About as crazy as ever

[(former)FormerSanDiegan]

People who are underwater are not likely to elect to sell their property.

This can (and IMO does) impact on inventory.

There have been periodic publish numbers regarding underwater owners, so there IS data out there that can be used to assess this.

http://www.usatoday.com/story/money/business/2013/03/19/rising-home-prices-reduce-underwater-borrowers/1997729/

[zk]

[quote=SD Realtor]zk I don’t think we are at peak pricing but I don’t like to speculate on something that can be verified with data. I know plenty of people who are underwater as well. Again, that is fine anecdotally but it doesn’t matter. Back in 2009 and 2010 there were WAY more people underwater and people who could have bought back then but did not were foolish. However back then we DID know that the govt would backstop the entire real estate market. I posted that routinely as well as argued back then and well before that the tsunami was a pipe dream.

If you think it is relevant then that is okay, we are all entitled to our opinions. Mine is that it absolutely has no bearing on the market and I have been consistent in that opinion.[/quote]

I’ve never been of the opinion that there’s a tsunami. I thought maybe some shadow inventory, but not a tsunami. I bought my primary residence in ’10 when the tsunami idea was still prevalent, and I’m pretty happy about it. I bought several investment properties last year (the bottom of the market (so far) in Georgia, where I bought them), and I’m pretty happy about that, too.

My point in this thread is not that I think there’s a tsunami of pent up supply due to too many potential sellers being underwater. My point is that I think there is some pent up supply for that reason. But even if there is, that would not cause a reduction in prices. Because if prices went down, they’d be underwater again, and we’d be back to where we are now.

I’m probably finished buying investment properties, at least for now. Because buying during a frenzy just seems like a bad idea. I’m trying to get a feel for what might happen next.

You mention that the real mystery is why the lack of inventory. I’m curious why are you convinced that it’s not at least partly due to underwater sellers. To me it seems as plausible as any other possible cause.

[(former)FormerSanDiegan]

[quote=outtamojo]I never could understand this fascination with underwater owners as potential sellers without at the same time attempting to quantify potential buyers who held back/ or are still holding back buying to avoid bubble prices.Seems like they came out to be somewhat of a wash, no?
[/quote]

Agreed, pent-up demand is also very important.

I don;t know if it’s a wash.
My gut tells me that there is probably way more pent-up demand than pent-up inventory.

One (albeit somewhat weak and indirect) way to get a read on potential demand is by looking at household formation.

[SD Realtor]

I think one of the things about piggs is that some of them overthink the situation. They go beyond the charts and dig up underlying causes for the chart movements, especially on the way down. Then when the charts change, even though some of the underlying causes may have remained in place, some of them did not waiver. Most of them did. Even Rich himself justified his purchase based on what the charts displayed rather then go well beyond those charts. Indeed the vast majority of the old schoolers who used to populate the forum here are long gone as they purchased based on that same data. The only regret I hear from many of them is that they didn’t buy more.

While things are moving fast now, it wasn’t like that. We came out of it in 09 slowly, ramped up, then dipped….. then came out of it slowly again. I don’t believe we have seen a surge in demand, (from the quantity of buyers) just a lack of supply that makes those buyer act in a more frenzied manner. Seems to me this started to happen around summer last year and started to pick up steam over the winter.

[(former)FormerSanDiegan]

Household formation…

http://soberlook.com/2013/02/us-household-formation-has-stabilized.html

[zk]

[quote=outtamojo]I never could understand this fascination with underwater owners as potential sellers without at the same time attempting to quantify potential buyers who held back/ or are still holding back buying to avoid bubble prices.Seems like they came out to be somewhat of a wash, no?
At this point in time, for those held off buying, the move off the bottom came too quick.
I wonder what the current frenzy will do to the psychology of home buyers/real estate investors. Will they view housing the same way many viewed stocks in the 90’s, buy the dips because prices ALWAYS come back?[/quote]

I don’t think they come out to a wash at all. Today’s market indicates a lot more demand than supply. And it’s not a fascination. It’s an opinion reached after careful consideration, albeit with an acknowledgement of the possibility that it’s incorrect.

As for the psychology of this investor, I don’t view housing the way you describe, exactly. Nominal prices will always go up in the long run (a hundred years from now they’ll be higher than they are now), but that doesn’t mean that you will make money no matter when you buy.

[SD Realtor]

Not sure zk. The pent up supply thing is a mystery. I think that if I were an underwater guy, and I saw other under water guys get loan mods, or forgiveness, or live for months or even years without paying a mortgage, perhaps I would think twice. Why sell? Even if the home appreciates to where you are not underwater why sell?

