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bearishgurl.
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August 8, 2012 at 11:44 AM #749744August 8, 2012 at 2:38 PM #749760
Jazzman
ParticipantBG, a willingness to pay does not necessarily mean homes aren’t over-priced. After all, people showed willingness to buy at the height of the bubble, and homes very clearly weren’t worth what someone was willing to pay. Willingness to pay is a concept borrowed from fine art auction houses, where superfluous cash of high net worth individuals is seeking an alternative place to park itself. The same cannot be said of ‘common or garden’ real estate. ‘Deceived into believing’ might be a more appropriate term that still describes the prevailing ethos.
August 8, 2012 at 3:18 PM #749764spdrun
ParticipantOK. Let me get this straight for you first. A primary residence is a consumption rather than an investment. You move up because your income justifies higher consumption level rather than for “investment” purpose.
If you’re not an f’en idiot, a primary residence can be both. I wouldn’t own a primary that I can’t rent out next week and walk away from for a year, while maintaining a small income from the rental.
August 8, 2012 at 3:26 PM #749766an
Participant[quote=spdrun]
OK. Let me get this straight for you first. A primary residence is a consumption rather than an investment. You move up because your income justifies higher consumption level rather than for “investment” purpose.
If you’re not an f’en idiot, a primary residence can be both. I wouldn’t own a primary that I can’t rent out next week and walk away from for a year, while maintaining a small income from the rental.[/quote]
A primary residence can be both, but they’re not both if you’re living in it. So, it is not both. Unless you happen to also have roommates and have them pay your bill. As long as you’re living in it and paying mortgage on it with no income coming from it, it’s not an investment. If you consider it as an investment, then it’s a horrible investment that you’re spending thousands each month with no cash return.August 8, 2012 at 3:33 PM #749767ParticipantBut if you bought smart, you’d also be SAVING a significant amount of $ over renting the same residence.
August 9, 2012 at 1:12 PM #749863bearishgurl
Participant[quote=Jazzman]BG, a willingness to pay does not necessarily mean homes aren’t over-priced. After all, people showed willingness to buy at the height of the bubble, and homes very clearly weren’t worth what someone was willing to pay. Willingness to pay is a concept borrowed from fine art auction houses, where superfluous cash of high net worth individuals is seeking an alternative place to park itself. The same cannot be said of ‘common or garden’ real estate. ‘Deceived into believing’ might be a more appropriate term that still describes the prevailing ethos.[/quote]
Jazzman, nobody’s arm is getting broken, here. Even when the prevailing interest rate on a fixed mortgage was 7.5%, 10.5% or even higher, SD Co buyers were still willing to pay MUCH more for properties situated in coveted coastal areas … condition be damned.
Historically, unless independently “wealthy,” a newcomer cannot expect to waltz into SD Co and have all or even most of their housing wants and dreams filled initially. For a worker bee, this has typically taken at least 25 years for a dual-income couple to achieve, and that is thru selling/buying laterally or a little up several times while still being able to raise a family in the interim.
Perhaps in a state such as TX, a young newlywed couple (w little help from parents/wedding gifts) can buy an exurban Mcmansion on 1/2 to 1 AC straight out of the gate (w/humungous property taxes, lol). Not so in SD Co, CA.
And correct me if I’m wrong, but IIRC, about 35% of 2011 residential sales in SD Co were all cash sales, so the prevailing mtg interest rate had nothing to do with how much people were willing to pay. Granted, many of these sales were “distressed” and so closed at prices below fundamentals but nevertheless, they closed in every zip code.
You can’t change this “ethos,” Jazzman. It is what it is.
And so I understand you were frustrated with the SD Co market …. so you moved away.
It was the right thing for you to do, IMHO.
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Ignorant and self-serving buyers buying with 100%+ NINA financing during the “millenium boom” should not be compared to buyers who bought before the boom or after the crash, as these buyers actually had to have a downpayment and “qualify” for financing or pay cash.
