North County Coastal Inventory

[sdrealtor]

Several months back I wrote many times about how low the inventory was for decent 4BR homes under 850,000 in Encinitas and the part of South Carlsbad that falls in the San Dieguito school district and how it would prevent prices from chunking down. I consider a decent 4BR home to be at least 2400 sq ft and be either built after 1990 or recently remodelled very well.

I had checked in to see what the inventory looked like and just ran a quick check. I fully expected that the inventory would be considerably higher as sales have been very slow and more expensive homes should have dropped into this price range by now.

There are only 3 actives (one of which is in a lousy location and barely fits this category anyway). The other 2 have been on the market 32 and 16 days. Neither was previously listed and they will probably sell in the next 2 weeks. There are 3 in escrow. One is a foreclosure in La Costa Oaks and another is a short sale in Encinitas Ranch. That left one non-distressed pending with a pre-bubble (1995) owner.

My guees was that people would dig in and stop trading houses like cars. To date that is what seems to be happening. I know what is in the foreclosure pipeline and thus far it is very minimal around here. I have to say for the first time I can remember that I have absolutely no clue what is going to happen this Spring.

[davelj]

Well, the “better” markets are the last to fall. And they generally don’t fall as hard. So, we’ll see.

On a slightly different topic, I believe you mentioned in a different thread that you were seeing foreclosures that would cash flow. I haven’t seen this, although I am now seeing properties – mainly in south San Diego – in which the rent would cover the mortgage (and HOAs) with conventional financing (20% down). In fact, there are more than a few of these now. But this is relatively recent, as in within the last two months.

But I still haven’t seen anything anywhere that would cash flow after taking into account maintenance, vacancies, etc. But at least rents that cover the mortgage is a step in the right direction.

Have you seen specific properties where the rent would cover the mortgage AND all operating expenses (including vacancies), which generally eat up 25%-35% of rents?

[davelj]

Well, the “better” markets are the last to fall. And they generally don’t fall as hard. So, we’ll see.

On a slightly different topic, I believe you mentioned in a different thread that you were seeing foreclosures that would cash flow. I haven’t seen this, although I am now seeing properties – mainly in south San Diego – in which the rent would cover the mortgage (and HOAs) with conventional financing (20% down). In fact, there are more than a few of these now. But this is relatively recent, as in within the last two months.

But I still haven’t seen anything anywhere that would cash flow after taking into account maintenance, vacancies, etc. But at least rents that cover the mortgage is a step in the right direction.

Have you seen specific properties where the rent would cover the mortgage AND all operating expenses (including vacancies), which generally eat up 25%-35% of rents?

[davelj]

Well, the “better” markets are the last to fall. And they generally don’t fall as hard. So, we’ll see.

On a slightly different topic, I believe you mentioned in a different thread that you were seeing foreclosures that would cash flow. I haven’t seen this, although I am now seeing properties – mainly in south San Diego – in which the rent would cover the mortgage (and HOAs) with conventional financing (20% down). In fact, there are more than a few of these now. But this is relatively recent, as in within the last two months.

But I still haven’t seen anything anywhere that would cash flow after taking into account maintenance, vacancies, etc. But at least rents that cover the mortgage is a step in the right direction.

Have you seen specific properties where the rent would cover the mortgage AND all operating expenses (including vacancies), which generally eat up 25%-35% of rents?

[davelj]

Well, the “better” markets are the last to fall. And they generally don’t fall as hard. So, we’ll see.

On a slightly different topic, I believe you mentioned in a different thread that you were seeing foreclosures that would cash flow. I haven’t seen this, although I am now seeing properties – mainly in south San Diego – in which the rent would cover the mortgage (and HOAs) with conventional financing (20% down). In fact, there are more than a few of these now. But this is relatively recent, as in within the last two months.

But I still haven’t seen anything anywhere that would cash flow after taking into account maintenance, vacancies, etc. But at least rents that cover the mortgage is a step in the right direction.

Have you seen specific properties where the rent would cover the mortgage AND all operating expenses (including vacancies), which generally eat up 25%-35% of rents?

[davelj]

Well, the “better” markets are the last to fall. And they generally don’t fall as hard. So, we’ll see.

