Portico fair price

[g2006]

Today I was at Portico. We like Plan one

The pricing is 676,900 and sq ft 2165 (3 bed 2 bath).

Pricing seems to be going down. For example

Plan Four today’s list price is 711900

In MLS the same plan was bought 2 years back for 802K (I understand there must have been some upgrades) but still it looks the price is reduced

http://www.sdlookup.com/Property-DA307A60-6085_Roselle_Meadows_Trl_San_Diego_CA_92130

05/08/2006 $802,704

The cons I see ab’t portico is

1. The schools and shopping centers are not near
2. Pardee own lot of land they will keep building and people will prefer new homes than old ones.
3. Only side yard

I’m in the market to buy in the next 6-12 months

Carmel valley stats as posted by SD Realtor shows a strong market.The prices are not falling 30-50%

My questions are

1. What will be the reasonable price for Portico 2100+ sqft home.
2. Is there any new developments which are comparable to Portico(500-700 range) starting in carmel valley 92130 zip code. Is there any website which can help to find this info.
Will appreciate any insight

[temeculaguy]

I am confused about the “only a side yard” from the overhead photo on the link they all look like they have back yards and quite few have pools. Is it that they don’t have much of a front yard? Who uses their front yard anyway?
If there’s no backyard at all then it does affect price because the pool of buyers is smaller for that particular lifestyle.

CV will be one of the last areas to decline and I doubt that will fully materialize in the next 6-12 months, we are still six months out from the height of the resets and even further before the desirable areas feel the effect of the shortage in move-up buyers. The planning commision with jurisdiction over that area is where you can find out what is going to be developed in the future but sdrealtor probably can answer questions about what is in the works for the near future.

[temeculaguy]

I am confused about the “only a side yard” from the overhead photo on the link they all look like they have back yards and quite few have pools. Is it that they don’t have much of a front yard? Who uses their front yard anyway?
If there’s no backyard at all then it does affect price because the pool of buyers is smaller for that particular lifestyle.

CV will be one of the last areas to decline and I doubt that will fully materialize in the next 6-12 months, we are still six months out from the height of the resets and even further before the desirable areas feel the effect of the shortage in move-up buyers. The planning commision with jurisdiction over that area is where you can find out what is going to be developed in the future but sdrealtor probably can answer questions about what is in the works for the near future.

[fsbo]

As it’ll be a brand new one, does the price include any options & upgrades, or just barely nothing?

[fsbo]

As it’ll be a brand new one, does the price include any options & upgrades, or just barely nothing?

[garysears]