The bulk of those “millenium-boom buyers” you are referring to did not care what the sales price was. The properties they made offers on were likely out of their league (before, during and after the boom) and they were shown a way to “get in” by an unscrupulous mortgage broker recommended by their unscrupulous agent. (I know a few like this.)
All these boomtime buyers could envision was “living there.” During this era, some buyers literally moved from Tijuana, their (local) parents’ back bdrm or granny flat, their vehicle or a trailer/motorhome into these homes they could never in a million years actually “afford.”
“Millenium-boom” borrowers (subprime in particular) and “mainstream” borrowers (who bought before and after the boom) are two completely different animals.
August 9, 2012 at 1:47 PM #749868Participant[quote=spdrun]But if you bought smart, you’d also be SAVING a significant amount of $ over renting the same residence.[/quote]
Yes, but that doesn’t change the fact that the money you spent on your primary resident is consumption and not investment.August 9, 2012 at 2:05 PM #749875briansd1
GuestThe amount you spend on shelter is consumption. But your house is an asset so it can definitely be an investment.
A painting can be decoration and consumption. But it could be an investment too. You’re better off if things you enjoy are also investments.
August 9, 2012 at 2:48 PM #749894no_such_reality
ParticipantThat’s a primary difference between rich and poor.
The poor, that includes basically all of us on this blog, buy a poster of a Monet or a Monet knock-off to hang on the wall.
The rich buy a Monet.
When the poor need to raise money, they sell critical assets (their $401K, stocks, etc). The rich sell the Monet.
August 9, 2012 at 3:11 PM #749897GuestYou don’t need to buy a Monet.
You can buy a painting up to the $10,000 range and still have it be an investment. You need to research a little bit. In the mean time, you leave your walls blank with nothing but perhaps pictures you take yourself.
It’s better than buying a bling car with bling wheels.
A car can be an investment too, but there are maintenance and operating costs.August 9, 2012 at 4:08 PM #749905ParticipantBG, here’s some numbers. I haven’t cherry picked, and these are all “immune” La Jolla and post bubble prices.
Dec 29, 1988 Sold (Public Records) $620,000 Jul 09, 2012 Sold (Public Records) $1,085,000 75% more expensive over 24 yrs
Dec 28, 1999 Sold (Public Records) $650,000 Jul 03, 2012 Sold (Public Records) $1,045,000 60% more expensive over 13 yrs
Mar 01, 1995 Sold (Public Records) $275,000 May 25, 2012 Sold (MLS) $1,110,000 300% more expensive over 17 yrs
Oct 12, 2000 Sold (Public Records) $795,000 Jun 19, 2012 Sold (Public Records) $1,125,000 42% more expensive over 12 yrs
Jan 25, 1995 Sold (Public Records) $375,000 Jul 03, 2012 Sold (Public Records) $1,268,000 238% more expensive over 17 yrs
Oct 10, 1991 Sold (Public Records) $568,000 Jun 11, 2012 Sold (Public Records) $1,275,000 124% more expensive over 21 yrs
Mar 10, 1988 Sold (Public Records) $340,000 Jul 02, 2012 Sold (Public Records) $1,280,000 276% more expensive over 24 yrs
Jun 30, 1989 Sold (Public Records) $530,000 Jul 24, 2012 Sold (Public Records) $1,350,000 155% more expensive over 23 yrs
Jan 20, 2000 Sold (Public Records) $810,000 Jun 01, 2012 Sold (Public Records) $1,335,000 65% more expensive over 12 yrsAv 148% more expensive, av time span 18 yrs
How do you get to the low to mid six figures, to seven figures in less than two decades …post bubble?! Interest rates? Wages? Inflation? Population? So I don’t think it’s that prices were always high, just things have changed. Perhaps prices weren’t allowed fully to correct? If so, how does that bode for the future? And the biggy …does it mean homes are still over-priced? I rest my case 🙂
Yes, I’m well out of it, but I hope that doesn’t exclude me from the debate.
