As biased as you can get….

[Pasadena Broker]

I’ve been reading this site from time to time…I know most are ‘out’ of the market and are watching for something either ‘big’ or gradual to happen. Maybe a train wreck in either slow motion or within a quarter.

I get asked questions everyday, yes, everyday in regards to what I think about the market and where it’s going. From the postings I’ve been reading, everyone, well…most, seem to be an analytical and critical group.

My response in a nutshell is “Don’t hold your breath.” If you’re going to put off purchasing a home, hey, that’s your prerogative. However…

There are people that won’t put their living situation on hold and wish to move into something different or need to make an adjustment to their mortgage. It happens everyday and it’s a factor that will never change. One of the older brokers I know, someone with 20+ years of experience which would be at the least 2 real estate cycles, and at the most, 4 cycles depending on what numbers, figures you take (and as we all know, data is objective, interpretation is subjective) has echoed this sentiment and it’s something I understand. “Don’t hold your breath”.

And why do I write this, because it brings me to this article I read on CNNMONEY in regards to real estate and mortgage brokering:

http://money.cnn.com/2006/02/13/real_estate/closingcosts_money_0603/index.htm

Read it. It’s an interesting and good read. I don’t agree with it, but that’s just me. The article seems biased, and it follows the current tone/voice of how most of us are depicted in the same light as a used car dealer. And I won’t put up a strong argument that it’s completely wrong, I’ve seen some sketchy things run across me. Makes me shake my head, but, ‘so…this is the world’ is what my uncle would say and as I got older, that statement held more meaning.

Which brings me to this point: At some point in your life, you will purchase real estate. Real estate, as long as the concept of property ownership exists, it will always be and remain, a transaction between people. Not just the buyers and sellers, but a connection and ‘rubbing of elbows’ with a number of people that are involved in the transaction. And of all the deals that I’ve personally transacted and been a witness to, I’ve learned that you cannot put a price on peace of mind. There is, I believe, several people on this site that are involved in real estate that seem knowledgeable and well versed in what they do. Having them in your corner during a purchase/sale transaction of a product (isn’t it what it is?) worth a percentage of the thousands, and for others, millions, an investment…not just a purchase, like purchasing a pair of jeans or shoes? Just my two cents, agree/disagree. Thanks for reading this far.

Thank you everyone for keeping this forum running with opinions and thoughts in regards to one of my personal favorite subjects, real estate. And I know market conditions are varying between regions (I’m in the Pasadena area, that’s Southern California)…if you’re waiting for something to happen so you can ‘swoop in’ and pick all the deals, take a number and don’t hold your breath.

[LA_Renter]

I always welcome contrarians to these boards, it keeps everybody honest. I guess in response to your post “I’m holding my breath” You make a very good point that people won’t put their living situation on hold but in the case of Southern California there is no choice but to put that on hold or leave, which people are doing in droves. Simply put home prices are not supported by incomes virtually anywhere in the state of California.

Here is what is going to happen, these over priced homes are going to sit on the market as they are now and just sit. The people who have to sell will begin competing against each other in order to close the deal. And you will see and are already seeing the price per sq ft nose dive. Southern California is facing a huge storm of foreclosures because people took out exotic loans banking on continued appreciation of their homes. They gambled and they lost. They can’t make their payments and the potential buyers will not take out these loans when they see prices falling. How far this thing tanks, i really don’t know. Right now the disparity between what people pay in rent verses the financial cost of owning is too great in face of a falling market. I save over $1k per month renting verse owning (after tax break). Combine that with flat and falling prices, it literally makes no financial sense to own. We are in totally unchartered and untested waters here. I have no problem holding my breath when I’m saving more money.

[Bugs]

As for holding your breath I suppose it depends where a person is in the buy-hold-sell decision. The only people who should be sweating are the people who have exposure to losses. At the moment that includes thousands of 2004 and 2005 buyers and anyone who has maxed out their mortgage ATM in the last couple years. Of these people, some are actually smart enough to see how precarious their situations are (hence are sweating); while the others are too dumb to realize how bad their situation already is.

