Notes from Ground Zero

[RightSide]

I’m planning to buy a house shortly and spent the last couple of days looking at places, mostly in the Carlsbad / Encintas area.

I’m looking for about 3,000+ sq feet nice family home in a neighborhood of young families, where there are kids riding their trikes together on the street. Price is not an issue for me.

I’ve checked out both re-sale and new construction and from a buyers perspective, I have a lot of choices right now. Our realtor was telling us that the tenor has definately changed, with sellers bending over backwards to accomodate our schedule, etc.

The first thing, is that they sellers of the re-sales are not scared yet and I think its going to be a while before they do get scared. One of the owners told me that they were selling because they had reached the $500K ceiling on capital gains and they wanted to take advantage of that. Almost all of the re-sales I looked at, the owners were sitting on large price gains.

The second thing I noticed, is that there are a still a lot of buyers out there. In talking with realtors, it seems that a lot of people are moving down from Orange County and there are a lot of wealthy empty-nesters buying much bigger homes then you’d might think.

It seems right now, that the new developments are pricing their product correctly and their sales are brisk. We looked at the Bressi Ranch (a very cool neighborhood, but I think too far from the coast for our taste) and that place is almost sold out completely and will be very shortly. While maybe 12 months ago they could have sold out the whole place in a day, the sales are still very strong. We looked at the Magnolia neighborhood $2M homes that were very formal on big lots and the Canterbury 3-4,000 sq foot homes ($1-1.2M) that were really nice.

There were a ton of people looking at these places, the Canterbury said they had 7 homes left and that they would be gone in the next 2 weeks.

I don’t believe any of the 650 homes in Bressi Ranch get recorded in the MLS do they?

The one new home development in carslbad I really liked was the Bay Collection (by Standard Pacific homes), they are really nice and many of the homes have ocean views. It feels connected to the coastal area and looks like it will be very family centric little neighborhood. Its right off of Poinsetta on the 5 freeway. The homes we liked are between 1.2 and 1.5M for about 3,000 sq feet with a pool size lot. They are selling about 2-3 a week and have I think about 30-40 homes left out of about 165. The sales office here was packed and doing a brisk business.

All in all, I’d say the market is still healthy at this time at least in Carlsbad…

[sdrealtor]

Tend to agree with you. Bressi has put many of their standing inventory into the MLS and sell them at big discounts. The worst thing for a builder to have is an unsold and completed house. They will do alot to get them sold. I have heard of people negotiating 100K plus discounts at the Bay Collection + landscaping allowances+ lender bonuses etc on standing inventory. I dont know if you’ll find a pool size lot with an ocean view in the BAy Collection as standing inventory but if that is where you like there are deals to be had. Have at it!

[picpoule]

I have no data to back this up, but I think that for those for whom price is no object, the higher end market will stay stronger and/or take longer to soften. The wealthy can always afford expensive homes. But I would not want to pay the property tax on a $2.5 million dollar home, plus exobitant HOA dues and other fees, even if I could afford it.

[4plexowner]

I agree, to some extent, that the high end of the market has a demand factor that is fairly consistent. People with real money (and intelligence) do well in both good and bad economic times.

The question in my mind is where do we draw the line between “high end” and all the rest of the market?

That line, IMO, is at least $2.5 million and probably more like $4 mil.

And I’m referring to the people who buy these properties with cash – not the people who have to carry debt on them.

As the economy and real estate market continue to soften, there will be plenty of today’s $2.5 million houses sold in distress sales.

As you mentioned, taxes on 2.5 mil are significant. At 1.1% that is $27,500 per year or $2290/month. That’s a big nut to crack even without a mortgage on top of it!

I’m expecting a 40% decline in premium properties (views, prestige areas, etc). That would make the 2.5 mil house a 1.5 mil house.

In a distress sale, you might expect another 20-30% discount if you came in with cash. That’s $1.2 mil for today’s $2.5 mil house.

And since we’re talking about expensive real estate, when will we have enough Mediterranean style 3000+ SQFT houses? The last time I looked through one of those glossy ‘dream real estate’ magazines most of what I saw was different versions of the same basic theme. Why would I pay $5-30 mil for a rectangular box with Mediterranean features that looks like all the other Meditteranean styled boxes?