August 9, 2012 at 5:09 PM #749909Participant[quote=Jazzman]BG, here’s some numbers. I haven’t cherry picked, and these are all “immune” La Jolla and post bubble prices.
Dec 29, 1988 Sold (Public Records) $620,000 Jul 09, 2012 Sold (Public Records) $1,085,000 75% more expensive over 24 yrs
Dec 28, 1999 Sold (Public Records) $650,000 Jul 03, 2012 Sold (Public Records) $1,045,000 60% more expensive over 13 yrs
Mar 01, 1995 Sold (Public Records) $275,000 May 25, 2012 Sold (MLS) $1,110,000 300% more expensive over 17 yrs
Oct 12, 2000 Sold (Public Records) $795,000 Jun 19, 2012 Sold (Public Records) $1,125,000 42% more expensive over 12 yrs
Jan 25, 1995 Sold (Public Records) $375,000 Jul 03, 2012 Sold (Public Records) $1,268,000 238% more expensive over 17 yrs
Oct 10, 1991 Sold (Public Records) $568,000 Jun 11, 2012 Sold (Public Records) $1,275,000 124% more expensive over 21 yrs
Mar 10, 1988 Sold (Public Records) $340,000 Jul 02, 2012 Sold (Public Records) $1,280,000 276% more expensive over 24 yrs
Jun 30, 1989 Sold (Public Records) $530,000 Jul 24, 2012 Sold (Public Records) $1,350,000 155% more expensive over 23 yrs
Jan 20, 2000 Sold (Public Records) $810,000 Jun 01, 2012 Sold (Public Records) $1,335,000 65% more expensive over 12 yrsAv 148% more expensive, av time span 18 yrs. . . [/quote]
Jazzman, I didn’t look at any of your recent sold comps because there were no links provided. They appear to all be equity or “traditional sales” since they were all last purchased well before the boom years.
An avg of 148% over 18 years (didn’t check your math) is only 8.2% appreciation per year assuming all these sellers did absolutely nothing to their properties during the pendency of their ownership . If all of these properties are in LJ, they are all likely 35-80 years old. Doing nothing to a LJ property, even a property owned only five years is NOT the norm in this area. The typical homeowner in LJ likely spends $100K ++ on remodeling and upgrades (windows/roof/exterior doors/landscaping, appls, etc) in an 18-year-long period of ownership. Because the Coastal Commission review is involved to remodel on many of the lots there along with the City (and SDG&E and adjoining owners for overhead easements), it is NEITHER CHEAP NOR FAST to have anything permitted in most areas of LJ.
You’re assuming these owners bought the same homes 12-24 years ago as the homes in the sold comps you are seeing today.
Nothing could be further from the truth. In many cases, these properties have a different footprint and are twice as big as well as highly upgraded over what they represented when they were last sold.
[quote=Jazzman] . . . How do you get to the low to mid six figures, to seven figures in less than two decades …post bubble?! Interest rates? Wages? Inflation? Population? So I don’t think it’s that prices were always high, just things have changed. Perhaps prices weren’t allowed fully to correct? If so, how does that bode for the future? And the biggy …does it mean homes are still over-priced? I rest my case 🙂
Yes, I’m well out of it, but I hope that doesn’t exclude me from the debate.[/quote]
Assuming arguendo that a steady 8.2% annually is too much profit to make on a residential property in SD’s finest neighborhood, what percentage of avg profit per year do you think an owner SHOULD make upon sale?
Let’s take your “reasons for LJ property inflation” one by one … all references will be to buyers of single family homes in LJ.
Interest rates?
If you’re referring to mtg interest rates, why should one assume everyone who purchases in LJ cares about them? What is the percentage of all-cash sales there? And, of the percentage of buyers who DO take out a mortgage, why do they bother doing it? Do they NEED one to purchase the property? Or do they want to write off a certain amount of MID from their income taxes? How many buyers take out a 20-50% LTV mtg for a personal residence in LJ, only to retire it a few months/years later when they receive a stock option payout or don’t need to deduct the MID anymore?
