Rental cost and demand falling

[bearishgurl]

[quote=CA renter]BG,

You’re ignoring the two main reasons for the house price inflation of the 70s and 80s.

…

-snip-

2. Women entering the workforce en masse, temporarily increasing the purchasing power of those households with two incomes until prices rose enough to offset it:

http://www.census.gov/newsroom/pdf/women_workforce_slides.pdf
[/quote]
CAR, I looked at the (Powerpoint presentation?) above and am stumped as to why women’s participation in the workforce began dipping in 2008. Acc to page 3, women’s workforce participation in 1967/68 was 14.8% steadily rising to 43.2% in 2008, the highest-percentage year on the graph. That is an increase of 28.4% more women in the workforce in 39 years or .728% increase per year (less than 1%). Page 4 shows women’s average FT salary was 20,600 in 1960, increasing to 36,300 (gross, before payroll taxes) in 2009. That’s a “raise” of $15,700 in 49 years and an average of just $320.41 salary increase per year, acc to this chart.

Obviously, many of those women were single (we don’t know the percentage) and very few single women qualified to buy RE by themselves, especially before 1990.

Acc to the graph below (1987 to present), San Diego housing prices really didn’t begin “skyrocketing” until about 1999. And we all KNOW what fueled the price bubble between 2003 and 2007 (hint: it wasn’t “women in the workforce.”) I can’t find any graphs of local housing prices before 1987. Maybe there are some on this site. Between 1987 until mid 2003 (the year when buying RE with “funny money” began to be prevalent), the average (nominal) price of SD housing went from $108K to $400K. That is an increase of 370% in just 16 years, or an average of over 23% per year! And 2003 was not the height of the “millennium boom.” In SD County, the fall of 2005 was the height, with average nominal prices of $600K.

http://www.jparsons.net/housingbubble/san_diego.html

All along, women’s pay increased by .00728 annually (less than one percentage point).

I would be interested in see any historical average-price chart of SD housing between 1960 and 1987 if anyone can direct me to a link). Based upon its price escalation from 1987 to 2003 (w-a-a-a-ay out of line with women’s FT wages), I don’t think it was women (spouses?) working which caused it. I think the reason for this price escalation was SD County’s coastal location and its insidious change from a military industrial complex and tourist town to having white-collar-job-creating high-tech and research companies move in after Gen Dyn, Rohr, Cubic, Raytheon and other defense contractors severely scaled back their operations or closed, laying off,. transferring and retiring many thousands of blue collar workers immediately before and during this time frame.

RE prices during this same time frame didn’t escalate this high or this fast in the “flyover states,” not even during the millennium boom. Yet, defense contractors have installations there and the same percentage of women residing there are likely in the FT workforce.

[quote=CA renter]
http://www.brookings.edu/blogs/jobs/posts/2011/04/01-jobs-greenstone-looney

…[/quote]

Here, the Brookings institution (in 2011) states that college-educated women (in 2009?) were beginning to experience stagnant wages.

…On a more optimistic note, women have made great strides in the labor market—both in terms of employment rates and median earnings—over the last five decades. American women are responding to market signals and pursuing higher levels of education, making them more competitive in the U.S. and global economies. Women also fared better in the Great Recession and its aftermath. From the start of the recession in 2007, the employment-to-population ratio of women (ages 25 and over) declined by only 4.7 percent—compared with a 7 percent decline among men.

That being said, we are also witnessing stagnation in the median earnings of women. While this is concerning, it is likely a broader symptom of declining opportunities for all American workers. Only after the economy has recovered will we have a better sense about whether other factors are the driving force behind this leveling off for women…

The reality is that more women every year are steadily graduating with college degrees yet their workforce participation begins to drop off after 2008, acc to this chart in the article:

[img_assist|nid=17266|title=Education and Employment of Women 1963 – 2009|desc=|link=node|align=left|width=100|height=68]

Since the RE market is now recovering, I think it will be interesting to see whether women’s workforce participation rises once the US job market fully recovers. If the RE market continues to recover, the job market recovers and more women keep getting degrees but still aren’t working FT, then their absence from the job market has nothing to do with the availability or non-availability of jobs and nothing to do with the price of RE.