I think the "reasonable price" is a question you must answer yourself to your own satisfaction. It is probably dangerous to rely on some quasianonymous blogger of dubious merit to be a financial expert for you. I am referring to myself and not SD Realtor. That being said, many people here are extremely smart, experienced, and helpful and provide persuasive data and arguments to consider. You should find out how much a Portico 2100+ sqft home rents for. How much does it cost to own per month and how much could you rent it for? Around the point those 2 values near each other, taking into account various factors, buying as an investment (not counting on speculation or excessive appreciation) starts to make sense and you have found the amount the house should "reasonably" cost. I'm firmly of the belief that real investors (not speculators) are reasonable people. And when they start to buy, values are reasonable because they are actually making real money at a return that makes sense. The current vast difference between the cost to own vs rent is more or less the "bubble". Of course it is an oversimplification but it gets you started looking in the right place. There "should" be a fairly consistent correlation between rents and prices. I don't think you can make an exception for the current market strength. If a particular area is really appealing, it seems logical to me that the rents should be correspondingly higher. So, even though you are talking about homes out of my price range I think the same factors and considerations should generally apply. I would mention that on average the carrying cost to own a mortgage seems to be around 2x the cost to rent everywhere in SoCal. You might ask yourself what are your personal reasons for desiring to buy right now? If there are factors about owning a particular home that you are willing to overpay for, then don't worry about a "reasonable" price. Very few people here will recommend buying at all right now. The very word "reasonable" seems to reflect the idea that prices are currently overinflated even if the market is still seemingly strong. Otherwise the market rate today is reasonable. Like everyone, you wish someone could predict the floor for a specific area or property. Have prices found something of a firm floor in Carmel Valley? If you can't answer that definitely, then you can't say prices aren't going down 30-50%. It sounds like they have alrady dropped at least 10-12%. That isn't that much considering the runup. I don't see it as much of a deal that an 800K home is now 700K. But maybe it is. You should turn the question around and ask if you believe it is possible for prices to appreciate any more? Appreciation is the only thing that can make up the difference between rent value and mortgage carrying costs. If they can't go up and you don't think they'll go down much, you are looking at a sideways market. And it becomes more important in my mind to consider the cost to own vs rent in light of the downside risk to owning. I'm not a real estate guy at all and I would trust SD Realtor to know what the current market is like. However, it sounds like the future market is what you are really concerned about. Maybe it would help to consider the line of reasoning I used for not buying anywhere in San Diego. Granted, I don't know anything about Carmel Valley, but I'm willing to cast a wide net. It got my attention when I began to consider if it is really possible to inflate prices any more. Because someone has to buy these homes. At the time interest rates were the lowest in history, yet the data showed the majority of people the past few years had been taking out interest only or negative amortization loans with minimal downpayment hoping to maximize leverage. This is also the only way they could "afford" the already inflated prices. In order to keep people in the game and also let in more people who should not have made the team, lenders kept lowering standards to virtually nil. As long as "creativity" is required to finance in general it seems ridiculous to even consider buying anything in particular. I also came to believe most people were either buying to make a lot of money quickly (and then sell to the greater fool) or they were scared they would be forever priced out. Both reasons seemed to violate some common sense principles of mine. I actually considered taking an IO loan myself and I know several people who did. The basic theory was "who cares" just pay the interest (and in many cases it was less than market rent) and then sell in 5 years or whenever the rate is going to change and pocket your quick 100K+. But everyone was doing that. I finally began to view the market as a giant game of musical chairs where everyone was selling each other homes and hoping not to be the one looking for a chair when the music stopped. There just didn't seem to me to be much of a concept of the long term future nor the fact that a loan is an obligation. Then I considered that affordability being around 10% in SoCal it was obvious everyone was paying a lot bigger a percentage of their income for a mortgage than used to be considered "safe". Those crazy adjustable loans were taken at a time in history where rates could only reasonably adjust one way. The timing of the loans meant everyone was going to be looking for the exit about the same time when the rates adjusted. The other part I considered is that property "values" are only expectations based on recent sales. It is not as though every home in SoCal has been sold at these ridiculous prices the past few years. A relatively few sales set the future price expectation for all of the ones not on the market. That is true going both ways. Many people don't HAVE to sell because they bought years ago. But those who DO HAVE to sell who bought recently are basically screwed. The final piece was considering liquidity and pondering the result of a change in public perception of real estate as a get rich quick scheme (ie, the music stopping). I'm glad I didn't buy, even if I could have made some money. I couldn't say for sure that I wasn't the greater fool. I decided that if I couldn't spot the greater fool, then I was probably it. I have been educated about real estate mostly from this board. Even if real estate is local you still have factors that need to be addressed: the relationships between the average income, the average interest rate, and the average home price for the area. Those fundamentals are thought to not change much and to become unsustainable at a certain point. There is such a thing as an average household making an average wage buying an average home with an average loan and average interest rate. All arguments against the real estate bubble tend to come down to "it's different here" and state why a particular area has different factors that must make it impossible for prices to fall. It is apparent you make significantly more than the median income if you are considering buying a 700K house. Or you are bringing a lot of equity from another sale and moving up the "property ladder". However, a reduction in prices at the bottom will affect the whole chain. If I look at the forest and don't worry so much about specific trees, it is apparent there hasn't been a forest fire for far too long. It is unseasonably dry and there is a historic fuel load with minimal moisture content. That dry lightning storm you can see in the distance is a combination of rising interest rates affecting widespread exotic loans while loose lending standards suddenly tighten due to the emergence of a new thing called a foreclosure. The minimal equity and personal savings of recent buyers dooms them. You have admitted that it seems clear the prices are going down at Portico. I'm not sure why you say they are not falling 30-50%. I think you can only really say "not yet at least". The best advice anyone can really give an anonymous blogger is to say go ahead and buy the house if you get a price you don't mind actually paying. The concept and expectation of actually paying off home loans seems to have disappeared from the earth. It helped me to realize a home is debt and debt assumes on your future. Anyone who is buying now runs the risk it may not be much of an asset in the near future and it may be hard to sell if you suddenly find you have to. I take it Carmel Valley is a very attractive location. There are probably a million reasons you have already heard as to why the market there is isolated from the rest of SoCal and why it will stay strong. I'm going to go ahead and guess renting there can be done for 1/2 or less than buying. If this fact makes sense to you, then prices are already "reasonable". If it doesn't, it might help to view buying a home as an investment and make some conservative assumptions and ask for a conservative rate of return on your initial investment. You must assume no appreciation for awhile if you really are going to be conservative. There I go again thinking rents should be related to prices! I think local rents should be related to local prices even in Carmel Valley. No matter how snobbishly rich and out of touch and great an area is, it is unlikely there will be no rentals. Market rent rates are set by how much people are willing to pay to live in such a sweet area and not how much land lords wish they could get. So I see that rent really is the current real value placed on all those intangibles that supposedly justify high prices. The market may continue to be different than what I consider reasonable. And other people may get away with buying and selling in the meantime. But as long as the market doesn't make sense to me from a "total cost" standpoint I am going to do the reasonable thing and rent and save and wait.