Wages?
Why should one assume that the typical buyer in LJ cares about wages? Are they a worker-bee? Or are they an executive or biz owner or medical/dental/legal professional who is paid according to how many clients they brought in and/or success of the company/firm? How about buyers who are actually royalty from another country or celebrities buying second homes? The list goes on …
Inflation?
Inflation really hasn’t come into the play in the 24-year time period you gave here EXCEPT possibly late 1995 thru 1998 (for San Diego Co RE). This is when SD Co recovered from a few large defense contractors shuttering their doors or exiting the county.
Relatively speaking, $620K in ’88, $568K in ’91 and $530K in ’89 were HIGH PRICES back then!
Even if small fixers, $275K and $375K in ’95 are very, very good deals and reflect the deep RE recession that SD was currently experiencing at that time.
Population?
The population of LJ (SFR’s – not PUDS or condos) really hasn’t changed in 35+ years. There is only so much land there and the prime SFR areas were built up long ago. There is only ONE LJ in the world. Why on earth would anyone expect it to “correct itself??” :=0
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I have a question for you Jazzman … Was LJ proper where you were looking for a SFR to buy before you got frustrated with the local market there and left SD? And if so, and you had been successful making an acceptable deal there, would it have been the first property you owned in a CA coastal county?
August 9, 2012 at 5:38 PM #749916pemeliza
Participant“Dec 29, 1988 Sold (Public Records) $620,000 Jul 09, 2012 Sold (Public Records) $1,085,000 75% more expensive over 24 yrs”
Jazz, this is your argument that prices are still substantially too high in La Jolla?
First, let’s consider the annual appreciation rate of 2.36%. How does that compare to the annual inflation rate over the last 24 years?
Second, let’s look at mortgage rates. The average 30 year fixed rate mortgage the last week of 1988 was 10.76%. Today’s average 30 year fixed interest rate is around 3.5%. Current interest rates are 1/3 of what they were back in 1988.
August 9, 2012 at 5:51 PM #749919Participant[quote=pemeliza]. . . Second, let’s look at mortgage rates. The average 30 year fixed rate mortgage the last week of 1988 was 10.76%. Today’s average 30 year fixed interest rate is around 3.5%. Current interest rates are 1/3 of what they were back in 1988.[/quote]
LOL, pem. Indeed it was 10.76%. At that time, we had a 10% mtg taken out in ’86!
And imagine that! A property in “stalwart” LJ STILL sold for $620K that year while my 4 bdrm/3 ba home in lowly “working-class” SD was worth approx $112K!!
August 9, 2012 at 7:55 PM #749931Participant[quote=bearishgurl][quote=Jazzman]
******************************************I have a question for you Jazzman … Was LJ proper where you were looking for a SFR to buy before you got frustrated with the local market there and left SD? And if so, and you had been successful making an acceptable deal there, would it have been the first property you owned in a CA coastal county?[/quote]
I chose La Jolla because prices are at the stickier end of the spectrum. If you do the same analysis on many other places, coastal or otherwise, the price differential over the same period is an eye opener. Homes are over-priced. It’s a lot to pay for what you get, doesn’t matter what, so no justification in my view. I’m not swayed by arguments of affordability, or location.
To your question, we looked at La Jolla, Del Sur, Encinitas, Laguna Beach, Pasadena, Marin County, but decided the best of all places was Santa Barbara. We could afford a home in most of these places, but that wasn’t the issue here. I believe there is an innate sense of value for money (sadly being eroded by easy money). Many homes lacked aesthetic appeal, build quality, with tons of deferred maintenance. In a nutshell, pretty disappointing.
My experience with real estate is not confined to the last few years, nor just in the US, so my perspective is going to differ somewhat from yours.
Now I have a question for you? What is your interest in real estate?
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