[quote=CA renter]Without the increase in interest rates during that time, housing prices would probably have gone parabolic. Mind you, union participation rates were much higher then, and wages were going up for the majority of working people. That is no longer the case, and hasn’t been for at least a decade (much longer, for some professions). [/quote]

I agree with the emphasized statement. My co-worker (mentioned below) and her spouse were both represented by unions (he by a blue-collar union and she and I by a white-collar union), and, save for one or two years, we always enjoyed negotiated pay raises, however small. But, until we see some graphs of SD housing prices from 1960 to 1987, we don’t know if housing prices actually went “parabolic.” They certainly began to do so between 1998 and 2003 (before the millennium boom even started).

[quote=CA renter]There is a direct correlation between asset prices and interest rates, and it’s very pronounced in asset classes (like housing) where most purchases are made with credit. Just because prices/rates don’t move inversely at a given moment doesn’t mean that they aren’t correlated; there are other variables that can affect prices as well, masking the effects of interest rate changes.[/quote]

CAR, housing (as an “asset class”) is a necessity. Everyone has to buy or rent one if they want/need their own place. In both instances, the occupants pay all or part of their own mortgage or someone else’s (if their LL has a mtg). The fact that housing is a necessity makes it prone to your “other variables” category. However, your correlation (or lack thereof) doesn’t necessarily apply to luxury housing.

It’s not the same as speedboats and Lamborghinis being hard to sell in a recession. Even during stagflation, recessions and multiple periods of high MIRs, people still bought housing. People buy housing in the stages of their lives that they need it. If buyers have to take out a PM mortgage, they buy what they can afford within the parameters of interest rates and other terms available to them at the time of making their offers. I bought homes in what today’s young buyers would consider “adverse conditions” because we needed a house. That’s why when potential homebuyers on this forum tell me they have a “right” to be “picky” and will continue to do so if and when interest rates rise, I tell them I hope that strategy works out well for them. I can say that now. I’ve been there (multiple times) and my years of housing “need” for a very particular-type house for my family are now coming to a close.

[quote=CA renter]Once again, people with cash will NOT overpay for something when the purchasing power of all their competition has been diminished by higher rates. Not only that, but people with cash will want to preserve as much of it as possible when rates are high (and cash is dearest) so that they can earn a return on it. [/quote]

I never stated cash buyers would be willing to overpay for housing. I stated they would likely win out a property over other offers with mortgage contingencies. In fact, this is likely so even if a cash buyer offers less than a mortgage-contingent buyer. As everyone knows, with the waiver or removal of an inspection contingency, cash is a sure thing and a cash sale is a quick and dirty escrow. For this reason, sellers love cash offers. As well they should.

[quote=CA renter]And when mortgage interest rates were in the 6-8% range in the late 90s/early 2000s, prices were a lot lower in most places.[/quote]

This isn’t true in many parts of SD, my area being one of them. Only in the last 2-4 months have SFR home prices in my area recovered enough to surpass what I paid for my home in 2001 (12 years ago). My house had (presumably) gone up in “value” 166% by fall of 2005 and then overcorrected 202% downwards by fall of 2011 (due primarily to nearby closed comps on non-arms-length short sales). It was devastating to watch for all longtime homeowners who sat out the prolonged “cash-out borrowing party” and its subsequent predictable fallout. I would estimate my home (as of this month) has gone up about 22.5% in value in the last 12 years (a nonplussed 1.89% per year “profit”). This doesn’t take into account the improvements I put into it, so it’s probably close to a wash. Only time will tell in the coming months/years what its future value might be.

[bearishgurl]

[quote=Jazzman]You are also guilty (again) of miscategorizing me. I bought a year ago, and invested in RE two years ago, just not in the over-priced markets. I bought well enough that I can now afford a second home. Inventory shortages were low, but nowhere as bad as they are now.[/quote]

I know you did, Jazzman. My understanding was that you didn’t repurchase in CA because you thought the areas you wanted to buy in were “over-priced.” I’m sure you’re aware that they are even pricier now and have even less inventory to choose from.

[quote=Jazzman]Less ability to be picky is just as likely to lead to more pickiness, which is far from being “shut out”. More like walking away, since home ownership is yet again proving to be a perilous and pointless exercise. . .[/quote]

Jazzman, being “shut out” and “walking away” are one and the same. I don’t have to tell you that the outcome of doing either leads to the same result as you know I know you know that.