People who currently have no skin in the game have no rational reason to not continue to wait. The market is going down, and the decline isn’t that slow. There is no 3-year financial upside to getting in at the moment. If you want to preach the emotional benefits of owning the right to win or lose in the property ladder game then feel free. However, I think your message would be better received on one of the investor/flipper boards out there. Those guys love soft-landing predictions.

[PD]

I sold my house in anticipation of downturn and would not say that my life is on hold. I don’t like renting but I am living a pretty nice life in a house I could never come close to buying (it is worth double what I could just barely afford). If I bought, my standard of living would decrease because I would have a much smaller house with fewer perks.

If we purchased a house, my monthly expenditures would increase significantly. Plus, I would have to invest most of my money in the house in order to buy it. That money is currently earning a return. If I add together the return I’m getting on my cash (expecting only a modest 5%) plus the difference between what I would pay in my mortgage and what I’m paying in rent, I come up with a number that equals fully one half of our family’s yearly income! The property would HAVE to appreciate at least 5% a year for me to break even.

Further, the added burden of a monstrous mortgage would force me to put my life on hold because I would not be able to afford to do anything but hang out in my cramped living room.

On a separate note, a friend was just offered a great job in Orange County. The couple really wanted to take the job as they would love to live in proximity to the ocean and really like SoCal. However, even though the money was better than other job offers they received, they reluctantly turned the job down in favor of a less expensive location. Not only are people moving away, they are also deciding not come here at all.

[zk]

I, too, welcome contrarian points of view. Especially ones with a decent argument behind them. The view expressed above is “don’t hold your breath.” Which I take to mean, “prices won’t fall that much.” But the only supporting evidence that I see behind this particular view (and of course could be missing something, correct me if I am) is that “There are people that won’t put their living situation on hold and wish to move into something different or need to make an adjustment to their mortgage. It happens everyday and it’s a factor that will never change.” While that is all true, it has very little bearing on what’s coming next. The same thing has been true during every real estate bust in history. Yet there have been busts. Big ones.

If you have other reasons why you think prices won’t fall much, I’d be interested to hear them.

[Peace]

Submitted by PD
“…even though the money was better than other job offers they received, they reluctantly turned the job down in favor of a less expensive location. Not only are people moving away, they are also deciding not come here at all.”

This has been going on for several years. I have many friends who have been offered positions here in CA with salaries that would make most people salivate, but these are intelligent people and not fools, they look at the whole picture and just say no.
I had never put this together with the numbers of people who are leaving.

[JES]

The remarks about people leaving and deciding not to come are so true, and there is a recent thread on this called “Should Young People Leave California.” Still interesting for those of you who are not young anymore!

Bottom line is that if you are well educated and are a doctor, lawyer, engineer etc. you can make it work in San Diego, especially if you are married and your wife/husband have a well paying job, and especially as home prices continue to fall. On the other hand, if like most people you are in a lower paid profession like teaching, social work, policing, fire fighting, many business fields etc. it is going to be difficult, especially if you are young and haven’t bought yet.

What is clearly happening is that these young, middle class, often college educated people who have not yet bought and are not in lucrative careers are leaving. San Diego is going to become a land divided between an upper class and a lower class to serve them with little in between. It’s why Lou Dobbs called his new book The War on the Middle Class.

Thankfully, the escape valve is that there are hundreds of great cities out there where a middle class family can own a great home and live the good life. I plan to move to one of them! My wife and I are late 20s, early 30s, have two children, both college graduates and even have some equity from a previous home but still can’t afford the life we want here.

[BuyerWillEPB]

I agree with LA Renter. Personally, I have no choice but to “wait on the sidelines,” is the line I hear so much lately. Of course I sit there, I was priced out of the market years ago.

As far as not “holding my breath,” as Pasadena Broker cautions…

From what I see at http://thehousingbubbleblog.com/?p=1670 today, It’s the sellers in that condition, not the buyers.

Quoted:

“‘We consider it a success story,’ Shelly Taylor said Friday. ‘We paid the closing costs and met some other demands, too, but that’s really what you have to do. We were holding our breath there,’ she said, as the home competed with six others for sale nearby in the neighborhood.”

