and bond yields going so high as to rival rental income from an investment property purchased right and with all cash.

“Traditional owner occupiers” didn’t buy to “make the numbers work.” They bought what they liked where they personally wanted to live (within the confines of their qualifications).[/quote]

I honestly doubt most of the investor speculators are actually free and clear. Hedge funds and sophisticated investors tend to use leverage. They showed up with cash when they made the deal but I’d bet in a lot of cases they used those assets as collateral for more borrowing.

There’s some out there that are truly free and clear but I’d guess that it doesn’t represent most and certainly doesn’t prevent them from cash out refinancing at some point. If they end up with a bad experience dealing with tenants do they stay there when other yield investments start being more competitive. Maybe, I don’t know. I just feel like the emotional attachment isn’t there. People have drained retirement accounts to keep an owner occupied home. An investor probably has some kind of risk tolerance where they are prepared to exit even if it means a principal loss.

Just like there’s a flurry to get in right now there’s potentially a flurry to get out at some point down the road. Don’t be in the position of having to compete with them to sell at that point. I suppose you could hope that the bigger players unload in bulk sales that don’t hit the open market. I.e. hey CalPRES please be the bag holder for this short term leveraged investment we made.

[The-Shoveler]

On-Topic
So you think we will be able to buy SD property with Bitcoins?

If so I am in the wrong biz, I need to start mining bitcoins.

“The Bitcoin-to-USD exchange rate had been climbing steadily since January 2013,
from around 30 USD to over 250 USD only 24 hours ago. Now, the value bubble seems to have burst,
at least partially. The primary trading site MtGox reported a drop
in value all the way down to 140 USD today, a loss of almost half in real value.
With many sites unreachable or slow, there are also news of a possible DDoS
attack on MtGox:”

[all]

[quote=The-Shoveler]On-Topic
So you think we will be able to buy SD property with Bitcoins?

If so I am in the wrong biz, I need to start mining bitcoins.

[/quote]

You are likely late to that game. Planting bitcoin miner via malware is not new, but it has exploded in the past few days. The supply has to be going up quickly. On the other hand the number of coins that can be mined is finite, so your personal production might still be worth something when the limit is hit.

[Anonymous]

Sounds like a tulip craze to me. Just because there is a finite supply of something that does not inherently make it valuable. Just my 2 bit coins worth 🙂

[bearishgurl]

[quote=livinincali] . . . There’s some out there that are truly free and clear but I’d guess that it doesn’t represent most and certainly doesn’t prevent them from cash out refinancing at some point. If they end up with a bad experience dealing with tenants do they stay there when other yield investments start being more competitive. Maybe, I don’t know. I just feel like the emotional attachment isn’t there. People have drained retirement accounts to keep an owner occupied home. An investor probably has some kind of risk tolerance where they are prepared to exit even if it means a principal loss.[/quote]

I personally don’t know anyone who has “drained their retirement accounts” to keep their home. I think cash out refinancing is done by a very small minority of longtime owners. I don’t see this being done in the submarkets I follow which are heavy with free and clear owners. Some of the owners are occupying and some are not. These properties are in their estates and will ostensibly be passed down to children/grandchildren upon their death sans reassessment pursuant to Props 58 and 193.

If rates rise, LL’s will stay LL’s if it makes financial sense to do so. When rates go up on passive investments, a free-and-clear LL may decide to figure out if they will still be making more landlording than they would on investing in passive vehicles, which would have less work involved. They will have to also take into consideration what the price and likely terms would be at that time if they listed their rental property and figure out the cost of repairs and improvements they might have to make to it to market it successfully for the highest price in light of its current competition.

A LOT of longtime owners don’t have an “emotional attachment” to RE. I myself have never had an “emotional attachment” to RE whether the property in question was actually my home … or not. Emotional attachment and RE don’t mix well, especially when buying, selling, renting out and attempting to improve a property. Taking off the rose colored glasses and looking at the numbers in the light of day to see if they make sense or will make sense is what should always be done with a piece of RE, whether a longtime owner-occupier, investor or in buying one’s first principal residence. I think a lot of longtime RE owners feel as I do, especially in coastal CA.

[quote=livinincali]Just like there’s a flurry to get in right now there’s potentially a flurry to get out at some point down the road. Don’t be in the position of having to compete with them to sell at that point. I suppose you could hope that the bigger players unload in bulk sales that don’t hit the open market. . .[/quote]

I just don’t see this “massive exit” resulting in excessive inventory happening all at once. Just like the Big Banks, a free-and-clear owner doesn’t have to market his tract home if there are already 2-3 of the same floor plan as his in his subdivision currently listed for sale … or for any reason inventory is plentiful and/or the market is leaning towards a buyer’s market or is a buyer’s market.

The future residential RE market won’t have the same conditions as it did post millenium-boom, when nearly ALL recent buyers, recent cash-out refinancers and recent ATMer’s were “underwater” (comprised of “owner” occupants and mostly amateur LL’s.)

It seems some here are postulating a tsumani of sorts or a residential RE bust that isn’t going to happen, IMHO.

Nor do I think the sold comps will keep escalating into infinity. But it’s different this time because the recent purchaser-pool is vastly different from that in the millenium boom.

[The-Shoveler]

I am kind of with BG here,

The only mass exit I think that could occur would be caused by some economic catastrophe and it would be the leveraged players being forced most likely.
That said I do think there are a lot of LL who are leveraged to some degree, but most likely it will be the leveraged owner occupiers who will be hurt the worst in such an event.
I don’t see interest rates spiking all of a sudden, I think it will be a very gradual affair Accompanied by equal or more inflation.