Sounds like we are the same. I have spent the last 3 years buying as much RE as I could however none of it is in Cali. By trade I am an engineer so it is my nature to try to figure everything out. However that is not always the case in RE especially in this situation. It could be a blend of alot of things. The stock market is rising but alot of people consider that riskier then then RE. If you buy 600k worth of equities and they depreciate by 200k you lost 200k. If the same thing happens to your home you get a loan mod or maybe some forgiveness.

Easy choice to make right?

Is RE a good hedge against inflation? Maybe…. only if there is wage inflation as well. So maybe it hedges maybe the asset depreciates but you are locked into a low rate that you locked in with yesterdays dollars…

I wish I knew the reason only because I could then give clients good advice as to when I think things will normalize again. Right now I get asked when will things normalize and all I can say is when we finish this leg. Maybe in a month or two, maybe end of summer… maybe longer. We just look at supply and DOM.

[bearishgurl]

[quote=SD Realtor]…The only real mystery is why the lack of inventory.[/quote]

I don’t see any “mystery” here. Prospective sellers who hung on during the millenium boom, have equity and didn’t participate in the cash-out/HELOC party during the millenium boom have no doubt improved their properties over the years. Unless they purchased before 1997, a lot of them STILL can’t recover ANY of their cost of the improvements they made with their own money if they sold now. This is true in many micro-markets in SD County. It is not yet time for many homeowners in this category to sell unless their property is located in a “hot” zip code (where they can possibly now get up to 20% over asking price, possibly countering in a multiple-bid situation).

Many of the millenium-boom-era purchasers and owners who took “cash out” during this era and who still own their residences still cannot recover all of the cost of improvements or “cash-out” portion they took out of the property (some of which was no doubt used for improvements to said property), pay a RE commission and their portion of closing costs and still be “above water” at closing. If the market still seems to be rising and they are able to continue with their mtg payments (likely “modified” to lower monthly payments by now), they feel they can wait for a “better day” to sell.

In the “hot” areas, many prospective sellers may still have minor children in school since “schools” (and nothing else) seem to be the sole reason why these areas currently have a “hot” market and the sole reason for these prospective sellers’ purchase of the property in the first place.

And lastly, prospective sellers who have annual property taxes of less than $1000 are thinking twice about what their taxes would be if they bought another CA property which was NOT in a county participating in assessment transfers pursuant to Prop 60 (if they haven’t already taken this benefit). OR these same owners may just want to leave their unencumbered, low-taxed CA real property to their heirs, whether they currently occupy it or not. As well they should as long as the law allows this.

What say Piggs? If you had plans to move in the next 1-3 years, would you sell your home now … or wait? And if you would wait, how long would you wait to list it?

[zk]

[quote=SD Realtor]I think one of the things about piggs is that some of them overthink the situation. They go beyond the charts and dig up underlying causes for the chart movements, especially on the way down. Then when the charts change, even though some of the underlying causes may have remained in place, some of them did not waiver. Most of them did. Even Rich himself justified his purchase based on what the charts displayed rather then go well beyond those charts. Indeed the vast majority of the old schoolers who used to populate the forum here are long gone as they purchased based on that same data. The only regret I hear from many of them is that they didn’t buy more.

While things are moving fast now, it wasn’t like that. We came out of it in 09 slowly, ramped up, then dipped….. then came out of it slowly again. I don’t believe we have seen a surge in demand, (from the quantity of buyers) just a lack of supply that makes those buyer act in a more frenzied manner. Seems to me this started to happen around summer last year and started to pick up steam over the winter.[/quote]

I’ve been on this site since well before it had a yellow background. And I bought a lot of properties at a good time. So the charts have done well by me. I’m into the charts. I love the charts. But sometimes you have no choice but to go beyond the charts. The charts aren’t telling us why there’s a lack of inventory. Seems to me that’s a pretty important factor. I’m trying to figure out what’s going to happen next, and without a chart to tell me why there’s such a lack of inventory, I don’t see what to do but go beyond the charts and try to make an educated guess.

I’d be interested to hear other theories that might explain the lack of inventory.

[outtamojo]

[quote=FormerSanDiegan][quote=outtamojo]I never could understand this fascination with underwater owners as potential sellers without at the same time attempting to quantify potential buyers who held back/ or are still holding back buying to avoid bubble prices.Seems like they came out to be somewhat of a wash, no?
[/quote]

Agreed, pent-up demand is also very important.

I don;t know if it’s a wash.
My gut tells me that there is probably way more pent-up demand than pent-up inventory.

One (albeit somewhat weak and indirect) way to get a read on potential demand is by looking at household formation.[/quote]

I bet Google knows how much relative demand there is.

