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earlyretirement.
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April 22, 2013 at 11:45 PM #761530April 23, 2013 at 1:02 AM #761532
CA renter
ParticipantCould not agree more, Kev. This is not a “normal” market, no matter how many times we hear otherwise.
Good luck!
April 23, 2013 at 7:27 AM #761535livinincali
Participant[quote=The-Shoveler]I don’t think we will see another crash in the housing market unless there is another economic catastrophe (not caused by housing this time).
Which actually I think there is a fair chance of occurring, but the fed will do “EVERYTHING IN ITS POWER TO PREVENT” such a thing from occurring in the near future (Because it “the Gov” cannot afford another one right now).
Interesting times, the game is afoot (just look at Japan).[/quote]
I think there’s way too much faith in the fed. When has the fed ever been successful at stopping the decline once the bubble popped. The fed creates the bubble but they can’t seem to do anything useful once it blows up. Their solution is create another bubble as soon as possible.
This time the bubble isn’t in housing per say but when the bubble pops it will bring housing down with it. That’s why you’ll probably see strength in the housing market for a bit of time after the bubble pops. People will initially feel smart for hiding out in real estate. It will be 6-12 months down the road after the bubble that we’ll see a liquidation phase in housing and I don’t know how bad it will be. I suppose it could be somewhat muted depending on the availability of financing and how leveraged people are. The low end will probably suffer the most in that scenario.
April 23, 2013 at 8:00 AM #761537SD Realtor
ParticipantReally, I have not heard anyone use the term “normal” to describe this market.
April 23, 2013 at 8:34 AM #761539spdrun
Participantlivinincali —
My accepted short sale offer in CA is at a price that allows an ~8% cap at current rents. If rents fall 15%, I’ll still be slightly positive cash flow, and if prices fall 25%, I’ll just see it as one bad mofo of a buying opportunity.
As far as my offers in NJ, the market is near bottom with a bit of a spring bounce here. If I’m buying at close to bottom from the LAST recession, what makes you think that prices will fall any further?
April 23, 2013 at 11:38 AM #761555kev374
ParticipantSee the documentary “Mind over Money” (search on Youtube) – it’s quite a fascinating look at how the bubble/bust cycle is in our psychology and how there is vehement denial during the bubble phase and then the eventual bust – it’s a pattern that’s repeated again and again and again due to irrational behavior exhibited in the rush to make money – the sentiment is everyone is onboard this train making money, I should join too. But in reality there is a saturation point at which the whole thing comes out of gear and falls apart.
April 23, 2013 at 12:56 PM #761570(former)FormerSanDiegan
Participant[quote=kev374]
Let me ask YOU – why is the speculative sentiment that prices will keep rising now any different from 2000-2006? At that time people like you were also saying the same exact thing – that prices will keep rising ad infinitum. People like you were proved very wrong in the last bust, why should this time be any different?[/quote]
This wasn’t directed at me, but there is a big difference.
In 2005/2006 the Price to income ratio in San Diego was at an all-time high of about 14. ( C-S price divided by per capita income).
As of 2011 (Last time Rich updated the chart) that ratio was at an all-time low. Today it is maybe 10-15 % above those all time lows, but below historical norms.
The primary lesson that made Piggington was looking at those fundamental indicators :
– House price to rent ratio
– Monthly mortgage payment to rent ratio
– Mortgage payment as percentage of income
– Price to IncomeThese are what really matter. It is dangerous to assume that recent price appreciation is either indicative of future increases or indicative of a speculative bubble without looking at the underlying fundamentals, such as the ratios listed above.
April 23, 2013 at 1:05 PM #761572SK in CV
Participant[quote=FormerSanDiegan]
This wasn’t directed at me, but there is a big difference.
In 2005/2006 the Price to income ratio in San Diego was at an all-time high of about 14. ( C-S price divided by per capita income).
As of 2011 (Last time Rich updated the chart) that ratio was at an all-time low. Today it is maybe 10-15 % above those all time lows, but below historical norms.
