Prime Properties

[pfflyer]

I see some coastal and bay homes still with high prices. But I believe many boomers will not sell their prime homes. They will die and pass along, some still with prop 13 intact. Is it plausible that price drops on the coast aren’t coming en masse? Are there many pretenders on the water?

[bearishgurl]

As long as none of our Senators put the progeny of Prop 13 (Props 58 and 193) “on the table” for examination of their far-reaching effects by the CA Legislature (for a possible repeal of the measures), the beat will go on. These prime properties, as they stand, are worth FAR MORE to their pre April ’78 owners, children, grandchildren and/or heirs than any subsequent “arms-length” owner. Unless the original prop 13 owner(s) die while in residence and their property is sold by out-of-county heirs who have no desire to move back to SD County (or that particular property) or none of the heirs can buy the other(s) out (if the family home is bulk of the estate), then I believe the majority of these properties will stay within the family. I have even seen these properties inherited from parents and then quit-claimed to an unrelated spouse in a divorce settlement, never triggering a reassessment!

This situation is very unfair to any current owner purchasing AFTER April ’78 (esp those who purchased >2000) or potential owners. “Prop 13 benefits” should have died with an affected property’s original owners. It should never have been allowed to be passed thru in life or death as its sole function was to keep retired senior citizens in their homes until they sold or died. Now, able-bodied heirs of ALL ages enjoy this benefit while the rest of us pay 1% of currently assessed value (+ local fees and voter-approved bonds)!

This legislative blunder is the greatest systemic cause of what you are seeing as “the best properties never moving,” IMO.

I believe it is rare when a truly “valuable property” in CA’s best zip codes actually comes on the market. Even for a cash buyer, a HUGE deterrent is both current and rising taxes (if and when values go up again) :=(

[pfflyer]

I agree with you about longtime owners. I wonder what the percentage of these homes are pre 1978? How many were overstretched owners and are in shadow inventory? Not many listed in 92109 or 92037….

[bearishgurl]

[quote=pfflyer]I agree with you about longtime owners. I wonder what the percentage of these homes are pre 1978? How many were overstretched owners and are in shadow inventory? Not many listed in 92109 or 92037….[/quote]

As to pre April ’78 “original” owners in those two zips, I will take an educated guess and say it is 35-40% in 92037 and 25-30% in 92109 (SFR’s only). Only a few condo complexes (w/HOA’s) existed prior to April ’78. Most multifamily units back then were rental apartments.

I didn’t include in my previous post that pre-April ’78 owners do not have to occupy their original property … that is, take the HOEX on their property taxes, in order to keep their “Prop 13 status.” They can let other family live in it or rent it their property out.

I don’t think either of the above zip codes have too much of a problem with “overstretched owners.” The “overstretched owner” in those areas more often than not took out a 2nd TD or HELOC during the “bubble era” of which nearly all was spent on remodel/rehab (making their property more saleable or “worth more” today) or actually purchased during the bubble era for a grossly inflated price and MUST SELL NOW (cannot hang on for whatever reason) or be foreclosed upon.

Remember that an “inflated bubble price” in 92109 and 92037 would not be as “inflated” as some other non-coastal areas.

The reason I believe the above to be true is that persons who buy SFR’s in those areas (in 92037 especially) typically DO NOT need “cash-out” mortgage money to “live on” and often DO NOT depend at all or solely on W-2 income to qualify to purchase a property there.

Condos in those zip codes likely have their share of distress and I don’t know if it is more or less than other areas of SD County with comparable condo values.

I’m not sure if there will be a “bottom” in these two areas (SFR’s) and if there is, it is already here or has come and gone. They are areas of unique properties (some with expansive views) close in and close to nice beaches. The “bottom” in these areas is in the art of the deal. Your mileage may vary dependent on seller motivation and your RE agent’s (or, if purchasing FSBO, your) negotiating skills.

pfflyer, since 92109 is one of your choice areas, I believe jpinpb has done extensive and lengthy research on distress there in the past (not sure if it was on condos, SFR’s or both). She may be able to give a more educated opinion than me as to whether she thinks properties in that zip have reached “bottom.”

[briansd1]

looking back at the 1990s real estate crash in CA. 1997 was the best time to buy high-end properties.
1989 was the weak.

Be patient, at the high end, it takes times for people to lose wherewithal.

[pfflyer]

Thanks for your responses. I cringe when I see listing prices at or above 2006/07 sold prices. I would think we would be at 2003 or thereabouts. Maybe the coast just hasn’t dropped yet (or never will to that extent.)

With so little listed on the MLS where can you find others, possibly distressed?

[bearishgurl]

[quote=pfflyer]Thanks for your responses. I cringe when I see listing prices at or above 2006/07 sold prices. I would think we would be at 2003 or thereabouts. Maybe the coast just hasn’t dropped yet (or never will to that extent.)…[/quote]

pfflyer, you have to ask yourself (on a case-by-case basis), “What was done to the property since 2003?”

