Rental cost and demand falling

[kev374]

Predictable!
This may be the beginning of the fizzle!

http://www.forbes.com/sites/trulia/2013/04/04/single-family-home-rents-flatten/

When rents start falling due to a glut investors may not be able to sustain operating costs while still getting a worthwhile ROI. That will start the dumping of assets, once that starts it starts price softening and the rest you know how that goes…

[bearishgurl]

kev, just like this thread, you recently started this other thread but then did not participate in it.

Just like your previous thread, I believe your assumptions are in error here.

http://piggington.com/tons_of_inventory_in_san_diego_none_in_orange_county

Your Forbes article mentions LA County but not SD County. It doesn’t really matter though, because if bulk investors have to piecemeal sell any of their CA coastal rental inventory as leases expire and they can’t easily fill the units, then they are poised to make a GREAT profit!

Remember that these investors bought these (previously distressed apt bldgs?) dirt cheap and rehabbed many of them themselves. I’m sure their investors will be plenty happy upon COE of these slow rental projects and trickling them out into the market isn’t going to affect RE prices one way or another, especially the CA coastal SFR market.

Please feel free to correct me if I have this wrong, but by this thread and your last one (which you didn’t participate in yourself), you seem to be suggesting that the SoCal coastal housing market is poised for an imminent “crash” of sorts.

Are you actually a wishful prospective buyer looking for a principal residence? If so, I would implore you to log off your computer, hit the streets and get busy placing offers on homes before you will no longer be able to.

This suggestion isn’t coming from a “pollyanna” . . . far from it. If you need a home for your family now, ignore it at your peril.

[Jazzman]

All makes sense. Over supply of rentals is going to depress rent price. Doesn’t matter where it is?

BG can you explain your comment “If you need a home for your family now, ignore it at your peril.”? Do you expect home prices to increase dramatically soon, and if so what perils are you so fearful of. With so many complaints from buyers of no inventory, and prices rising pretty quickly, I’d continue to rent especially if rents are softening.

[bearishgurl]

[quote=Jazzman]All makes sense. Over supply of rentals is going to depress rent price. Doesn’t matter where it is?

BG can you explain your comment “If you need a home for your family now, ignore it at your peril.”? Do you expect home prices to increase dramatically soon, and if so what perils are you so fearful of. With so many complaints from buyers of no inventory, and prices rising pretty quickly, I’d continue to rent especially if rents are softening.[/quote]

The perils of the wanna-be Pigg buying crowd (yourself included in the first two categories, Jazzman :)) are threefold, in order of impact:

-waited too long to buy due to being overly picky

-perceived inventory shortages, leading to less ability to be picky

-interest rates could gradually rise, leading to even less ability to be picky, and even possibly being eventually shut out altogether

All the current buying problems can be fixed if today’s homebuyers were “less picky.” I didn’t say that they should “lower their standards.” I said they should be “less picky.”

“Pickiness” and lack of being able to see the forest for the trees on the part of many buyers is the elephant in the room here … not “lack of inventory.”

As a prospective seller in the coming year, I have no fears. I will either receive one or more acceptable offers, one of which I will accept or place my home into rental service.

And I don’t have any fear whatsoever of finding a qualified tenant for it.

How is it do you think “rent softening” in some areas is going to affect resale values, Jazzman? And would you personally buy a home for yourself which had been a former rental or buy a personal residence located within a sea of former rentals which were now listed for sale due to “rent softening?”

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

I didn’t think so.

[kev374]

so bearishgurl, what makes you think that inventory is going to stay low forever? What makes you think that historical affordability is not going to return? Why do you think that if one does not buy now they will never ever have another opportunity?

Personally I think the whole market is severely overpriced, I’m talking about LA/OC here. When sub-par neighborhoods in Orange County comprised largely of blue collar workers are listing 1500sqft homes for half a million dollars it does not take a rocket scientist to realize that this is a bubble.

And why shouldn’t people be picky? Being picky is the right thing to do when you are making a 30 year commitment and the biggest financial purchase of your life.

Being “less picky” and “lowering standards” is the same exact thing btw.

So, in your last paragraph you reveal the source of the bias in your response. You are a seller and/or a future landlord. I wouldn’t be so sure of rental potential or even sales potential if I were you. These things are cyclical and just because it’s a sellers market today does not mean that next year it would be the same as history has taught us time and time again!!

[bearishgurl]

Remember, kev, that after selling, I, too, have to live somewhere. But at that point, I will be a cash buyer … that is, unless I move to the SF Bay area. If I decide to buy there, I will take out a very small mortgage.

The “inventory shortage” is much more pronounced up there but I’m not worried that I won’t be able to find something. Why? I will accept a fixer as long as it is structurally sound. In addition, I’m not as “picky” about neighborhood as a lot of Pigg “helicopter parents” seem to be. And, even if I had my kid living with me (currently in HS), I won’t be bothering to check the Megan’s Law website to check a listing I’m placing an offer on. Why? Because I don’t care and neither does my kid! A PC 290 registrant can be living across the street with a telescope in their window and it won’t bother me a bit.