On a slightly different topic, I believe you mentioned in a different thread that you were seeing foreclosures that would cash flow. I haven’t seen this, although I am now seeing properties – mainly in south San Diego – in which the rent would cover the mortgage (and HOAs) with conventional financing (20% down). In fact, there are more than a few of these now. But this is relatively recent, as in within the last two months.

But I still haven’t seen anything anywhere that would cash flow after taking into account maintenance, vacancies, etc. But at least rents that cover the mortgage is a step in the right direction.

Have you seen specific properties where the rent would cover the mortgage AND all operating expenses (including vacancies), which generally eat up 25%-35% of rents?

[sdrealtor]

The properties I have seen were attached with HOA fees that cover alot of the maintenance. They are in areas that rent well. The rent of the units would be on the low end of rents for comparable size properties so that should help them stay rented also. I think 25 to 35% for maintenance is a bit high but maybe I’m wrong.

The units that I like are selling at least 100,000 below peak prices and these units sold that high a few dozen times. My thought is if you are sitting on a bunch of cash getting 4 or 5% in the bank these units are starting to look good. At current prices they will provide 4 to 6% returns to a cash buyer, a tax loss annually and potentially a 6 figure upside in 10 years or less.

[sdrealtor]

The properties I have seen were attached with HOA fees that cover alot of the maintenance. They are in areas that rent well. The rent of the units would be on the low end of rents for comparable size properties so that should help them stay rented also. I think 25 to 35% for maintenance is a bit high but maybe I’m wrong.

The units that I like are selling at least 100,000 below peak prices and these units sold that high a few dozen times. My thought is if you are sitting on a bunch of cash getting 4 or 5% in the bank these units are starting to look good. At current prices they will provide 4 to 6% returns to a cash buyer, a tax loss annually and potentially a 6 figure upside in 10 years or less.

[sdrealtor]

The properties I have seen were attached with HOA fees that cover alot of the maintenance. They are in areas that rent well. The rent of the units would be on the low end of rents for comparable size properties so that should help them stay rented also. I think 25 to 35% for maintenance is a bit high but maybe I’m wrong.

The units that I like are selling at least 100,000 below peak prices and these units sold that high a few dozen times. My thought is if you are sitting on a bunch of cash getting 4 or 5% in the bank these units are starting to look good. At current prices they will provide 4 to 6% returns to a cash buyer, a tax loss annually and potentially a 6 figure upside in 10 years or less.

[sdrealtor]

The properties I have seen were attached with HOA fees that cover alot of the maintenance. They are in areas that rent well. The rent of the units would be on the low end of rents for comparable size properties so that should help them stay rented also. I think 25 to 35% for maintenance is a bit high but maybe I’m wrong.

The units that I like are selling at least 100,000 below peak prices and these units sold that high a few dozen times. My thought is if you are sitting on a bunch of cash getting 4 or 5% in the bank these units are starting to look good. At current prices they will provide 4 to 6% returns to a cash buyer, a tax loss annually and potentially a 6 figure upside in 10 years or less.

[sdrealtor]

The properties I have seen were attached with HOA fees that cover alot of the maintenance. They are in areas that rent well. The rent of the units would be on the low end of rents for comparable size properties so that should help them stay rented also. I think 25 to 35% for maintenance is a bit high but maybe I’m wrong.

The units that I like are selling at least 100,000 below peak prices and these units sold that high a few dozen times. My thought is if you are sitting on a bunch of cash getting 4 or 5% in the bank these units are starting to look good. At current prices they will provide 4 to 6% returns to a cash buyer, a tax loss annually and potentially a 6 figure upside in 10 years or less.

[TheBreeze]

Foreclosureradar.com agrees with your assessment, sd:

http://www.foreclosureradar.com/free-foreclosure-search.php?&Location=92024

That site shows only six 4-bedroom, 2500+ sq. ft SFRs in the 92024 zip code that are in various states of foreclosure.

My understanding is that smaller residences were purchased by subprime borrowers. Those mortgages began to reset in earnest in 2006. The bigger residences in more posh areas like Encinitas were purchased by ‘prime’ borrowers using pay option ARMs. Those mortgages begin to reset in earnest this year. Thus, my guess is that we’ll see places like Encinitas start to take a hit later this year. And since these places were purchased using Pay Option ARMs, you’ll see massive mortgages as compared to the value of the associated homes.