That result being that the prospective buyer doesn’t yet have a home to live in in coastal CA because, although they have been “shopping” for one for years, they haven’t yet made a purchase :=0

[flyer]

Agree BG and ER.

I was actually commenting about over zealous real estate investment apart from purchasing a primary residence–especially if it involves stretching resources far beyond a realistic level.

I absolutely agree that anyone who has the means (long-term) should consider buying sooner rather than later–especially in CA.

[earlyretirement]

Oh yeah, and I didn’t want people to get the mistaken idea that I don’t think prices can’t and won’t dip again. Absolutely they could. But what I do NOT think will happen is the very extreme and rare situation of what was going on with the CDO’s/SIVs, CSIVs, and other toxic waste. The situation where banks where giving anyone with a pulse a loan.

That part won’t happen again. This is what led up to the bubble in a big way. So the crash was particularly hard.

But I honestly don’t see a situation like that again. Sure prices will fluctuate in real estate. I don’t really buy properties for capital appreciation potential. But I’m QUITE confident that in the distant future we’ll see prices in desirable areas surpass peak values.

Certainly not everywhere. Las Vegas, Miami I never see surpassing peak values but I do see it happening in San Diego. It may take many years but I do see it happening.

I don’t know the exact percentages, but BG is correct that MANY of the deals going down now here locally and also in many other cities are cash buyers. Even in my neck of the woods I’ve met a few cash buyers. They are out there.

Like I said before….what we are seeing this go around is much much different vs. what happened during the last bubble. People were also delusional. People were turning down high offers during the bubble holding out for even higher numbers.

[ctr70]

“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.”

—–>Yes but you need a huge down payment for a loan like that today, 30-40% down. A loan with 20%-40% down has almost ZERO risk of default. 2003-2007 they were doing stated income ZERO DOWN for people with shitty credit! HUGE difference! Apples and oranges! So I disagree with you, creative financing is NOT back. Anything with more than 20% down is not creative financing IMO.

[bearishgurl]

[quote=earlyretirement]I don’t know the exact percentages, but BG is correct that MANY of the deals going down now here locally and also in many other cities are cash buyers. Even in my neck of the woods I’ve met a few cash buyers. They are out there….[/quote]

It doesn’t matter whether these cash buyers paid ~$265K back in 2009-2011 in my area (these same ~1200 sf houses are now $385K+) and shut out an FHA buyer or paid $1,265K in ER’s area (and shut out a buyer using a jumbo conv mtg for the bulk of their PM), the result is the same. The buyers using mortgages for PM in these areas lost out to an all-cash buyer.

For instance, in my micro-area, I know of three recent cash buyers from AZ, all “boomers.” They’re all graduates of Hilltop and Chula Vista High and have relatives in the immediate area (we are in the Hilltop HS attendance area but many who grew up here attended CVHS back in the day) :=]

These houses are fully furnished but vacant and have weekly gardeners. The buyers’ relatives occasionally walk over there to check the alarm system and exterior lights, change light bulbs if necessary and wash windows. These new buyers haven’t moved in yet because they’re still working in AZ. But they knew what a good deal was on a well-built house in their “home turf” with a big backyard when their relatives told them about it. I’ve seen one of these owner-couples come for a week to “escape the heat” last summer but I don’t pay too close attention to when they all “visit.”

They didn’t quibble over antiquated wall heaters and stuck windows because all but one of these houses were REO’s. These buyers were decisive and placed an immediate all-cash offer before the sign went up in the yard (it is customary for local agents around here with a new listing to poll the neighbors for buyer-referrals before placing the property on the MLS). Another neighbor bought a similar residence with all cash for their daughter and grandkids to live in.

A second subset of absentee homeowners/buyers we have around here which I have posted about here before are Mexican Nationals, mostly residing in Guadalajara and Mexico City. However they prefer the over-2500 sf ranch with a 1/2+ AC lot with pool and even tennis court and obviously cannot get a US mortgage. There are at least a DOZEN of these properties around here (that I know of) which are fully furnished and vacant and have been for years. Gardeners and a pool service visit once per week and sometimes handymen and pest control companies. Only once have I seen a family with kids splashing off the pool slide and jumping off the diving board but this property isn’t on my regular walking route.

