Help!

[roooooous]

I have been reading this site for about the last 7 months. I stumbled across it months ago when I worked for a homebuilder here in the San Diego area and wanted to know more about the industry I was working in.

Anyway, I have been reading the site for a long time now and have grown to appreciate the “other” side of the story that I get here. IN my three years at this particular builder, there was never a bad word said about this industry or the wisdom of buying a home here in San Diego. (Perhaps for good reason – I was there during the fat years).

But since leaving -only 45 days ago- I have already heard alot of grief from my former coworkers, about how tough sales are and how margins are shrinking… it sounds rough. and not only have I read many articles which show qunatifiable truth to the doom and gloom (from this site and others), I have seen it with my own two eyes in my personal wanderings through the area, which as we all know, makes it all the more real.

So above and beyond all the bad news that seems imminent and having a first hand account of the market shift from my work to perusing Craigslist and the like, I still found myslef looking at properties throughout the area. and even putting an offer in on one that my wife and I really like in the Normal Heights area. its a condo (gulp!) conversion (double gulp!!). But i swear its nice, and the wife loves it, we offered 20% below list price and the offer was accepted….

so I guess my question is this. I see Rich’s analysis on So Cal markets, and I hear national trends telling me to stay away from real estate, but if Rich is to be believed, and the market will drop 25%, have I not just wethered 20% of the drop through my low ball offer? Is it going to continue to plummet every weekend from now to when I close escrow? Will San Diego condos ever go for $250k, a price I would/could/might pay in suburban Detroit?

I have learned from this site that I can no longer look to real estate as an investment opportunity, or at least not one that will afford me a new Hummer. But I do think this condo that we are looking at could house me and the wife, maybe a kid someday… and could do so for the next 6 years. But i am jsut terrified of it being 6 years later and having to sell the place for $25, $50, $100k???? less than I bought it.

We can afford it now, but I wonder about later? Is the 25% drop STILL going to happen? after my own personal 20% drop?

HELP!

[sdduuuude]

Did you offer 20% below the asking price or 20% below the market price?

If the market price is $200K and it was for sale at $250K and you offered 20% under asking price – you paid the market price and are due for a 20% surprise.

If the market price is $200K and it was for sale at $200K and you offered $160, you aren’t in horrible shape.

[Anonymous]

Dude, it sounds like there’s money burning a hole in your pocket. I don’t know of any good reason to buy that place now. No one knows how far down this slide is going to go. I think that a condo-conversion in SD might actually drop more than 50% during this bust cycle. Why not rent and let the risk be borne by someone else? Do you think that the 20% reduction you got just by asking is going to disappear if you don’t act now? If so, then you should buy. If not, then rent a nice place for the next few years. You don’t have kids, so this could be a great opportunity to rent a place that you couldn’t have as a family…like a small place right on the ocean, or something equally impractical but fun. I hear that there are a lot of downtown condos aching for tenants.

[bgates]

‘Confirmation bias’ is the idea that people seek out information that agrees with their own instincts. You’re seeking opinions at a place where bulls think the market’s coming down 20%, moderates think it’ll be cut in half, and bears anticipate some combination of the Great Depression, Mad Max, and Lord of the Flies.

I don’t think you’ll be comfortable sitting in that condo wondering if your life’s savings is going to evaporate.

[powayseller]

If this condo sells at 20% off current prices, think how cheap it will be in 3 years at 20% of 2009 prices. Condos will be hit hardest, and condo conversions will be almost impossible to sell in 5 years. Why not rent, and buy a little house? Condos are not the best for kids -no yard, hauling a stroller and groceries up the stairs with a baby to carry – a real pain in the rear. The best situation with kids is a remote garage door opener, and you pull in and can unload everything conveniently. Believe me, I have 3 kids, I know how much carrying of stuff is involved.

What kind of job do you have now? Is it secure enough to handle the housing downturn?

If you can handle a further 20% – 30% equity drop, the financing on a fixed rate mortgage, and have job security, then jump in.

But be prepared that if you choose to sell whenever there is a glut of inventory, you also will be forced to sell at “20% off the price”, just like the seller today, because condo conversions carry a stigma of apartment grade construction for a condo price. Besides, there are thousands of them…

[barnaby33]

Regardless of the percentage of the coming drop, we are just at its beginning. No matter how good a deal you strike, you just pretty much set the roof for comparable pricing for a while. We have a few years to go for catching the falling knife is worth the risk.

As to what you are buying, condo conversions are old. They are mostly apts that will need much more maintenance over the years than comparable new construction. Are you buying into a community that will be willing/able to do that work?

Josh

[lendingbubblecontinues]

“Re-partments” will likely continue to drop in price in San Diego and Detroit and everywhere for that matter…would not want to be the bagholder there.

