Interest Rates and House Prices

[bearishgurl]

[quote=Jazzman]Bearishgirl, I am with you all the way on Prop 13. The SD/Charlotte example was just to illustrate a point, that measures of life style, geography, weather etc alone don’t determine home values. RE is the biggest industry in CA. If memory serves me, it is a whopping 17% of GDP. The mortgage/Wall Street fusion was purportedly born in Orange County. CA has one of the largest foreclosure rates in the country. I don’t think this is all coincidence, or that people are simply “prepared” to pay higher home prices. Life-style is sold here big time, and some might argue largely on the back of Hollywood glitz and glamor, so one is “stuck” with the high prices.[/quote]

Jazzman, I don’t think a “lifestyle of glitz and glamor” are what people are buying in SD County when they purchase RE. ANY area of the US is free to “sell” its “lifestyle” and many do. I think, plain and simple that the weather in SD county is more consistent year round and year over year and less prone to natural disasters (we’ve also been lucky in recent decades in this regard). This is a BIG sell. One doesn’t need to visit here long in the winter or during hurricane season to experience the difference because between SD and Charlotte. I also think the diverse housing stock, diverse kinds of people and proximity to the Pacific Ocean and Mexico are a big draw, as well.

Foreclosures and property distress is happening everywhere in the US with some locales affected far more than others. NINJA loans were likely available in all 50 states. HELOCs and “cash-out” refis were regulated in a few states. The states with less mobility were affected the least. These “regulated states” and the ones with the least family mobility are often one and the same and are mostly located in the nation’s midsection where a young family will typically buy a 1-10 AC plot of land in the same area they grew up in and where the bulk of their family members reside. Then they will build a house on it (usually built by a family friend or relative and sometimes with the buyer’s help) and live in it for a minimum of 25 years and sometimes for life. Since homeowners don’t sell and move too much in these areas, there were few who took out NINJA loans. In addition, since buyers had constant contact with family members for counsel (legal and otherwise) during the buying process, they typically did not succumb to these types of financing pitches and instead accepted the help of family members for downpayment and rehab assistance and/or used FHA/VA financing.

[bearishgurl]

[quote=afx114][quote=bearishgurl]If this urban-sprawl was not allowed to take effect to the degree it did, it is VERY likely that new-homeowner money would instead have been used to revitalize SD’s close-in neighborhoods house by house and block by block.[/quote]

Have you been to North/South Park, Hillcrest, Normal Heights, Gaslamp, East Village, etc in the past 20 years? They’ve gentrified quite a bit, so I don’t know what your above paragraph even means. Have you expected them to gentrify more than they already have?[/quote]

Yes, afx, I am aware that these areas have “gentrified” and that East Village is actually overbuilt now with a proliferation of *new* unsold (partly vacant) condos. I go downtown 1-3 times per week, to Hillcrest several times per month and the Gaslamp several times per year. In addition, I drive thoroughfares of all of these areas frequently and originally lived in dtn SD (Banker’s Hill) from mid 70’s to the mid 80’s, where I jogged with a neighborhood group for about 10 years. In many cases, my photographic memory of parts of the SD core serves me well if a particular corner has not changed too much over the years :=]

Currently, I just don’t see very many *families* buying/renting in these areas, just singles and couples. In the past, families loved North Park/South Park, Hillcrest and Mission Hills and willingly sent their kids to public and private schools around there. For a downtown worker, it was considered *prestigious* to live in SD’s best urban areas as opposed to your old “stomping ground” in La Presa (Spring Valley) or National City, for example. Back then, all this “urban sprawl” inventory for a buyer to choose from did not exist as we know it today.

Of course, this was all PRIOR to the inception of the Community Facilities District Act (1982) and use of Mello Roos Bonds in SD County (1987), ostensibly put in place to fund infrastructure of raw land for residential development. The passage of the “MR Act” by the CA Legislature was also partly a byproduct of the earlier passage of Prop 13. Because even though MR bonds aren’t funding infrastructure in the already-established areas, they free up cities and counties to service these areas with a larger portion of their available funds due to the MR set-asides collected within the CFD’s to maintain their own separate public and private services and facilities. For instance, the City of Chula Vista is now collecting ALL of their portion of the property taxes for 3 annexed zip codes (over the original 2) and some the MR collected from those 3 zip codes. (Most of the MR collected from those 3 zip codes is used solely to fund the infrastructure and services there.) This is STILL a windfall for Chula Vista, CVESD and SUHSD because the CITY runs ALL the services (police/fire/administration/road maintenance, etc) and the DISTRICTS run ALL the schools (even those in MR areas). For example, I have no doubt that the labor-intensive 65-90 year old trees on City easements in my area are still trimmed regularly because the City is collecting so much more money from these newer HOA’d areas which are wholly or partly financially “self-sufficient” due to collection of MR, “Street Bonds” and HOA dues. Of course, property owners in my 60+ year old area do NOT pay for all the services they enjoy because a very large portion of them (35-40%?) are owned (not necessarily occupied) by persons who qualify under Prop 13 or its progeny to retain their last market-rate assessed value as of September 1977 plus 2% per year in accordance with Prop 13. This keeps their taxes artificially low in comparison to owners who have purchased since then and especially owners who have purchased since 2000.