The primary lesson that made Piggington was looking at those fundamental indicators :
– House price to rent ratio
– Monthly mortgage payment to rent ratio
– Mortgage payment as percentage of income
– Price to IncomeThese are what really matter. It is dangerous to assume that recent price appreciation is either indicative of future increases or indicative of a speculative bubble without looking at the underlying fundamentals, such as the ratios listed above.[/quote]
Very nice job. That’s all.
April 23, 2013 at 1:22 PM #761573bearishgurl
Participant[quote=kev374]…Let me ask YOU – why is the speculative sentiment that prices will keep rising now any different from 2000-2006? At that time people like you were also saying the same exact thing – that prices will keep rising ad infinitum. People like you were proved very wrong in the last bust, why should this time be any different?[/quote]
Actually, kev, when “people” were buying a painted-over-but-completely-dryrotted ~60 yo 1500 sf house with stuck sash windows, a broken wall heater and an unpermitted room addition down the street from me for $590K, I thought the market was nuts but wasn’t really paying attention at that time as to WHY it was nuts. It wasn’t until I found out from neighbors (after foreclosure of same property less than two years after its $590K purchase) that these buyers had occupations of landscaper and hotel housekeeper that I did some investigating of my own by viewing the trust deed that was foreclosed on. It was then that I realized that “creative financing” (exotic and/or usurious) was the sole driver of the unrealistic high housing prices I was seeing.
People like me are among the most pragmatic you will ever find, kev. This pragmatic nuts-and-bolts type has got a message for you. Since you (apparently) missed the excellent-RE-buying-opportunity train of the last few years (for whatever reason), you should now try to hitch a ride by crawling on the caboose at its next stop and holding on after the train leaves the station 🙂 Since you (apparently) are a day late and a dollar short, I would suggest you try to work out a deal on a OC house ASAP, condition be damned.
After closing, open up a 6-mos-0% interest account at Home Depot.
You need to make agressive offers ASAP, ESPECIALLY if you need to live in the urban OC. Unlike the SD burbs, most of these smallish cities are self-contained, extremely convenient and close to many well-paying jobs. The all-cash buyers you are seeing (sight-unseen or whatEV have likely all known this their entire lives … HELLO?). I don’t care if these ‘hoods are circa 1953 or 1961. Get over it. They’re not going to get any cheaper.
It’s different this time, kev. Why?? Because there is no comparison between the all-cash and <=80% LTV buyers of today and the zero-down-fog-a-mirror-get-a-loan(s) buyers so prevalent between 2004 and 2006. They are completely different animals. Buyers today aren't in danger of having to sell in a "down market," due to the fact that they used little or no leverage to purchase. You can't fix this. It is what it is. OR, you can rent into oblivion and continue to lament weekly here over how much properties that interest you have recently sold for to see if anyone will lament with you. It won't matter if you find a dozen or more Piggs here to hold your hand. The fact remains that YOU (and your family?) STILL won't have a house. Your choice.
April 23, 2013 at 1:23 PM #761574Participant[quote=SK in CV][quote=FormerSanDiegan]
This wasn’t directed at me, but there is a big difference.
In 2005/2006 the Price to income ratio in San Diego was at an all-time high of about 14. ( C-S price divided by per capita income).
As of 2011 (Last time Rich updated the chart) that ratio was at an all-time low. Today it is maybe 10-15 % above those all time lows, but below historical norms.
The primary lesson that made Piggington was looking at those fundamental indicators :
– House price to rent ratio
– Monthly mortgage payment to rent ratio
– Mortgage payment as percentage of income
– Price to IncomeThese are what really matter. It is dangerous to assume that recent price appreciation is either indicative of future increases or indicative of a speculative bubble without looking at the underlying fundamentals, such as the ratios listed above.[/quote]
Very nice job. That’s all.[/quote]
Yes, thank you, FSD.
April 23, 2013 at 1:48 PM #761575Participantthe phrase “this time is different” is the signature chant of a bubble. I have heard this in every single boom/bust cycle in the past. You can believe whatever you wish, I and many others have different opinions and we shall agree to disagree!