[garysears]

I think the "reasonable price" is a question you must answer yourself to your own satisfaction. It is probably dangerous to rely on some quasianonymous blogger of dubious merit to be a financial expert for you. I am referring to myself and not SD Realtor. That being said, many people here are extremely smart, experienced, and helpful and provide persuasive data and arguments to consider. You should find out how much a Portico 2100+ sqft home rents for. How much does it cost to own per month and how much could you rent it for? Around the point those 2 values near each other, taking into account various factors, buying as an investment (not counting on speculation or excessive appreciation) starts to make sense and you have found the amount the house should "reasonably" cost. I'm firmly of the belief that real investors (not speculators) are reasonable people. And when they start to buy, values are reasonable because they are actually making real money at a return that makes sense. The current vast difference between the cost to own vs rent is more or less the "bubble". Of course it is an oversimplification but it gets you started looking in the right place. There "should" be a fairly consistent correlation between rents and prices. I don't think you can make an exception for the current market strength. If a particular area is really appealing, it seems logical to me that the rents should be correspondingly higher. So, even though you are talking about homes out of my price range I think the same factors and considerations should generally apply. I would mention that on average the carrying cost to own a mortgage seems to be around 2x the cost to rent everywhere in SoCal. You might ask yourself what are your personal reasons for desiring to buy right now? If there are factors about owning a particular home that you are willing to overpay for, then don't worry about a "reasonable" price. Very few people here will recommend buying at all right now. The very word "reasonable" seems to reflect the idea that prices are currently overinflated even if the market is still seemingly strong. Otherwise the market rate today is reasonable. Like everyone, you wish someone could predict the floor for a specific area or property. Have prices found something of a firm floor in Carmel Valley? If you can't answer that definitely, then you can't say prices aren't going down 30-50%. It sounds like they have alrady dropped at least 10-12%. That isn't that much considering the runup. I don't see it as much of a deal that an 800K home is now 700K. But maybe it is. You should turn the question around and ask if you believe it is possible for prices to appreciate any more? Appreciation is the only thing that can make up the difference between rent value and mortgage carrying costs. If they can't go up and you don't think they'll go down much, you are looking at a sideways market. And it becomes more important in my mind to consider the cost to own vs rent in light of the downside risk to owning. I'm not a real estate guy at all and I would trust SD Realtor to know what the current market is like. However, it sounds like the future market is what you are really concerned about. Maybe it would help to consider the line of reasoning I used for not buying anywhere in San Diego. Granted, I don't know anything about Carmel Valley, but I'm willing to cast a wide net. It got my attention when I began to consider if it is really possible to inflate prices any more. Because someone has to buy these homes. At the time interest rates were the lowest in history, yet the data showed the majority of people the past few years had been taking out interest only or negative amortization loans with minimal downpayment hoping to maximize leverage. This is also the only way they could "afford" the already inflated prices. In order to keep people in the game and also let in more people who should not have made the team, lenders kept lowering standards to virtually nil. As long as "creativity" is required to finance in general it seems ridiculous to even consider buying anything in particular. I also came to believe most people were either buying to make a lot of money quickly (and then sell to the greater fool) or they were scared they would be forever priced out. Both reasons seemed to violate some common sense principles of mine. I actually considered taking an IO loan myself and I know several people who did. The basic theory was "who cares" just pay the interest (and in many cases it was less than market rent) and then sell in 5 years or whenever the rate is going to change and pocket your quick 100K+. But everyone was doing that. I finally began to view the market as a giant game of musical chairs where everyone was selling each other homes and hoping not to be the one looking for a chair when the music stopped. There just didn't seem to me to be much of a concept of the long term future nor the fact that a loan is an obligation. Then I considered that affordability being around 10% in