Speaking of suburban Detroit, it seems to me that one should be able to get a mansion for $250K out there, not a condo. What’s up with that? (I know some parts are very nice, but $250K for a condo..c’mon) The answer is this must be a classic “bubble”.

Beyond all this…why not rent a place like the one you want to buy for a year and, with the extra money you were going to throw away on PITI, after learning how, go out and buy some PUTS on companies that should suffer as this thing comes crumbling down? You may come out way ahead or you may just break even…who knows?

Good luck to you…God knows we are all in trouble when the market has become so soft without any real shocks to the financial system, eh?

[ocrenter]

here’s my two cents,
granted condo conversions are old, not well built. but would it pencil out as a rental when you and your family outgrow it and get sick of it. (and you will). if you would be cash flow positive with the condo as a rental, buy it. but make sure you kept money aside so when you want to purchase a real home in 3 years you have the down payment to do so.

another thing to consider is how far along the project are these guys? are they almost done and out of there? if so, you are a lot safer. if these guys are not half way thru with their sales, you may be looking at purchasing a unit in a property that might go back as a re-apartment. I do believe there are stories already circulating about some SD condo conversions doing that already.

best of luck and keep us updated

[roooooous]

Thanks to everyone for the comments. When I posted at midnight, I didnt think I’d get a nice glut of responses by 7:48.

In response to powaysellers questions, I dont know that anyone could afford a 20% drop in equity. Like I mentioned, I think the place is big enough where we could wait out a downturn for 6 years, but maybe 6 years from now, we are still in the downturn? I dont know if I can hang on 14 years… you know? I dont understnad how anyone can buy a house; it seems so permanent. I dont know what I want to do tomorrow, let alone 6 months from now.

But I guess the real kicker is this. Ive put togehter some detailed spreadsheets and tried to be realistic about long terms price appreciation and salary expectations for myself and my wife and my wife when she doestn work anymore (kids). And no matter what I plug in for numbers, I always get a number that says after 30 years I will be better off having bought a house as opposed to renting for that same time period. I have to believe all first time homebuyers would struggle with this the first go round, being a bit “house poor” to start, so I dont know how to reconcile it all.

Im sold on the place itself, the location is a good mix of affordability and lifestyle, but I just dont trust the market right now. But I know I should 30 yrs from now, so i struggle.

Again, I appreciate the responses.

[(former)FormerSanDiegan]

Why not wait 4-6 months ?

Just track this condo “convo” complex for a few months. Even in the best of times (1998-2005) prices did not increase much in the last half of the year.

Watch this like a hawk for 4-6 months and see how far prices move, then make the decision.

[lindismith]

Yes, when I scratch out the numbers with that 30-year figure, it makes sense to me too, BUT
1. I know there’s no way I’m going to stay in the same place for 30 years. I know I’ll want to move from a ‘starter’ and trade up. How can I trade up, if house values are going down?
2. If I buy now, I’m sure to lose money as the market is headed south. Do I really want to lose $10, $20K, $30K in the next 1-5 years, just for the sake of owning a home?

This is why I stay put.

It’s hard to not get emotional about the purchase. Everyone wants a home. It’s natural.

[an]

I don’t believe all 1st time buyer have to be house poor when they first started. I know people who bought their first house, around 1600 sq-ft in Mira Mesa, around 1996 for $125k. They were able to pay for everything and have 4 kids on 1 income. Now, after they refi, their mortgage is only around 700-800/month. I think if you wait, that time will come again. I don’t know when that is, but like all cycles, good time to buy will come if you’re patient enough to wait.

[powayseller]

rooous, what are the inputs and assumptions to your spreadsheet? Most people calculate based on tax deductions and homes rising with inflation. If a home loses 5 – 10% of its value each year, in 5 years you can be down 25-50%, so how could you possibly be ahead? I don’t understand.

[HereWeGo]

Condo conversions will be utterly crushed in the coming years. How will they compete against condos actually built to condominium standards (which themselves are currently facing serious depreciation at the leading edge of the downturn)?

[powayseller]

Exactly! Condo conversions are already under a cloud. For that reason, you got such a reduced price; they are already hard to sell. People don’t want to buy an apartment grade unit for a condo price, and they are rightfully concerned about the reveral of these buildings to rental units. Once over half of the tenants in the building are renters, many lenders refuse to give you a loan, so the property may be possible to sell ONLY to a landlord in the future. For the same price, someone will buy a condo. Why not – there are thousands to choose from?

The first lesson I had in Real Estate: condos don’t hold their resale value as well as a home.

Apartment conversion condos will get crushed.

rooouuus, back out of this deal. You’ll be so glad. In 6 months, you will write to us how glad you are you waited. For the same money, you can buy a single family home in a few years, with a yard for the little one to romp in….

[Author]

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