Derby Hill Owners

[housingbear]

SD Realtor,
Not sure if I can agree with your comment that the developers will be well suited to deal with the downturn. Just talk to the CFO’s of these companies and listen to what they have to say. They’re extremely worried right now and praying that the good fortune they’ve seen thus far in 2007 will continue. These companies got a little too used to the good ol’ days of pre-selling and lottery size demand for their homes. Those days are long gone and now they are scratching their heads on how to deal with limited demand on dirt they paid a premium for 3 years ago. Just ask one of those guys how they feel about carrying existing inventory on the books past their fiscal year end.

[Raybyrnes]

A lot of these companies have insulated themselves with credit derivitives. Markets implodes these products protect them form the downside. It hurts profitability but provides stability.

[4plexowner]

That’s cool, housingbear – best of luck to you

[Anonymous]

Perry, questions in regard to Japan in the ’90s:

1. Did the Japanese government have the ability to borrow near unlimited amounts and run deficits in an attempt to pump up the Japanese economy in the ’90s?

2. Will our federal government, in the face of a lousy economy, falling tax receipts, already huge deficits, and falling confidence by foreigners to fund further deficits, have that same borrowing ability? If yes, at what interest rate?

3. Were the Japanese net savers at the start of their lost decade?

4. Were Americans net savers at the start of our upcoming lost decade?

For me, these identify what I believe are the key differences between Japan in ’89 and the U.S. in ’07. We have no safety net, either in current savings or ability to borrow at reasonable rates, I believe.

[sdcellar]

housingbear– No nerves struck here either. Your post just struck me as pennywise and pound foolish. You seem pretty sharp on all of this otherwise.

[SD Realtor]

Housingbear you could be correct. However, I think that the developers cope much better then resellers. We have seen that the developers were quite proactive slashing prices on existing stock, cutting back on staff, and severely reducing the number of homes per phase. Similarly developers have already taken writedowns on land purchased and eaten the deposits. In fact I was reading about a large purchase that a developer had given up on about 10 months ago, at the deposit, and is now rebuying that same land.

I guess we’ll see what will happen. I believe there very well may be some consolidation in the case of developers stock prices dropping to book value. I guess we will see.

Overall I believe that the developers margin is way more then any of us would estimate and that they are more apt to survive then many would believe.

SD Realtor

[hipmatt]

A closed escrow is completely different than a “sold out” phase from the sales agents mouth. Just wait and see how many of these homes close escrow. The local tracts here always say a phase is sold out, but then they give you a list of all the homes that fell out of escrow. Ans since people don’t have to sign loan docs until a few days before move in, I bet there will be many more falling out of escrow.

[jztz]

US and Japan — I agree with JG that there are some meaningful differences between the US now and Japan 10 to 15 years ago. I’d also give two more differences:
a) income inequality is much less in Japan, and social welfare (healthcare) is stronger. Hence it’s easier for common folks to get by in a very slow economy. In fact, because of deflation, living standards didn’t go down much. Regardless of whether there is a recession and/or how severe it is, the lower half of the US population will be hurting – that’s my belief.
b) Workforce is much less mobile in Japan. That prolonged the downturn, BUT ALSO GAVE WORKERS LOTS OF TIME TO ADJUST (or not adjust for that matter). So the adjustment in the US will be quicker, and a lot more painful for those who’re impacted.

[gn]

I agree with SD Realtor about the developers’ ability to survive. Builders like Pardee have been around for many decades. They have been through a few real estate cycles.

In a downturn, the prices of building materials go down. Same for labor costs & land prices. It’s still possible to make money.

[rhinopham]

HousingBear,
I was in the same position you are in now in October 2006…waiting for the big first purchase but also dreading it knowing that the market is definitely going nowhere but down. The Derby development is difficult in that respect because it seems that in the face of everything, they are actually able to get rid of most of their inventory. They do so buy keeping the prices the same phase after phase instead of incremental increases (I think they realize that being the soft market that it is they can’t get away with that). Being said, we bought a plan 2 that fell out of escrow for about 55k off their sticker price (all bells and whistles minus floors). Prices will definitely be lower in the next 2 yrs but if you need to buy now, get one that falls out of escrow so you can haggle them down. Your reasons for entering the market right now are your own but for us, we figured we’ll be here for a long time and both have stable jobs in the healthcare sector so can ride out a prolonged slump (looking to stay in this house for a good 8-10 yrs at least), and the lot that fell out had a huge backyard with a canyon view which are rare with the derbies (usually the lots are about 7000 sq ft).
That being said, no mello roos, HOA is about $39/month, water bill about $80/month, gas and electric varies depending on the month but our best bill approx. $130, worst during the winter was $340 (had in-laws in town for a few weeks so had to keep it toasty). Landscaping as remarked upon before just depends on how much you want to fork out. We’re putting in a pool with automated cover, have to soft/hardscape approx. 10,000 sq feet so a little over 100k (including the pool). Seriously though, if your life situation allows, wait a yr or two and pick up the distressed derbies that come back on the market already up to the gills with upgrades/landscaping and gobble those up at a hefty discount; I wish I did even though the prices haven’t shown much depreciation yet (YET).
rhino

[Sandi Egan]

We could have been having this conversation two years ago and we both would not have believed these homes would be selling for what they are today – and we both would have been wrong.

What makes you think that two years ago you’d be wrong? I was about to buy a home almost two years ago. I even paid the deposit. Thanks to Professor I made the smartest financial decision of my life – bailed out. If I didn’t, right now I’d be under water by more than 100 kilobucks.

5 years ago you could have bought a house and gained, yes. But only if you were smart enough to get rid of it at 2005-2006 peak.

[Anonymous]

dear rhino,

do you have plan 2 with solar panels? (I hope your figures for electricity aren’t with the solar panels)

Also, did you buy & moved-in in Oct? We just bought a 2C in January, and my “incentive” less than yours at ~40K… shucks.

Lastly, would you recommend your landscaper (who is it?)

[rhinopham]

wontanamo,
We have a 2B without solar panels. We closed escrow mid October, immediately started the flooring and moved in by late October. House came with most of the bells and whistles but flooring had to be provided for. We’re using Ideal for our landscaping since they have impressive lighting package. B&D had really good prices but are really skimpy regarding amount of softscape and lighting. San Diego Landcare Systems is all right but are on the high side regarding price and nit pick you for every little item.

[housingbear]

SD Realtor,
You make some good points. I did not mean that the developers would go the way of the sub-prime lenders, I just meant that they are by no means outside the influences of this market. Pardee wont go down, but they will get hurt.

Thanks for your insight.

[housingbear]

Rhinopham,
Thank you very much for the information. It was very helpful. For the next phase release I was quoted that HOA and Mello Roos would be $100 each.

I’m sure I’ll be back in touch as timing gets closer with respect to making a purchase. Assuming I actually decide to pull the trigger.

One more question. I assume that If I decide to buy in the next phase release, I’d have to put up some good faith money to hold the home. This next phase wont be move-in ready until December, at which time Pardee could be experiencing a very different situation. So, let’s say in December there is standing inventory at greatly reduced prices – couldn’t I just walk away from my good faith money and pick up one of these lower priced homes with no further penalties or obligations?

Anyone know the answer?

[Author]

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