Are you looking to get in on the ground floor? Think again.

[Bugs]

Okay, I’ve noticed a certain little “Spring is in the air” sort of optimism around here lately, which is cool. A couple people are starting to notice that the thaw is starting to set in.

Since we like to look forward on this site, I don’t think now is too early to start opening a discussion about what kinds of expectations people should be having for when the market bottoms out.

A number of people on this board have commented – and I agree with them – that if one is buying a primary residence to live in they don’t have to time the market that closely in order to get a deal that works for them. I mean, the investors will want to stay out until they see a relatively short holding period with a good upside, but for the typical Joe Homeowner getting in while the market still has 10% more excess to bleed off isn’t such a bad scenario if they can otherwise get their satisfaction out of it.

If it wasn’t for the extended length of time the ARMs are resetting, I’d almost think that we could bottom out and possibly start the next cycle by late 2009. But the pricing can’t truly settle until the excess inventory is gone and it’s apparent that we’re just going to keep adding to it through 2011.

I think it’s possible that the current free-fall that we’re in right now could extend in many of the low-priced segments for the remainder of the year; and in so doing, could wind up settling at yr2001 pricing. It won’t represent the bottom of the market, but there won’t be all that much gas left to burn off, either.

For context, let’s look at one of these low-priced market segments. In El Cajon the median pricing for 2bd condos in early 2001 was ~$140,000 for the first quarter. That market segment peaked in mid 2006 (03-09) at $314,000. From 01/2008 to present it is now at ~$215,000, although that’s a really small sample.

My point here is that it’s possible this market segment may eventually retreat all the way back to the 1998 average of $96,000, but with rents for 2bd apartments in that area averaging around $1,000/month, I very much doubt it. I think that at about $120,000 or so, there will be some investors who will start to have some serious interest, so I’m GUESSING it probably won’t retreat much below that. About the only thing I can think of that would make it retreat much below that point would be if interest rates start to jack up, and it would probably only decrease to that extent and by that amount.

For the sake of argument, let’s suppose we expect the rents for this market segment to remain at about $1,000/month, and the pricing will eventually stabilize at $120k. At a 6.5% interest rate (100% financing), the PITI + HOA dues is equal to the market rent for that unit. Any renters who can do so would probably come out ahead by the time you include the tax writeoff.

With these assumptions, you could argue that a Joe Renter could decide to get in at $140,000 or so and not get horribly burned no matter what happens after that. Depending on what you think mortgage interest rates will do by the time the market really does settle, it’s possible that a $140k purchase at 6.5% interest rate will look a lot like a $120k purchase at 8.0%.

So in summary, if the current trend holds for the remainder of 2008 and this market did settle at $140,000 (which is another $70k off the current median), then it might make some sense for those who are willing to live in such a unit to pull the trigger.

In doing so, this buyer may be leaving $20k on the table, and they may be sitting in that unit for several years before they break even again, but at least they’re in and stable. It might save a marriage or two.

Obviously, this particular scenario won’t appeal to 95% of our regulars, but it will work for some people, like my kids.

With that said, I can envision a scenario where some of the bottom end drops to this 90% correction point by the end of 2008 and the remaining 10% bleeds off over 3 or 4 years before settling at rock bottom. Other market segments will move at different paces and settle at different times.

I don’t think the detached home markets in the most desireable areas will stabilize first this time around. For those who want to get in early, I think your best shot is the bottom end of the market.

Just my opinion. What’s yours?

[gdcox]

Quality thinking material there and hard to argue with your logic as someone not intimate with the area. A further 30 % is not assumed in Wall St by the way!!. Though the apartment sector there or in all of SD does not represent the whole country, it may represent the mortgage sectors whose negative dynamic is causing all the damage.

Bugs, would appreciate knowing where El Cajon sits in terms of the quality of typical mortgagees. Is it sub-prime boom walkers or Alt A long term sitters who don’t want to mess with their credit rating or……….?
Thanks
Graham

[gdcox]

Quality thinking material there and hard to argue with your logic as someone not intimate with the area. A further 30 % is not assumed in Wall St by the way!!. Though the apartment sector there or in all of SD does not represent the whole country, it may represent the mortgage sectors whose negative dynamic is causing all the damage.

Bugs, would appreciate knowing where El Cajon sits in terms of the quality of typical mortgagees. Is it sub-prime boom walkers or Alt A long term sitters who don’t want to mess with their credit rating or……….?
Thanks
Graham

[gdcox]

Quality thinking material there and hard to argue with your logic as someone not intimate with the area. A further 30 % is not assumed in Wall St by the way!!. Though the apartment sector there or in all of SD does not represent the whole country, it may represent the mortgage sectors whose negative dynamic is causing all the damage.

Bugs, would appreciate knowing where El Cajon sits in terms of the quality of typical mortgagees. Is it sub-prime boom walkers or Alt A long term sitters who don’t want to mess with their credit rating or……….?
Thanks
Graham

[gdcox]

Quality thinking material there and hard to argue with your logic as someone not intimate with the area. A further 30 % is not assumed in Wall St by the way!!. Though the apartment sector there or in all of SD does not represent the whole country, it may represent the mortgage sectors whose negative dynamic is causing all the damage.