I just don’t think most younger buyers with children today even consider looking in the close-in urban areas when they are in the market for a home because they “perceive” listed properties there to have more “maintenance,” to be located in higher-crime areas and to have “substandard” schools, etc., when actually the opposite is true. Many properties there have undergone extensive remodel in recent years. There is also far more public school choice within SD’s core than a family would have in an outlying area.

Remember that the 22-45 year old set with children are the biggest market segment of homebuyers. Younger singles and couples without children often don’t really NEED a home and wish to be in a position to be mobile, if necessary. The vast majority of singles and couples older than 45 either already HAVE home(s), will never be able to purchase a home or are now retiring and/or downsizing or will be soon. The “attitudes and biases” this younger market adopts will dictate the future values of various diverse RE market areas.

[afx114]

BG, your post doesn’t jive with what I’m seeing as a recent buyer in North Park. There are younger families with kids everywhere. On any given evening after work, my wife and I take our 11-month old to crawl around on our front lawn and are passed by two or three, sometimes up to five or six young families like ourselves walking their dogs, jogging with their baby stroller, or pulling along a wagon with a baby in it.

Maybe I live in a pocket that is the exception and not the norm, but none of what you’ve said above about my neighborhood (border of North/South Park) with regard to “younger families” is true.

[bearishgurl]

[quote=afx114]BG, your post doesn’t jive with what I’m seeing as a recent buyer in North Park. There are younger families with kids everywhere. On any given evening after work, my wife and I take our 11-month old to crawl around on our front lawn and are passed by two or three, sometimes up to five or six young families like ourselves walking their dogs, jogging with their baby stroller, or pulling along a wagon with a baby in it.

Maybe I live in a pocket that is the exception and not the norm, but none of what you’ve said above about my neighborhood (border of North/South Park) with regard to “younger families” is true.[/quote]

I’m glad to hear this, afx, as this is how I remember it. Do you know if these young families are owners or renters? And, by chance, is your home located in Burlingame?

[UCGal]

[quote=bearishgurl][quote=afx114]BG, your post doesn’t jive with what I’m seeing as a recent buyer in North Park. There are younger families with kids everywhere. On any given evening after work, my wife and I take our 11-month old to crawl around on our front lawn and are passed by two or three, sometimes up to five or six young families like ourselves walking their dogs, jogging with their baby stroller, or pulling along a wagon with a baby in it.

Maybe I live in a pocket that is the exception and not the norm, but none of what you’ve said above about my neighborhood (border of North/South Park) with regard to “younger families” is true.[/quote]

I’m glad to hear this, afx, as this is how I remember it. Do you know if these young families are owners or renters? And, by chance, is your home located in Burlingame?[/quote]

BG – I was out and about a bit this weekend and saw lots of stroller action in both north park and university heights this weekend. The place was crawling with families. I was surprised by University Heights – I lived there 30 years ago (on Park, near Adams) and it was a lot less family oriented then.

[afx114]

[quote=bearishgurl]I’m glad to hear this, afx, as this is how I remember it. Do you know if these young families are owners or renters? And, by chance, is your home located in Burlingame?[/quote]

Not Burlingame, but very close. I’m not sure if they are owners or renters, but the recent landscaping, painting, etc lead me to believe that most are owners.

[sdrealtor]

Do you mean to tell me BG was antiquated in her viewpoint and completely off base? Nahhh…..couldnt be!!!

[Jazzman]

[quote=bearishgurl][quote=Jazzman]Bearishgirl, I am with you all the way on Prop 13. The SD/Charlotte example was just to illustrate a point, that measures of life style, geography, weather etc alone don’t determine home values. RE is the biggest industry in CA. If memory serves me, it is a whopping 17% of GDP. The mortgage/Wall Street fusion was purportedly born in Orange County. CA has one of the largest foreclosure rates in the country. I don’t think this is all coincidence, or that people are simply “prepared” to pay higher home prices. Life-style is sold here big time, and some might argue largely on the back of Hollywood glitz and glamor, so one is “stuck” with the high prices.[/quote]

Jazzman, I don’t think a “lifestyle of glitz and glamor” are what people are buying in SD County when they purchase RE. ANY area of the US is free to “sell” its “lifestyle” and many do. I think, plain and simple that the weather in SD county is more consistent year round and year over year and less prone to natural disasters (we’ve also been lucky in recent decades in this regard). This is a BIG sell. One doesn’t need to visit here long in the winter or during hurricane season to experience the difference because between SD and Charlotte. I also think the diverse housing stock, diverse kinds of people and proximity to the Pacific Ocean and Mexico are a big draw, as well.