For example, in the absence of an inspection, the following listing (which took me all of two minutes to find online) appears to be acceptable to me to make an offer on. And I might even be willing to inspect a listing myself or with a knowledgeable friend and waive a “professional inspection” with a completed termite clearance in hand and proof of recent pest control services contracted by the seller.

http://www.realtor.com/realestateandhomes-detail/730-Norvell-St_El-Cerrito_CA_94530_M23399-96997?row=1#axzz2QHorZPrH

There are few more acceptable properties to me in this area to choose from.

kev, if you don’t yet have a principal residence and need one in the OC, I think you should rethink making offers in those nice, stable, convenient ‘hoods in the OC that you consider to be “blue collar.” WTH is wrong with your kids (if you have any) being able to ride their bikes to CA Adventure Park? I carefully perused the $400K listing which NSR posted here on your thread:

http://piggington.com/tons_of_inventory_in_san_diego_none_in_orange_county#comment-228533

http://www.redfin.com/CA/Anaheim/1401-W-Dogwood-Ave-92801/home/3196204

http://www.redfin.com/CA/Anaheim/1401-W-Dogwood-Ave-92801/home/3196204#quickMap

…and on the surface (without an inspection), it appears to be perfectly acceptable with a largish flat lot. In addition, it appears to be a stone’s throw from a major hospital and could be rented to medical professionals VERY steadily for YEARS, IMO, should you decide to move out and turn it into a rental.

Of course prospective wanna-be homeowners today always have the option of “waiting for a better day” before they decide to make offers.

Good luck with that, kev. If you’re wishing and hoping for 2009/10 again in CA coastal counties before you decide to make any offers, you may very well find yourself a lifelong renter. If that’s your goal, more power to you.

In a nutshell, today’s buyer’s should be completely realistic in their househunt and get out there (preferably with a knowledgeable construction friend), to see what’s available to buy NOW. Fantasies of a particular “lifestyle” have no business in a young family’s househunt who needs a house ASAP. Especially not in the househunt of a FTB, IMHO. Buyers today also need to be decisive and act forthwith when they see an acceptable listing or they may very well find themselves fence-sitting into oblivion.

[all]

[quote=bearishgurl] And, even if I had my kid living with me (currently in HS), I won’t be bothering to check the Megan’s Law website to check a listing I’m placing an offer on. Why? Because I don’t care and neither does my kid! A PC 290 registrant can be living across the street with a telescope in their window and it won’t bother me a bit.[/quote]

Is that because convicted sex offenders don’t leave their toys on sidewalk?

[bearishgurl]

[quote=all][quote=bearishgurl] And, even if I had my kid living with me (currently in HS), I won’t be bothering to check the Megan’s Law website to check a listing I’m placing an offer on. Why? Because I don’t care and neither does my kid! A PC 290 registrant can be living across the street with a telescope in their window and it won’t bother me a bit.[/quote]

Is that because convicted sex offenders don’t leave their toys on sidewalk?[/quote]

Well, yes, and 99% of them just want to live quietly, mind their own business and make a living, in addition to getting their fines paid off (if they still owe any). And as I have posted before, a good portion of them are over the age of 65 and a good portion of that group is over the age of 75.

The vast majority of PC 290 Registrants are not a danger to society. Parents are getting all worked up over nothing.

I’d rather have an aged PC 290 Registrant for a close neighbor than a 17 yo who just installed 11 speakers in his car (with 3 subwoofers in the trunk) and who will NOT be shipping off to the military or college :=0

[ctr70]

I think house prices in Coastal CA could slow or flatten maybe in say 2015 or something, but I don’t think we will see a dramatic fall in price. Here’s why:

1. I think any additional supply will be sucked up very fast. There are so many first time buyers, regular families, etc.. that want to buy now, but cannot b/c they can’t beat out all the cash offers. So lot’s of pent up demand and household formation.

2. Tens of thousands of people who went through foreclosures and short sales the last 5 years are becoming re-eligible to buy….”boomerang buyers”

3. The crash in 2008 was much due to a “once in a generation” insane mortgage financing period from 2003-2007. The loans that have been made the last 6 years starting in 2008 are extremely solid. Some of the toughest underwriting standards and appraisals in U.S. history. The 2010, 2011, 2012 loan vintages are showing some of the lowest default rates in history. So we are unlikely to get more inventory from future defaults. Most of the problems loans are legacy bad loans made pre-2007.

4. Builders didn’t build anything for the last 6 years in CA further restricting supply. Yet population kept increasing. And it takes a long time for builders to rev up the machine and get large subdivisions on the market to ramp up supply.

5. Vegas, Phoenix, Riverside County, etc..*over corrected* in price to below construction costs. It was insane in 2009 when a typical Phoenix SFR new built 3/2’s were going for $90k! And even now a house payment is still less than rent and historically really low. The affordability is still really great even at 2013 home prices.

With all that said. No one knows the future. Black Swan events and unforeseen major economic shocks could throw off my predictions.