[zk]

[quote=SD Realtor]Not sure zk. The pent up supply thing is a mystery. I think that if I were an underwater guy, and I saw other under water guys get loan mods, or forgiveness, or live for months or even years without paying a mortgage, perhaps I would think twice. Why sell? Even if the home appreciates to where you are not underwater why sell? [/quote]
I concur with all of that except maybe the last part. People sell in a normal market for whatever reason they sell for (moving, downsizing, retiring, etc.) . People seem to hesitate to sell in those situations if they’re underwater, but might sell if they’re not underwater.

[quote=SD Realtor]Sounds like we are the same. I have spent the last 3 years buying as much RE as I could however none of it is in Cali. By trade I am an engineer so it is my nature to try to figure everything out. However that is not always the case in RE especially in this situation. It could be a blend of alot of things. The stock market is rising but alot of people consider that riskier then then RE. If you buy 600k worth of equities and they depreciate by 200k you lost 200k. If the same thing happens to your home you get a loan mod or maybe some forgiveness. [/quote]
Again, mostly concur. I’m not an engineer by trade, but I am one by way thinking. And by way of social skills. (No offense, I’m sure yours are great. Just a little joke at my own expense). The stock market is rising, which is part of the reason I’m staying out of it. We all know what Warren Buffett said about that. I don’t know if I’d count on government largesse in the event that my real estate investment failed. I guess I probably should. But I probably wouldn’t. Count on it, that is. Take advantage of, yes. Count on, maybe not.
[quote=SD Realtor]
Is RE a good hedge against inflation? Maybe…. only if there is wage inflation as well. So maybe it hedges maybe the asset depreciates but you are locked into a low rate that you locked in with yesterdays dollars… [/quote]
Ah, yes. Wage inflation. I have serious doubts about wage inflation. I see everything else inflating and our standard of living declining because wage inflation doesn’t keep up.
[quote=SD Realtor]
I wish I knew the reason only because I could then give clients good advice as to when I think things will normalize again. Right now I get asked when will things normalize and all I can say is when we finish this leg. Maybe in a month or two, maybe end of summer… maybe longer. We just look at supply and DOM.[/quote]

I wish you knew the answer, too.

[SD Realtor]

Agreed zk. Especially with the wage inflation part. I see everything but wages inflating. It has been happening for years. I am much more in the camp of Stockman rather then Krugs. What has been happening is criminal.

The banksters have never had it so well.

[outtamojo]

[quote=zk][quote=SD Realtor]I think one of the things about piggs is that some of them overthink the situation. They go beyond the charts and dig up underlying causes for the chart movements, especially on the way down. Then when the charts change, even though some of the underlying causes may have remained in place, some of them did not waiver. Most of them did. Even Rich himself justified his purchase based on what the charts displayed rather then go well beyond those charts. Indeed the vast majority of the old schoolers who used to populate the forum here are long gone as they purchased based on that same data. The only regret I hear from many of them is that they didn’t buy more.

While things are moving fast now, it wasn’t like that. We came out of it in 09 slowly, ramped up, then dipped….. then came out of it slowly again. I don’t believe we have seen a surge in demand, (from the quantity of buyers) just a lack of supply that makes those buyer act in a more frenzied manner. Seems to me this started to happen around summer last year and started to pick up steam over the winter.[/quote]

I’ve been on this site since well before it had a yellow background. And I bought a lot of properties at a good time. So the charts have done well by me. I’m into the charts. I love the charts. But sometimes you have no choice but to go beyond the charts. The charts aren’t telling us why there’s a lack of inventory. Seems to me that’s a pretty important factor. I’m trying to figure out what’s going to happen next, and without a chart to tell me why there’s such a lack of inventory, I don’t see what to do but go beyond the charts and try to make an educated guess.

I’d be interested to hear other theories that might explain the lack of inventory.[/quote]

The new normal? Jim the realtor had an interview
w/ the Davidson homes guy a while back

Bill Davidson

There was a map showing how all the land for big projects is gone in S.D. County.

[all]

[quote=zk]
I’d be interested to hear other theories that might explain the lack of inventory.[/quote]

Based on DataQuick data:

County NOD’s
2009Q2: 9,866 2011Q4: 4,813 2012Q4: 2,655

foreclosures
2009Q2: 3,518 2011Q4: 2,044 2012Q4: 1,285

Different source, similar drop in NOD’s, trustee sales (from 1,600+/month in 2008 to <400/month in 2013)

http://www.foreclosureforum.com/stats.html

[SD Realtor]

foreclosureforum = good place for stats.

[Author]

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