[powayseller]

I remember RightSide, you did not like my posts Sell Now and the Benefits of Renting. Of course you can ignore my advice, and I do wish you all the best. On the plus side, your property taxes will be reduced by 50% in 5 years, as property values decline. A little something to look forward to… All kidding aside, I hope you find the home you love, and get a great deal. It sounds like you are informed, can handle a possible 50% decline in value, have a secure job that will withstand the recession, and will have a 15 or 30 yr fixed rate mortgage. With all that in place, enjoy your new home. And welcome to San Diego!

[picpoule]

I agree with your comment abou all the Mediterranean style 3000+ sq. ft. homes. These are not custom homes, they’re just expensive tract homes! Give me Laguna Beach any day! Oops — except for the property taxes, at least as those custom homes are priced in Laguna today.

[dukes]

I am sorry to say this, but I think RightSide is being a little foolish. So what if you have the money to pay for it. Buying now makes no sense.

There are some very wealthy men out there John Mauldin for one, Paul McCulley of Pimco for another who are both renters right now.

Why? Because they are smart investors. It is just FOOLISH to overspend for anything, be it a loaf of bread of a box to live in.

Come to your senses, if money is no object, rent a gorgeous place but don’t lose hundreds of thousands of dollars in value just because you are impatient. Come on, think a little before you act.

[davelj]

It is NOT necessarily foolish for someone to be buying right now. As everyone who has taken a little economics knows, all individuals have varying indifference curves relative to one another. In this case, the curve plots money vs. convenience. People are willing to trade one for the other in varying amounts depending on their personal circumstances and attitudes. There are plenty of people who don’t give a rat’s ass whether their house declines by 35%; they’re either very wealthy such that such a decline doesn’t really affect their lives and/or they’re willing to take the hit because the convenience of getting settled is “worth it”.

Again, I believe we’re in a bubble. I believe lots of people are going to suffer in the coming real estate decline. But having said that, there are PLENTY of people out there who are justified in buying right now because of their personal circumstances and attitudes.

I enjoy these forums, but sometimes I scratch my head and think, “How do these people manage without some semblance of economic understanding?” There are books written on many of the economic topics addressed herein (inflation, currencies, behavioral issues, etc.) that will do a far more thorough job of explaining such topics than this forum allows.

[4plexowner]

I agree. Housing costs have to be considered relative to overall wealth.

If you can pay cash for a multi-million dollar house, go for it! Live large, baby, live large!

There have been several posts in these forums by people for whom “money is not an object” but they always mentioned that they would be getting a fixed rate mortgage that they could handle.

There’s something about this scenario that doesn’t make sense to me.

When someone claims that money is no object to them and they use that as part of their rationale for taking on debt, I have to assume that they haven’t heard the adage: “People who understand interest collect it while those who don’t pay it.”

There’s another adage that comes to mind: “A fool and his money are soon parted.”

[lostkitty]

I am having the same feelings about RightSide’s post. If money is not a factor, and he wants a “family neighborhood with kids on tricycles”… then why on earth would he pick Carlsbad/Encinitas? Maybe he is so wealthy that his children can attend private school? – Sitting in traffic for hours just trying to get south to all of the good ones… – Maybe family lives nearby (which i doubt since he was asking us about neighborhoods). The public schools up in that region pretty much suck – let’s face it. If money is not an object he would seek a good school district at least. I am thinking this is sdrealtor trying to prove his point about there being lots of money out there for whom the high prices of homes are no object.

[lostkitty]

If I am wrong sdrealtor… gomen nasai….

[JJGittes]

The schools “suck” in that region? Don’t the two elementary schools near the Bay Collection (Aviara and Pacific Rim) both score above 900 on the California API? All the schools in California should “suck” that bad….

[lostkitty]

Key words “in California”. Look at the national level.

[Anonymous]

Nothing wrong with the public school for students residing in the Bay Area Collection. Aviara Oaks Elementary scores in the tenth decile (highest).

Other elements of Rightside’s post do not match my experience. I looked at Bressi Ranch. On the day I was there, I was offered $40K off the already reduced price if I signed the contract immediately. I didn’t.

Currently, I am renting in Aviara waiting for the other shoe to drop.

[lostkitty]

http://www.rand.org/pubs/monographs/2004/RAND_MG186.pdf

Just scroll down to page 5 and start reading there…

PS found my kitty and need to change my screen name…

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