Bugs, would appreciate knowing where El Cajon sits in terms of the quality of typical mortgagees. Is it sub-prime boom walkers or Alt A long term sitters who don’t want to mess with their credit rating or……….?
Thanks
Graham

[gdcox]

Quality thinking material there and hard to argue with your logic as someone not intimate with the area. A further 30 % is not assumed in Wall St by the way!!. Though the apartment sector there or in all of SD does not represent the whole country, it may represent the mortgage sectors whose negative dynamic is causing all the damage.

Bugs, would appreciate knowing where El Cajon sits in terms of the quality of typical mortgagees. Is it sub-prime boom walkers or Alt A long term sitters who don’t want to mess with their credit rating or……….?
Thanks
Graham

[cashflow]

Another good take on the market Bugs. I think your right on as I’ve been comparing where I’d like to buy (RB, Poway, Penasquitos), to less desirable areas (Vista, San Marcos, Escondido). The less desirable areas have recently been really moving downward, while the desirable is still resisting much downward momentum. If this trend stays the same then I do believe the less desirable will start to bottom out much earlier. Just makes logical sense as you compare neighboring communities if one is significantly less, or you can get so much more for your money, where are the few buyers that are out there going to put their money. By less desirable, it usually is one major factor, the school system isn’t ranked on top, but still the schools are good. Believe me this thought has crossed my mind, just send the kids to private school if I don’t like the schools….so we’ll see how it plays out. We are of the mindset that as soon as it makes sense for us, we are buying and will stop micro-watching the market as we’ll be in for the long haul.

I believe that by the end of this year-winter 08-09, there may be some homes that will be at a decent price point for some buyers. The unknown is how interest rates and the credit crunch will affect peoples ability to buy.

[cashflow]

Another good take on the market Bugs. I think your right on as I’ve been comparing where I’d like to buy (RB, Poway, Penasquitos), to less desirable areas (Vista, San Marcos, Escondido). The less desirable areas have recently been really moving downward, while the desirable is still resisting much downward momentum. If this trend stays the same then I do believe the less desirable will start to bottom out much earlier. Just makes logical sense as you compare neighboring communities if one is significantly less, or you can get so much more for your money, where are the few buyers that are out there going to put their money. By less desirable, it usually is one major factor, the school system isn’t ranked on top, but still the schools are good. Believe me this thought has crossed my mind, just send the kids to private school if I don’t like the schools….so we’ll see how it plays out. We are of the mindset that as soon as it makes sense for us, we are buying and will stop micro-watching the market as we’ll be in for the long haul.

I believe that by the end of this year-winter 08-09, there may be some homes that will be at a decent price point for some buyers. The unknown is how interest rates and the credit crunch will affect peoples ability to buy.

[cashflow]

Another good take on the market Bugs. I think your right on as I’ve been comparing where I’d like to buy (RB, Poway, Penasquitos), to less desirable areas (Vista, San Marcos, Escondido). The less desirable areas have recently been really moving downward, while the desirable is still resisting much downward momentum. If this trend stays the same then I do believe the less desirable will start to bottom out much earlier. Just makes logical sense as you compare neighboring communities if one is significantly less, or you can get so much more for your money, where are the few buyers that are out there going to put their money. By less desirable, it usually is one major factor, the school system isn’t ranked on top, but still the schools are good. Believe me this thought has crossed my mind, just send the kids to private school if I don’t like the schools….so we’ll see how it plays out. We are of the mindset that as soon as it makes sense for us, we are buying and will stop micro-watching the market as we’ll be in for the long haul.

I believe that by the end of this year-winter 08-09, there may be some homes that will be at a decent price point for some buyers. The unknown is how interest rates and the credit crunch will affect peoples ability to buy.

[cashflow]

Another good take on the market Bugs. I think your right on as I’ve been comparing where I’d like to buy (RB, Poway, Penasquitos), to less desirable areas (Vista, San Marcos, Escondido). The less desirable areas have recently been really moving downward, while the desirable is still resisting much downward momentum. If this trend stays the same then I do believe the less desirable will start to bottom out much earlier. Just makes logical sense as you compare neighboring communities if one is significantly less, or you can get so much more for your money, where are the few buyers that are out there going to put their money. By less desirable, it usually is one major factor, the school system isn’t ranked on top, but still the schools are good. Believe me this thought has crossed my mind, just send the kids to private school if I don’t like the schools….so we’ll see how it plays out. We are of the mindset that as soon as it makes sense for us, we are buying and will stop micro-watching the market as we’ll be in for the long haul.

I believe that by the end of this year-winter 08-09, there may be some homes that will be at a decent price point for some buyers. The unknown is how interest rates and the credit crunch will affect peoples ability to buy.