Hundreds, of not thousands of Mexican Nationals could afford in the past and can afford today to buy a SFR in SD County and leave it vacant for their family’s occasional enjoyment. Most of these homes have been owned free-and clear for many years and no, they didn’t buy them with “drug money.” They are “old money” and some of them are no doubt executives.

I’m sure there are same or similarly-owned properties in ER’s HOA.

A third subset of absentee owners we have around here are not buyers but senior citizens who have a lot of “stuff.” They left their SFR in Chula Vista crammed full of “stuff” and moved into a retirement home, a smaller home in the country/mtns (Santa Ysabel, Julian, Big Bear, etc), or a child’s home and either can’t make a decision to sell their ChulaV home, can’t part with their “stuff” in it and/or wish to leave the home to their children. Some of these homes (a few on my walking route) have been “vacant” for ten years or more. These properties tend to be unkempt until they get a weed abatement and trash (pennysavers and junk mail) notice/fine from the City. Then and only then do the owners hire a one-time gardener until such time as the next weed-abatement notice is sent. (If owners don’t respond to the notice, the City sends a cleanup crew to the property and then places a lien against it.)

I have actually contacted two of the above owners for a friend who offered to clean them out for the owner and transport their stuff to wherever they wanted if they would sell him their property for all cash so he could flip it. Both owners (one free and clear and one owing $32K) adamantly refused to sell.

In all three instances, the result for today’s buyers is the same. The homes are 90-100% unused (some for many years), are situated in nice neighborhoods (even “luxury” areas), aren’t or were never were “in distress” but have been and are “off the market” for the foreseeable future.

SD County is an attractive spot for vacation homes for people all over the world.

[earlyretirement]

Oh definitely I agree with you BG that San Diego will always be an attractive area to own properties. Especially from people from fly over states as you mentioned before. I know several people that live in Texas that fly over to San Diego once a month even for a long weekend. (They have houses in La Jolla).

One woman I just had coffee with in La Jolla lives in Dallas and she originally bought a house for her daughter to live in but her daughter moved to Los Angeles so the house just sits empty! She said she uses it but rarely. Lots of people like her as well.

Also, again BG is correct about the Mexican nationals that own in the area. I’ve met several. And as she mentioned it’s NOT drug money or anything to do with drugs. It’s clean money. MANY business owners that own successful small, medium and large companies over there.

My friend in La Jolla that lives in a gated community said his community is chock full of wealthy Mexican owners like this. And I know Coronado has many as well. (Heck, look at that woman that was busted in Mexico that was stealing money from the school system there). She had a place or two in Coronado. (In her case the money was tainted).

Also, lately I’ve met several people from South America that own places here in San Diego. Just got introduced from friends of friends. People have this mistaken assumption that anyone from Latin America that has millions to buy a place cash but be a druglord or something.

I lived in South America for many years and I can tell you the wealth over there would shock you. Argentines, Brazilians, Uruguayans, Peru, Colombians…… many many own businesses over there or just family money and they make Americans look like paupers.

People down there don’t have the cheap and easy credit like we have here. In many areas down there you MUST pay cash for your properties. Mortgage products like we have don’t exist in some of these places.

I actually love it down there because you see someone that “owns” a place and they really do “OWN” it. Not the bank. There are NO foreclosures there. You see a guy driving around a BMW or Audi or Mercedes and it means they have a lot of $$$$. Here it means nothing where someone lives or what they drive.

Heading into the future I believe you will see more and more foreign nationals buying properties in San Diego. Sure, lots already do in Florida but I’ve noticed a trend over the past 2 years that more are starting to shift their investments to California now that it’s more affordable.

[quote=ctr70]”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.”

—–>Yes but you need a huge down payment for a loan like that today, 30-40% down. A loan with 20%-40% down has almost ZERO risk of default. 2003-2007 they were doing stated income ZERO DOWN for people with shitty credit! HUGE difference! Apples and oranges! So I disagree with you, creative financing is NOT back. Anything with more than 20% down is not creative financing IMO.[/quote]

Absolutely ctr70 is spot on target. This is nothing compared to the “creative financing” you saw leading up to the bubble. That simply will NOT happen again. I do think the VA and FHA needs to be more stringent but it’s not like that is funny money either like before.

We will NEVER see the type of thing we saw before. It simply won’t be allowed. Not only apples and oranges. But apples vs. coconuts!

[joec]

I always found it strange that if you had a ton of equity in a home, why a bank would not want to refinance you. I assume if you had 40% equity, won’t they just get your home at 40% off if you defaulted?