[Mexico Resident]

Pasadena Broker, you might be right but you’ll have to provide a reason. Just saying “Don’t hold your breath” won’t cut it. What do you think of the YOY declines in many So Cal areas?

[PerryChase]

Renting is not putting your life on hold. Consider that most buyers only live in their houses less than 5 years. That sounds like speculating with ownership to me.

The key is not owning or renting but affording a lifestyle that bring you pleasure and rewards. If you rent a nice house that’s affordable and invest the savings, then you’re building on your future.

What does it matter if the landlord owns the house or the bank owns the house? From the inhabitants’ perspective, it’s their net worth that counts.

The argument that not buying is “holding your breath” is not holding water to me.

Yeah, it’s the sellers who are “holding their breath” right now. 🙂

PS: I own a house but that’s only because I bought it many years ago. I would rent rather than buy today.

[rankandfile]

We can either hold our breath or drown in debt. I'd rather hold my breath, thank you. Do you have any other data samples or arguments aside from a biased viewpoint of a 20-year industry veteran? I am still waiting for more compelling arguments from you and others in your industry as to why I should not wait to purchase a home. Now that's something I won't hold my breath for.

[Mark Holmes]

Yes, exactly. We renters have no choice but to sit it out. Our household income is just above the median and we cannot come close to affording a house in this town, fixer-upper or not. I would assume that prices will drop until people can afford them again. It’s as if the average price of a car went from $20,000 to $60,000 in the last 10 years. I’m not going to buy a $60,000 Hyundai either. I spent some time talking to a bank employee last night whose job it is to “help people hold onto their homes” who are on the verge of foreclosure. He says the numbers of people in over their heads due to the last few years of irresponsible lending (my words)are huge. I’m a little nervous what the next few years will bring but my partner and I hope that we will eventually be able to afford a small fixer-upper house in San Diego. But if three years from now, a 1950s run-down cottage in Normal Heights is still over $300,000, we can always move to another state.

[santeeman]

This guy makes a good point. Houses are comming down a little on the whole, and a huge amount for the “screwed”. I have seen a few houses in the past couple of months come down $100 thousand and they were gone in a couple of days. But the listings are not climbing higher, they have come down a little, sales and a lot of expired listing I expect http://www.benengebreth.org/housingtracker/location/California/SanDiego. I have friends that didn’t buy in the 90’s and kept saying not for $200,000, not for $300,000,(and they could afford it) and now its out of the question for everyone who isn’t a doctor and a lawyer. Now that they have made 500 thousand for their landlords’, not to mention what they are paying in rent,(close to 2000) now the rents are on the rise so that the landlord’s can make their payments and the forecloser’s are gonna send folks into the rental market, which occupancy is at like 95%. http://www.realfacts.com/7262006.html
It may not come down to the levels folks are thinking here. “Don’t hold your breath” like my neighbors did.

[Anonymous]

One flaw in your argument is the line:

“Which brings me to this point: At some point in your life, you will purchase real estate”

You act like purchasing houses in S. Cal at these prices is compulsory, and is required for living. That is obviously not true. I don’t have to pay $1 million for a fixer in Poway. I just don’t. Worst case, I can simply move to a non-bubble area and buy a better house than the Poway one for about $350k. I’ve done it before, so I know I can live very comfortably in a less expensive area.

I’ve owned various real estate from 1993-2006. I am all cashed out now, and what I’ve discovered is the rather obvious fact that I don’t have to buy again. I can sit on cash indefinietly, or I can buy tomorrow. But it is my choice what to do, no one is going to cause me to take on a big financial commitment out of fear that I “have to” buy real estate again.

[lendingbubblecontinues]

I’m not too concerned about those who will be foreclosed on pushing up rents…

They will be living in campgrounds or moving back in with “Mom and Dad” (assuming the parents are solvent, of course)….NOT competing with me for 2500 sqft. SFR’s in nice areas….who in their right mind would rent to someone who has just been foreclosed on?!?!?

Yawn….let the collapse continue…

[Author]

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