SoCal it was obvious everyone was paying a lot bigger a percentage of their income for a mortgage than used to be considered "safe". Those crazy adjustable loans were taken at a time in history where rates could only reasonably adjust one way. The timing of the loans meant everyone was going to be looking for the exit about the same time when the rates adjusted. The other part I considered is that property "values" are only expectations based on recent sales. It is not as though every home in SoCal has been sold at these ridiculous prices the past few years. A relatively few sales set the future price expectation for all of the ones not on the market. That is true going both ways. Many people don't HAVE to sell because they bought years ago. But those who DO HAVE to sell who bought recently are basically screwed. The final piece was considering liquidity and pondering the result of a change in public perception of real estate as a get rich quick scheme (ie, the music stopping). I'm glad I didn't buy, even if I could have made some money. I couldn't say for sure that I wasn't the greater fool. I decided that if I couldn't spot the greater fool, then I was probably it. I have been educated about real estate mostly from this board. Even if real estate is local you still have factors that need to be addressed: the relationships between the average income, the average interest rate, and the average home price for the area. Those fundamentals are thought to not change much and to become unsustainable at a certain point. There is such a thing as an average household making an average wage buying an average home with an average loan and average interest rate. All arguments against the real estate bubble tend to come down to "it's different here" and state why a particular area has different factors that must make it impossible for prices to fall. It is apparent you make significantly more than the median income if you are considering buying a 700K house. Or you are bringing a lot of equity from another sale and moving up the "property ladder". However, a reduction in prices at the bottom will affect the whole chain. If I look at the forest and don't worry so much about specific trees, it is apparent there hasn't been a forest fire for far too long. It is unseasonably dry and there is a historic fuel load with minimal moisture content. That dry lightning storm you can see in the distance is a combination of rising interest rates affecting widespread exotic loans while loose lending standards suddenly tighten due to the emergence of a new thing called a foreclosure. The minimal equity and personal savings of recent buyers dooms them. You have admitted that it seems clear the prices are going down at Portico. I'm not sure why you say they are not falling 30-50%. I think you can only really say "not yet at least". The best advice anyone can really give an anonymous blogger is to say go ahead and buy the house if you get a price you don't mind actually paying. The concept and expectation of actually paying off home loans seems to have disappeared from the earth. It helped me to realize a home is debt and debt assumes on your future. Anyone who is buying now runs the risk it may not be much of an asset in the near future and it may be hard to sell if you suddenly find you have to. I take it Carmel Valley is a very attractive location. There are probably a million reasons you have already heard as to why the market there is isolated from the rest of SoCal and why it will stay strong. I'm going to go ahead and guess renting there can be done for 1/2 or less than buying. If this fact makes sense to you, then prices are already "reasonable". If it doesn't, it might help to view buying a home as an investment and make some conservative assumptions and ask for a conservative rate of return on your initial investment. You must assume no appreciation for awhile if you really are going to be conservative. There I go again thinking rents should be related to prices! I think local rents should be related to local prices even in Carmel Valley. No matter how snobbishly rich and out of touch and great an area is, it is unlikely there will be no rentals. Market rent rates are set by how much people are willing to pay to live in such a sweet area and not how much land lords wish they could get. So I see that rent really is the current real value placed on all those intangibles that supposedly justify high prices. The market may continue to be different than what I consider reasonable. And other people may get away with buying and selling in the meantime. But as long as the market doesn't make sense to me from a "total cost" standpoint I am going to do the reasonable thing and rent and save and wait.

[patientrenter]

Gary, thanks for another very thoughtful post. People will complain that it’s long. But I found it full of good insights, and not one of the rambling posts that give long posts a bad name.

I look forward to your future contributions, and hope you find a better place to live!