April 23, 2013 at 4:10 PM #761586jpinpb
Participantkev374 – I wish Rich had a “Like” button. I have been cursorily watching houses in 92117 and I am blown away. Very, very low inventory. Many places selling w/in days at much higher than asking price. I am scratching my head.
One in particular. I went to the open house. It was an oooold and outdated place. Trust sale. The realtor was talking to people, telling them he had 4 offers, one was by investors. I was skeptical, but walked around the house. Needed so much work. Walked outside. The investors were out there discussing how they were going to tear the place down, put subterranean parking, etc. etc.
It was listed for 499k. It sold for 662k 2856 Harford. Yes, the view was great and great potential. But how much is it going to cost to remove the old house and build a new one? We’ve got to be looking at, conservatively, about 400k or so?
Then the carrying costs while this gets accomplished and constructed. And they have to make a profit. This is not La Jolla. No matter how you slice it, it’s Clairemont. Is someone going to spend more than half a million dollars for a place in Clairemont?
IMO, this smells like a bubble. What worries me is that Clairemont is an older community, we’re talking a lot of seniors in my area. When they pass on or get put into homes, etc, there’s going to be a lot of places coming on the market. These kids aren’t going to hold on to them. They got their own houses they got to pay for, probably in 4S or Poway, Carlsbad, wherever. They’ve got kids in the good school district. They’re not going to move to Clairemont and they may not want to hassle w/rentals. Get their money while they can.
It’s going to be interesting to see how this plays out.
April 23, 2013 at 4:28 PM #761588Participant[quote]….It was listed for 499k. It sold for 662k 2856 Harford. Yes, the view was great and great potential….[/quote]
That’s a nice house, jp. It’s technically in or on the border of “Bay Ho” but has a Clairemont zip code.
$662K is a lot for this size house, but it is a wonderful representation of a mid-century view home …. very rare on the market, I’m certain! I would buy it to live in and wouldn’t do too much to it except replace the carpeting and laminate with hardwood floors (or rip it out … maybe they’re already there in some rooms) and the replace the aluminum slider windows with low-e vinyl. The kitchen, paneling and even draperies and shutters are all fine (drapes may need cleaning).
It appears there may be a bit of room to widen the 1.5 car garage (typical for that era) but this would involve a roofline (partial truss) change.
By subterranean parking, are you saying the investors who made an offer on it want to dig the lot out further and put a SFR on top of the new garage … or build multi-family housing? I didn’t think 2-4 units was allowed up there.
Thanks for sharing, jp. That’s my kind of house!
April 23, 2013 at 4:37 PM #761589ParticipantWOW, a 9700 sf lot??
Of course, the Hartford listing is worth more than $499K. Not sure about $662K, but I haven’t looked at the comps up there in awhile. I have friends who sold a one-story house which was bigger (1800+ sf?) up there but it had a smaller lot. This was in 2011, I think. I’m pretty sure they got between $610K and $630K.
This house, lot and view combination in the middle of SD is a very rare listing to come on the market at this price point as it appears to only need “cosmetic work.”
April 23, 2013 at 5:07 PM #761591ParticipantYou should realize that there have been interesting articles in the press lately about investor enthusiasm dying down slowly. Do you know that rents are actually deflating now because there are simply too many rentals and it’s expected to get worse. Think about it logically, when rental supply increases rents WILL go down, this in turn causes investments to generate lower returns.
When investments generate lower returns the urge to cash out accumulated equity increases and people start dumping their properties. This dumping starts a deflationary cycle leading to even more dumping and even lower prices.
http://finance.fortune.cnn.com/2013/04/05/housing-rentals-investors/
http://www.cbsnews.com/8301-505145_162-57577568/investors-cooling-on-housing-market/
A mania cannot be sustained forever, this is common sense…eventually things cool off, some investors will get out in time and make a killing at the expense other POOR SOULS who thought paying half a million dollars for a dump in a blue collar neighborhood was a good idea!!!
The only shame is that these POOR SOULS will go crying to the government about how they are suffering because they are now losing their homes. They did not bother to use a thing called “Reason” that would’ve told them that an entry level house in a middle class neighborhood with teachers and accountants living in it should not cost half a million dollars!
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