You can’t expect to get $100K ++ in “improvements” for “free” if the property was purchased “original” or “near original” in 2003 (or thereabouts) unless the sellers are about to lose the property to foreclosure and their lender(s) are willing to “play ball.” It’s not purely a “numbers game” in the areas you are looking in. Many of those ‘hoods may have been tracts at one time but since the vast majority are now remodeled to varying shapes and sizes, they could now be considered “custom areas.” Therefore, the money spent on them by former owners varies WILDLY from property to property.

Your “numbers game” only works on tracts in which there are few models (under 6), the houses are fairly new (under 20 years old) and the type of buyers who purchased them in the past didn’t have the wherewithal to drastically improve them (and/or the area wasn’t worth spending a lot of “home improvement” money in).

pfflyer, if you want an “under-market deal” in one of your target areas, I recommend looking for a very dated fixer and offering to pay in escrow for any termite work needed.

[bearishgurl]

This just came in and I was going to post it in my recent “CA Demographic Shifts” thread, but I think it better addresses the OP’s original question here. In it are some interesting charts on demographics (as they relate to housing choices for CA’s largest counties).

The most dramatic changes have taken place throughout Southern California, where Los Angeles and especially Orange County both aged faster than the state average. This may be due largely to the boom in housing prices, which drove out less established young homebuyers while drawing successful older citizens with the accumulated wealth to buy a home. As prices drop and some of the youth are able to return, the recent age rise may well level out. San Diego was also influenced by this boom, but aged slightly less, perhaps due to its many universities, its proximity to the border (and thus to generally younger immigrants) and its association with the military.

Brokers and agents in counties seeing expansive growth in the elderly population, like Orange County and in particular the city of Irvine, need to prepare for a sort of calcification in their demographic. Time has shown that the older people become, the more they act like themselves and the less amenable they are to change. Retirees and senior citizens living in the Southwest are likely to pursue the same SFR-based suburban living that they have known all their lives, with the Census reporting that 40% remain in the same communities. While rental properties flourish in urban centers, and debt-laden inland buyers are forced to rent until their finances recover, the elderly population will (for the main part) continue to live comfortably with well-mown lawns and cars for every garage.

In the meantime, the young population has concentrated itself in California’s Inland Empire, where low cost-housing was accessible within driving distance of major cities and the careers they offer. Not incidentally, Riverside’s population grew faster over the last ten years than any of the other counties listed, gaining 644,254 people – a 42% increase in size – in the first decade of the 2000s. San Bernardino followed suit, growing by 19% while the median age grew by only seven months…

see: http://firsttuesdayjournal.com/age-and-education-in-the-golden-state/

[an]

[quote=bearishgurl]pfflyer, you have to ask yourself (on a case-by-case basis), “What was done to the property since 2003?”

You can’t expect to get $100K ++ in “improvements” for “free” if the property was purchased “original” or “near original” in 2003 (or thereabouts) unless the sellers are about to lose the property to foreclosure and their lender(s) are willing to “play ball.” It’s not purely a “numbers game” in the areas you are looking in. Many of those ‘hoods may have been tracts at one time but since the vast majority are now remodeled to varying shapes and sizes, they could now be considered “custom areas.” Therefore, the money spent on them by former owners varies WILDLY from property to property.

Your “numbers game” only works on tracts in which there are few models (under 6), the houses are fairly new (under 20 years old) and the type of buyers who purchased them in the past didn’t have the wherewithal to drastically improve them (and/or the area wasn’t worth spending a lot of “home improvement” money in).

pfflyer, if you want an “under-market deal” in one of your target areas, I recommend looking for a very dated fixer and offering to pay in escrow for any termite work needed.[/quote]
I can’t speak for pfflyer, but when I refer to something like 2003 price, I would be referring to the price the house would sold for in 2003 at its current condition, not its pre-remodeled condition.

The “numbers game” has nothing to do with tract vs custom. I’ve shown a couple custom homes in RSF at 1998-2000 price and plain jain tract homes in 4S Ranch and MM at 2003 price.

[pfflyer]

I will pay for improvements but they should be discounted as we are in a recession and there is lack of movement in the high end. I cannot believe the listing prices still above or at the same level as the last sale in 2005-07.

I think some believe a kitchen remodel adds well above the amount spent to do the remodel. Who believes the prime areas (waterfront) will decline or will remain the same due to lack of inventory as boomers die in place?

[bearishgurl]

[quote=pfflyer] . . . Who believes the prime areas (waterfront) will decline or will remain the same due to lack of inventory as boomers die in place?[/quote]

I do not believe “waterfront, whitewater view or expansive city view” properties will decline in value. I don’t know if “boomers retiring in place” will be the cause of the stability of these prices (maybe to some extent) but I DO think that properties handed down through families (Prop 58 “heirs”) have a LOT to do with the dearth of high-quality “prime properties” on the market in CA coastal areas at any given time, thus keeping the values of the properties that ARE marketed higher. Prop 58 virtually enables a property affected by the (Prop 13) freezing of values at the April 1978 level (+2% per year unless Prop 8 is invoked [ex. 2010]) to receive a very deep property tax discount into perpetuity as long as it is passed down through a family (whether or not any $$ ever actually exchanged hands).

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