Foreclosures and property distress is happening everywhere in the US with some locales affected far more than others. NINJA loans were likely available in all 50 states. [/quote]
Not sure you can entirely isolate SD from the rest of CA, where very similar conditions exist, or that you can boil it down to things like environmental factors such as weather. Moscow has miserable weather, but has very high prices. Arizona has a lot of sun, yet comparatively low prices. California is in the top five states with the highest foreclosures, but where home prices are over twice as much. Prices didn’t correct as much as Las Vegas due mainly to supply. Supply has a huge effect. Monaco is an extreme example of this. Incomes have another effect as can be seen in NY and London. Cheap credit is a major culprit as can be seen in the English speaking world.

Another factor in sticky high prices that I am personally experiencing is falling prices. That seems like a contradiction, but many of the homes I have been making offers on can’t accept FMV, whether they be REOs or normal sales, due to outstanding loan balances. More interesting is the reluctance of many brokers to make offers that reflect FMV. Most seem happier to make offers based on outstanding loan balances. My question to these owners is why should I bail you out? I could equally ask some buyers why are they willing to bail them out, which leads us get back to the bubble addiction hypothesis? So you see a dark cloud seems to be obscuring the sunshine theory.

[bearishgurl]

[quote=Jazzman]Not sure you can entirely isolate SD from the rest of CA, where very similar conditions exist, or that you can boil it down to things like environmental factors such as weather. Moscow has miserable weather, but has very high prices. Arizona has a lot of sun, yet comparatively low prices. California is in the top five states with the highest foreclosures, but where home prices are over twice as much. Prices didn’t correct as much as Las Vegas due mainly to supply. Supply has a huge effect. Monaco is an extreme example of this. Incomes have another effect as can be seen in NY and London. Cheap credit is a major culprit as can be seen in the English speaking world.

Another factor in sticky high prices that I am personally experiencing is falling prices. That seems like a contradiction, but many of the homes I have been making offers on can’t accept FMV, whether they be REOs or normal sales, due to outstanding loan balances. More interesting is the reluctance of many brokers to make offers that reflect FMV. Most seem happier to make offers based on outstanding loan balances. My question to these owners is why should I bail you out? I could equally ask some buyers why are they willing to bail them out, which leads us get back to the bubble addiction hypothesis? So you see a dark cloud seems to be obscuring the sunshine theory.[/quote]

No, Jazzman, SD County is NOT isolated from other heavily-populated CA coastal counties in this regard. They’re ALL subject to having a percentage of distressed properties due to overborrowing and overpaying in the past decade. ALL of the CA coastal counties are highly desirable to different subsets of people for different reasons … even the semi-rural and rural counties. There’s only ONE CA coastline and its beauty sells for whatever that particular locale will bear. This will never change.

In addition, counties such as San Francisco, San Mateo and Santa Clara have a higher-paying job base than SD County and SF and SM Counties have been “built-out” for many decades. This keeps supply low and increases demand for whatever housing is available. Even extremely well-located close-in properties in Alameda and Contra Costa County (East Bay), especially SFR’s, are highly desirable and recent sold prices reflect this. Nearly ALL SFR’s =< 3 mi from the coast in Marin Co and =<2 mi from the coast in Santa Barbara Co are HIGHLY desirable, size and condition being of secondary consideration. And there isn't even much of a job base in those counties. You can't compare coastal CA to AZ and NV. They are apples and oranges. AZ and NV are hot deserts and Phoenix and LV are situated on the desert floor and are among the few hottest places in the US. Any traveling or Russian Piggs, help me out here please, but I believe nearly EVERY head of household in Moscow is eligible for rental assistance from the government, making “landlording” there a very lucrative and much less risky endeavor than in the US. Hence, the higher prices for properties there. Any available properties are likely 85-90% multifamily buildings. Monaco has the same problem as SF Co, SM Co, Coronado, Catalina Island, Balboa Island (in the OC), etc. It is what it is.

********************

You are correct, Jazzman, in that you don’t have to offer what the “outstanding loan balance(s)” is/are on a property just to be the “selected bidder” on an overencumbered property. It’s not your responsibility, as a buyer, to “bail out” any of these fools. You need only offer what you feel a property is worth, based upon nearby comparable recent sold comps. Many of these sellers still HAVE a good portion of the money they “cashed out” on their properties in recent years tucked under a mattress or locked in a safe. Let some other sucker be the “winning bidder” (lol) and let their appraiser and inspector shoot the deal down and let them cancel their escrows because of it. If these sellers are struggling to keep up their payments or seller-deadbeats don’t care to make their payments, let them try to “convince” their lender(s) to sell short or take little to nothing from the sale. Let their credit be shot in the process. Let them get foreclosed upon if they have been “living for free,” saving living expenses (and also any cash they extracted from their properties and have hidden). They deserve it.

The solution to your problem, Jazzman, and to making a successful straightforward deal you will be happy with is to deal with a seller with plenty of equity … even a free and clear seller. I can assure you that they ARE around :=]

[Jazzman]

Just wish I could find more of them.

[bearishgurl]

[quote=Jazzman]Just wish I could find more of them.[/quote]

If you are having problems finding them, you are likely looking in the wrong place 🙂

[Author]

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