The whole problem with the past housing bubble was no money down. If they required 20%+ down, the housing bubble probably wouldn’t have happened.

[bearishgurl]

[quote=joec]I always found it strange that if you had a ton of equity in a home, why a bank would not want to refinance you. I assume if you had 40% equity, won’t they just get your home at 40% off if you defaulted?

The whole problem with the past housing bubble was no money down. If they required 20%+ down, the housing bubble probably wouldn’t have happened.[/quote]

joec, the problem is that lenders don’t want your home at all. It is (apparently) too much hassle for them to foreclose on delinquent borrowers, ready the property for sale and carry it for a time (maintenance, insurance, taxes, MR, HOA fees) until it is resold. The vast majority of lenders won’t take a chance on people who can’t demonstrate on paper that they have enough monthly income to make the mortgage payment every month, even if it DOES represent 60% (or less) of their home’s value as appraisals are subjective.

This is part of the reason why many people who are semi-retired or retired pay all cash for RE. They may have demonstrated for many years on their credit reports that they can make mortgage payments which are even higher than that of the mortgage they might seek today but their “numbers” don’t pencil out on a mortgage application such as to be “qualified” to take on a mortgage. The other reasons they don’t take out a purchase-money mortgage are that its initial cost is too prohibitive due to the length of time (possibly just a few years) they’re planning on keeping the mortgage. IOW, they’re only planning on keeping a mortgage until they’re 59.5 years old (and can access retirement funds to pay it off), or, in the alternative, when they are eligible to collect SS (coinciding with leaving their jobs).

Just 12 years ago, a conventional mortgage of 275K or less (conforming) only cost a (prime) borrower $2800 to $4400 to close. Now a mortgage of the same size costs $7000 to $9600 to close, due to hikes in lender’s and appraisal fees and escrow, title and recording fees. Although the ancillary fees can’t be changed, the lender fees today are too high for someone who is only going to hold the mortgage for a few years. If a lender advertises $0 in closing costs, there is a catch. In this case, the fees are built into the interest rate, the terms or the APR or all three. In the absence of the latter two, the mortgage broker is collecting a yield-spread premium from the lender between the rate contracted for and the prevailing rate and the mortgage is recorded under “MERS” and immediately resold.

“Old school borrowers” (such as myself) will not sign up for these shenanigans when seeking purchase or refinance money. We want to borrow our mortgage money from a local direct lender (ex. Downey Savings, Chase, Union Bank) where they will guarantee 100% on our note and trust deed that they will hold our loan forever and keep it in their “portfolio.” Twelve years ago, if a borrower put down at least 20% or had 20% equity (no PMI was involved) and did not trouble the lender with a (labor-intensive) impound account, a portfolio lender only charged them a doc prep fee of $150 and a $75 “tax service fee” (to check if the borrower pd his taxes at every installment). This amounted to ~$225 total in “lender fees.” If docs had to be “redrawn” for another payment date/closing date, the “redrawing” fee was $75. These lenders offer their portfolio borrowers payment flexibility and other conveniences such as multiple “brick-and-mortar” locations to make payments in on the last day at the last hour before a late charge kicks in. In addition, they were not required to adhere to FF guidelines and thus were not required to participate in “loan modifications” or “short sales” of their portfolio mortgages and in recent years could foreclose timely in accordance with state law. As such, their closing costs tend to be lower due to lower, more straightforward lender’s fees. These lenders can also make their OWN decisions re: a borrowers creditworthiness and aren’t required to adhere to strict front and back-end ratios when making loans to creditworthy individuals who have a long history of paying their bills on time.

I’ve strayed off the subject of your answer, joec, but, in short, lenders consider the borrower’s qualifications on their mortgage application and credit report as having more weight than the appraisal when deciding if they will loan purchase money or approve a refinance. You might think your house is “special” and any lender would want it for 60 cents on the dollar but when all is said and done, they don’t.

IIRC, you posted here before that you were self-employed. If you are having trouble refinancing but otherwise are a prime borrower, I would suggest you contact one of the above three major lenders among a slightly larger list of portfolio lenders who do business in CA.

Note: Chase also makes mortgages backed by Freddie Mac in addition to those they keep in their portfolio (not to be confused with one another).

[Author]

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