All just my opinion of course

Also I will add an economic catastrophe could be a very local event (Natural disaster, qcom decides it would be better off moving to Mexico just kidding).
But it could be a very local thing as well.

[livinincali]

[quote=The-Shoveler]
The only mass exit I think that could occur would be caused by some economic catastrophe and it would be the leveraged players being forced most likely.
[/quote]

I personally don’t think it would take a catastrophe to end up with some hedge fund players getting overleveraged and blowing up. The past 20 years have seen plenty of examples of this. Fed lowers rates, people borrow at those low rates, and speculate with the money. Since that speculation doesn’t create any real economic growth or a sustainable environment it always ends up blowing up sometime. The fed says we’ll lower rates so businesses can invest but it’s far easier to borrow and speculate than it is to actually build a real business.

[quote=The-Shoveler]
I don’t see interest rates spiking all of a sudden, I think it will be a very gradual affair Accompanied by equal or more inflation.
[/quote]

I tend to think interest rates will stay low for awhile here in the US. Longer than most people think, but when they do move higher I expect it to happen relatively quickly. At least faster than what it took to get to these low levels. I.e. it will be shorter to go from 3.5 to 6 than the roughly 4 years it took to go from 6 to 3.5

[moneymaker]

It’s all about supply. I suspect a higher percentage of homes from deceased owners may be being lived in by heirs rather than being put on the market.

[SK in CV]

[quote=livinincali][quote=The-Shoveler]
The only mass exit I think that could occur would be caused by some economic catastrophe and it would be the leveraged players being forced most likely.
[/quote]

I personally don’t think it would take a catastrophe to end up with some hedge fund players getting overleveraged and blowing up. The past 20 years have seen plenty of examples of this. Fed lowers rates, people borrow at those low rates, and speculate with the money. Since that speculation doesn’t create any real economic growth or a sustainable environment it always ends up blowing up sometime. The fed says we’ll lower rates so businesses can invest but it’s far easier to borrow and speculate than it is to actually build a real business.

[/quote]

Historically, the term “hedge fund” has meant an investment group that played with other people’s money. They “hedge” their bets. They buy in a method that gives them most of the profits, but caps their losses.

These kinds of hedge funds haven’t been buying up real estate in droves. Much more traditional private equity funds have been. And they’ve been paying cash. Mostly all cash. And in doing so, they can’t be over-leveraged.

Someone suggested that these funds will eventually leverage their RE holdings. Not unlikely. But as a practical matter, they can’t do it cheaply with secured debt, because they cant get a single loan secured by thousands of properties. They would have to jump through similar hoops that small investors go through, financing each property individually. If it’s unsecured debt, then every penny of their asset value is at risk, and they have leverage, but no “hedge”.

I see no scenario where anything short of a catastrophic change in RE prices where PE investors could add to the catastrophe. They can’t create it. I’d certainly be open to suggestions of how it could happen. I just don’t see it.

[SD Realtor]

I am not sure I see it either. One of the problems is the misconceptions of what sort of properties are held by industrial players. If you think that some entity holds 2000 sfr homes in San Diego county and they are generating income through property rentals you are about as wrong as can be. I do know that there are plenty of investment groups that purchase properties for flips but that is immune to long term interest rate issues. Now if you are talking larger commercial holdings that have 100’s or 1000s of doors per project then you are getting to be more accurate.

Steering the conversation back to what is most important for the generic engineer looking for a home on the I15 corridor, or Carlsbad, or Carmel Valley or Encinitas… very tough times and these homes will not be affected at all by any perceived commercial activity. The demand for these homes will be set strictly by the affordability for that same engineer and that is strictly determined by interest rates as well as the overall supply/demand curve.

[SK in CV]

[quote=SD Realtor]I am not sure I see it either. One of the problems is the misconceptions of what sort of properties are held by industrial players. If you think that some entity holds 2000 sfr homes in San Diego county and they are generating income through property rentals you are about as wrong as can be. I do know that there are plenty of investment groups that purchase properties for flips but that is immune to long term interest rate issues. Now if you are talking larger commercial holdings that have 100’s or 1000s of doors per project then you are getting to be more accurate.

Steering the conversation back to what is most important for the generic engineer looking for a home on the I15 corridor, or Carlsbad, or Carmel Valley or Encinitas… very tough times and these homes will not be affected at all by any perceived commercial activity. The demand for these homes will be set strictly by the affordability for that same engineer and that is strictly determined by interest rates as well as the overall supply/demand curve.[/quote]

I think I mostly agree, though I’m confused about something you said here. I’m not aware of any big private equity RE activity in SD. Not saying it hasn’t happened, but it hasn’t been prominent in the news, nor have the numbers ever looked like they worked as well as they have in Phoenix, parts of FL, and some other small pockets across the country.

But this part…

Now if you are talking larger commercial holdings that have 100’s or 1000s of doors per project then you are getting to be more accurate.

seems to say just the opposite of what you said at the beginning of the paragraph. Are there a significant number of investors that have bought 1000 or more doors in SD, and are holding it? To add some context to what I’m talking about, I was told last week that there have been at least 100,000 SFRs acquired in the last 18 months in Phoenix by cash investors planning on renting and holding them. (I’m skeptical of the accuracy of that number, btw.)

Or are you talking about developers?

[Author]

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