[spdrun]

3. I was just offered a stated income loan at 3%, max stated income being 3x liquid assets after closing, letters of reference required. Don’t be so sure — creative financing is back, at least on the right coast. Of course, this is still better than a NINA or NINJA loan of years past.

Between this and the truck selling “fallen from the truck” goods parked outside Penn Station, it’s been a week of back to the future for me!!

[Reality]

[quote=bearishgurl]
-interest rates could gradually rise, leading to even less ability to be picky, and even possibly being eventually shut out altogether

[/quote]

Ridiculous. The SELLER will be hurt by higher interest rates, not the buyer.

[bearishgurl]

[quote=JohnAlt91941][quote=bearishgurl]
-interest rates could gradually rise, leading to even less ability to be picky, and even possibly being eventually shut out altogether

[/quote]

Ridiculous. The SELLER will be hurt by higher interest rates, not the buyer.[/quote]

At present, a good portion of buyers are making all-cash or mostly-cash offers.

It is the heavily-leveraged buyer who will find themselves shopping in successively lower tiers of homes as interest rates rise.

In coastal CA counties, the best areas to live in are the ones which are the least interest-rate sensitive. This is why highly-leveraged buyers’ choices will lessen even more in the wake of higher MIRs.

[bearishgurl]

If any prospective homebuyers out there are waiting for 7% fixed mortgage interest rates so they can “steal” a property in a good area, they’re going to be waiting a long, long time (not necessarily for interest rate hikes leading to 7% or beyond but for home prices to adjust to interest rate hikes).

[SK in CV]

[quote=bearishgurl]
At present, a good portion of buyers are making all-cash or mostly-cash offers.

It is the heavily-leveraged buyer who will find themselves shopping in successively lower tiers of homes as interest rates rise.

In coastal CA counties, the best areas to live in are the ones which are the least interest-rate sensitive. This is why highly-leveraged buyers’ choices will lessen even more in the wake of higher MIRs.[/quote]

Do you know this or are you just guessing?

It seems unlikely to me that a good portion of buyers are coming in with all cash or anything close to it in the higher priced neighborhoods, unless you’re talking about La Jolla or RSF. In the 10 years I lived in Carmel Valley, I never knew a single person whose house was paid off. Most had big mortgages.

Is this just speculation on your part?

[bearishgurl]

[quote=SK in CV][quote=bearishgurl]
At present, a good portion of buyers are making all-cash or mostly-cash offers.

It is the heavily-leveraged buyer who will find themselves shopping in successively lower tiers of homes as interest rates rise.

In coastal CA counties, the best areas to live in are the ones which are the least interest-rate sensitive. This is why highly-leveraged buyers’ choices will lessen even more in the wake of higher MIRs.[/quote]

Do you know this or are you just guessing?

It seems unlikely to me that a good portion of buyers are coming in with all cash or anything close to it in the higher priced neighborhoods, unless you’re talking about La Jolla or RSF. In the 10 years I lived in Carmel Valley, I never knew a single person whose house was paid off. Most had big mortgages.

Is this just speculation on your part?[/quote]

The areas I have been following (in Central SD and select areas of South and East County) are older than Carmel Valley, SK. They range from upper mid-tier to lower-mid tier. Most the sales are all cash. I haven’t been following any of the newer tracts, where young workers have been attempting to upbid each other so am not familiar with the typical terms there. Younger workers tend to be highly leveraged.

I understand Carmel Valley is pretty well-established, but didn’t you say you left there in 2007 or thereabouts? Of course, between 2004 and 2007, when mortgage money was very easy to get as long as one had a pulse, most buyers were mortgaged up to 100% LTV. Are you sure that’s still the case up there today?

If you resided in SD in the early eighties, certainly you must remember the ’81-’83 spike in interest rates. I believe FNMA fixed conventional rates were up to 15.5% at one point in either ’82 or ’83. Do you recall RE prices falling precipitously between mid ’79 and ’83 as fixed mortgage interest rates rose from about 8.5% to 12.5% and beyond? I don’t. I don’t remember prices going down at all. What I DO remember is sellers carrying back seconds and also offering financing. During ’88-89, the local market was on fire and fixed MIRs prevailed at 10-11%. Even from about ’97 to ’03, the local market was on fire and fixed MIR’s fluctuated between 6.5% and 7.5%.

Nothing has changed. During all those periods, a prospective homebuyer had to be decisive and make offers and hope they would be countered and/or accepted or the property would be gone within days, unless it had structural problems or was a heavy fixer, which took a little longer to sell.

I lost out on eight offers I placed (due to excessive overbidding) and cancelled one escrow (due to severe plumbing problems which the seller wouldn’t fix) before successfully closing escrow in 2001 on my current home.

The prevailing fixed MIR at that time was 6.75%.

I don’t understand what all these fence-sitters are waiting for. This isn’t Kansas. Do they understand how many 59.5+ year-olds everywhere have access to hundreds of thousands of dollars in cash?? This group understands as well as appreciates the value they see in properties as most of them have seen a few of these cycles in their lifetimes.

[Author]

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