By the way, I am not 100% certain about the method of calculating prices based solely on current rent and other cash flows. I think that just sets a floor for a lot of investors. I think there are some other people who greatly value ownership of their personal residence, and others (like myself) who are anxious to immunize themselves againt long-term future rent increases. If you come up with any thoughts on how these other purchasers influence prices here in So Cal, I’d value them.

Patient renter in OC

[patientrenter]

Gary, thanks for another very thoughtful post. People will complain that it’s long. But I found it full of good insights, and not one of the rambling posts that give long posts a bad name.

I look forward to your future contributions, and hope you find a better place to live!

By the way, I am not 100% certain about the method of calculating prices based solely on current rent and other cash flows. I think that just sets a floor for a lot of investors. I think there are some other people who greatly value ownership of their personal residence, and others (like myself) who are anxious to immunize themselves againt long-term future rent increases. If you come up with any thoughts on how these other purchasers influence prices here in So Cal, I’d value them.

Patient renter in OC

[temeculaguy]

Nice post gary and some very well thought out advice. I agree that the rent/buy numbers are the most important because the expected appreciation cannot be considered for a few years. The one thing that will save this zip code is it’s demographics. You can get any demographic info you want for free at http://profilewarehouse.sandag.org/

92130’s dominant demographic was 200k+ income earners, nearly double the 150-200k crowd. The median household income is 120k, more than double the county average.

Another thing is that since 2000 it has added very few SFR’s (4% increase in it’s stock over six years) while it’s growth in population was 49.2% in that same period. The dominant growth was in 200k+ earners.

Not to knock El Cajon but it is important to know how much money the people you are competing with have. El Cajon’s dominant demographic was 15-30k household income with 30-45k in a close second, 50k is the median. All prices will suffer but where the residents can still afford to buy, the prices will have more support. Just food for thought but all other costs are constant (food, electricity, cars) so if one areas residents make 2-3x another’s then 2-3x the house prices are actually have more support. these are broad bruch strokes but a guy making 75k buying a house for 400k is in far worse shape than the guy making 200k buying a house for 800k.

[temeculaguy]

Nice post gary and some very well thought out advice. I agree that the rent/buy numbers are the most important because the expected appreciation cannot be considered for a few years. The one thing that will save this zip code is it’s demographics. You can get any demographic info you want for free at http://profilewarehouse.sandag.org/

92130’s dominant demographic was 200k+ income earners, nearly double the 150-200k crowd. The median household income is 120k, more than double the county average.

Another thing is that since 2000 it has added very few SFR’s (4% increase in it’s stock over six years) while it’s growth in population was 49.2% in that same period. The dominant growth was in 200k+ earners.

Not to knock El Cajon but it is important to know how much money the people you are competing with have. El Cajon’s dominant demographic was 15-30k household income with 30-45k in a close second, 50k is the median. All prices will suffer but where the residents can still afford to buy, the prices will have more support. Just food for thought but all other costs are constant (food, electricity, cars) so if one areas residents make 2-3x another’s then 2-3x the house prices are actually have more support. these are broad bruch strokes but a guy making 75k buying a house for 400k is in far worse shape than the guy making 200k buying a house for 800k.

[g2006]

Thanks garysears for ur reply. Lot of good insight.

[g2006]

Thanks garysears for ur reply. Lot of good insight.

[garysears]

Patientrenter made a good point and I agree. My post does seem to imply prices will necessarily reach rental investment levels. But I should view that as the theoretical FLOOR of the market. Thanks for the comment.

Several others here have also pointed out that people in fact DO naturally pay a certain premium for the privelage of owning. It is really the amount of that premium that is argued when discussing what “reasonable” means and how far the bubble should deflate. It seems the ownership premium has been quite high in part because recent speculators never really intended to actually pay down their monster loans.

I would recommend trying to determine what premium you personally place on owning given the downside risk. When (or if) prices reach that level you won’t regret buying.

[garysears]

Patientrenter made a good point and I agree. My post does seem to imply prices will necessarily reach rental investment levels. But I should view that as the theoretical FLOOR of the market. Thanks for the comment.

Several others here have also pointed out that people in fact DO naturally pay a certain premium for the privelage of owning. It is really the amount of that premium that is argued when discussing what “reasonable” means and how far the bubble should deflate. It seems the ownership premium has been quite high in part because recent speculators never really intended to actually pay down their monster loans.

I would recommend trying to determine what premium you personally place on owning given the downside risk. When (or if) prices reach that level you won’t regret buying.

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