[cashflow]

Another good take on the market Bugs. I think your right on as I’ve been comparing where I’d like to buy (RB, Poway, Penasquitos), to less desirable areas (Vista, San Marcos, Escondido). The less desirable areas have recently been really moving downward, while the desirable is still resisting much downward momentum. If this trend stays the same then I do believe the less desirable will start to bottom out much earlier. Just makes logical sense as you compare neighboring communities if one is significantly less, or you can get so much more for your money, where are the few buyers that are out there going to put their money. By less desirable, it usually is one major factor, the school system isn’t ranked on top, but still the schools are good. Believe me this thought has crossed my mind, just send the kids to private school if I don’t like the schools….so we’ll see how it plays out. We are of the mindset that as soon as it makes sense for us, we are buying and will stop micro-watching the market as we’ll be in for the long haul.

I believe that by the end of this year-winter 08-09, there may be some homes that will be at a decent price point for some buyers. The unknown is how interest rates and the credit crunch will affect peoples ability to buy.

[nostradamus]

I’ve been wanting to get out of my condo and buy a house for some time now, and am financially prepared but know that now is not even close to being the time to do it. Sellers are still out of touch with the market but are starting to catch on. Some companies are shutting down and laying off. Stocks are doing the dead cat bounce. The dollar is in free-fall. Inflation is up. We are bombarded daily with deceptive, placating news trying to candy-coat what’s happening to our economy. Ya, for me this is a no-brainer: it’s not the time to buy. I can’t say that things won’t get better but I can say that the future is a big, black hole. Even for me, Nostradamus. Buying a house now is like playing roulette. I won’t play roulette with $5, definitely not with half a million or more.

Thus, I’m hunkering down and looking to hire some desperate-for-work contractors to remodel parts of my condo to make it even nicer since I’ll probably be here for another two years minimum. During this time I am able to save up money for the house, so hopefully what the interest rates are doing at the time I buy will not affect me much.

I’ve asked before but didn’t get any response: does anyone know of a good contractor to do bathroom remodels and such?

[nostradamus]

I’ve been wanting to get out of my condo and buy a house for some time now, and am financially prepared but know that now is not even close to being the time to do it. Sellers are still out of touch with the market but are starting to catch on. Some companies are shutting down and laying off. Stocks are doing the dead cat bounce. The dollar is in free-fall. Inflation is up. We are bombarded daily with deceptive, placating news trying to candy-coat what’s happening to our economy. Ya, for me this is a no-brainer: it’s not the time to buy. I can’t say that things won’t get better but I can say that the future is a big, black hole. Even for me, Nostradamus. Buying a house now is like playing roulette. I won’t play roulette with $5, definitely not with half a million or more.

Thus, I’m hunkering down and looking to hire some desperate-for-work contractors to remodel parts of my condo to make it even nicer since I’ll probably be here for another two years minimum. During this time I am able to save up money for the house, so hopefully what the interest rates are doing at the time I buy will not affect me much.

I’ve asked before but didn’t get any response: does anyone know of a good contractor to do bathroom remodels and such?

[nostradamus]

I’ve been wanting to get out of my condo and buy a house for some time now, and am financially prepared but know that now is not even close to being the time to do it. Sellers are still out of touch with the market but are starting to catch on. Some companies are shutting down and laying off. Stocks are doing the dead cat bounce. The dollar is in free-fall. Inflation is up. We are bombarded daily with deceptive, placating news trying to candy-coat what’s happening to our economy. Ya, for me this is a no-brainer: it’s not the time to buy. I can’t say that things won’t get better but I can say that the future is a big, black hole. Even for me, Nostradamus. Buying a house now is like playing roulette. I won’t play roulette with $5, definitely not with half a million or more.

Thus, I’m hunkering down and looking to hire some desperate-for-work contractors to remodel parts of my condo to make it even nicer since I’ll probably be here for another two years minimum. During this time I am able to save up money for the house, so hopefully what the interest rates are doing at the time I buy will not affect me much.

I’ve asked before but didn’t get any response: does anyone know of a good contractor to do bathroom remodels and such?

[nostradamus]

I’ve been wanting to get out of my condo and buy a house for some time now, and am financially prepared but know that now is not even close to being the time to do it. Sellers are still out of touch with the market but are starting to catch on. Some companies are shutting down and laying off. Stocks are doing the dead cat bounce. The dollar is in free-fall. Inflation is up. We are bombarded daily with deceptive, placating news trying to candy-coat what’s happening to our economy. Ya, for me this is a no-brainer: it’s not the time to buy. I can’t say that things won’t get better but I can say that the future is a big, black hole. Even for me, Nostradamus. Buying a house now is like playing roulette. I won’t play roulette with $5, definitely not with half a million or more.

Thus, I’m hunkering down and looking to hire some desperate-for-work contractors to remodel parts of my condo to make it even nicer since I’ll probably be here for another two years minimum. During this time I am able to save up money for the house, so hopefully what the interest rates are doing at the time I buy will not affect me much.

I’ve asked before but didn’t get any response: does anyone know of a good contractor to do bathroom remodels and such?

[Author]

Posts