A pretty decent article on Pay Option ARMs can be found here:

http://www.toomre.com/Pay_Option_ARM_Worries

This LA Times article suggests that the second tide of the mortgage defaults are about to start. After reviewing data from mortgage industry data trackers, the author concludes that Pay Option ARM borrowers — “most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity” – are having severe delinquency problems that are tied to the loose lending practices that inundated the sub-prime business. Pay Option ARM loans often were granted on the basis of stated income, not proof of a borrower’s income, giving rise to their nickname, “liar’s loans.”

[TheBreeze]

Foreclosureradar.com agrees with your assessment, sd:

http://www.foreclosureradar.com/free-foreclosure-search.php?&Location=92024

That site shows only six 4-bedroom, 2500+ sq. ft SFRs in the 92024 zip code that are in various states of foreclosure.

My understanding is that smaller residences were purchased by subprime borrowers. Those mortgages began to reset in earnest in 2006. The bigger residences in more posh areas like Encinitas were purchased by ‘prime’ borrowers using pay option ARMs. Those mortgages begin to reset in earnest this year. Thus, my guess is that we’ll see places like Encinitas start to take a hit later this year. And since these places were purchased using Pay Option ARMs, you’ll see massive mortgages as compared to the value of the associated homes.

A pretty decent article on Pay Option ARMs can be found here:

http://www.toomre.com/Pay_Option_ARM_Worries

This LA Times article suggests that the second tide of the mortgage defaults are about to start. After reviewing data from mortgage industry data trackers, the author concludes that Pay Option ARM borrowers — “most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity” – are having severe delinquency problems that are tied to the loose lending practices that inundated the sub-prime business. Pay Option ARM loans often were granted on the basis of stated income, not proof of a borrower’s income, giving rise to their nickname, “liar’s loans.”

[TheBreeze]

Foreclosureradar.com agrees with your assessment, sd:

http://www.foreclosureradar.com/free-foreclosure-search.php?&Location=92024

That site shows only six 4-bedroom, 2500+ sq. ft SFRs in the 92024 zip code that are in various states of foreclosure.

My understanding is that smaller residences were purchased by subprime borrowers. Those mortgages began to reset in earnest in 2006. The bigger residences in more posh areas like Encinitas were purchased by ‘prime’ borrowers using pay option ARMs. Those mortgages begin to reset in earnest this year. Thus, my guess is that we’ll see places like Encinitas start to take a hit later this year. And since these places were purchased using Pay Option ARMs, you’ll see massive mortgages as compared to the value of the associated homes.

A pretty decent article on Pay Option ARMs can be found here:

http://www.toomre.com/Pay_Option_ARM_Worries

This LA Times article suggests that the second tide of the mortgage defaults are about to start. After reviewing data from mortgage industry data trackers, the author concludes that Pay Option ARM borrowers — “most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity” – are having severe delinquency problems that are tied to the loose lending practices that inundated the sub-prime business. Pay Option ARM loans often were granted on the basis of stated income, not proof of a borrower’s income, giving rise to their nickname, “liar’s loans.”

[TheBreeze]

Foreclosureradar.com agrees with your assessment, sd:

http://www.foreclosureradar.com/free-foreclosure-search.php?&Location=92024

That site shows only six 4-bedroom, 2500+ sq. ft SFRs in the 92024 zip code that are in various states of foreclosure.

My understanding is that smaller residences were purchased by subprime borrowers. Those mortgages began to reset in earnest in 2006. The bigger residences in more posh areas like Encinitas were purchased by ‘prime’ borrowers using pay option ARMs. Those mortgages begin to reset in earnest this year. Thus, my guess is that we’ll see places like Encinitas start to take a hit later this year. And since these places were purchased using Pay Option ARMs, you’ll see massive mortgages as compared to the value of the associated homes.

A pretty decent article on Pay Option ARMs can be found here:

http://www.toomre.com/Pay_Option_ARM_Worries

This LA Times article suggests that the second tide of the mortgage defaults are about to start. After reviewing data from mortgage industry data trackers, the author concludes that Pay Option ARM borrowers — “most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity” – are having severe delinquency problems that are tied to the loose lending practices that inundated the sub-prime business. Pay Option ARM loans often were granted on the basis of stated income, not proof of a borrower’s income, giving rise to their nickname, “liar’s loans.”

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