Rents are up.

[powayseller]

Sell Now. Market is turning, and you can expect to get about 10% less than last summer’s prices.

Read the 2 articles at the top of the home page.

Rents are pretty good. My friend is renting her Poway house out at $2500/mo, and she has 3 calls/week. But her sign is still up. She moved to Phoenix.

I rent an attached home, 2200 sq ft, for $2200/month. This seems to be on the low end. I think this size house could get $2300.

If you hang on, be prepared to hang on for 15 – 20 years, before it could be that long before we get back to today’s prices. It may take 7-10 years for bottom, which will bring us to 40-50% off today’s prices. Then the prices will go back up.

Sell now, invest the money in 5.5% CDs, and buy back 2 houses for the same money in 2015.

I sold my house in December 2005, and I missed the peak price.

Don’t take my word for it. This is a big decision. Read the stories of homes selling now for 2004 prices, the Bubble Bloggers who discuss the economy, and specific housing sales, and decide for yourself. Then, for more questions, please ask.

[murray]

It’s as if I wrote this VofSD article myself. http://www.voiceofsandiego.org/articles/2006/07/14/housing/977pricedrop.txt
Similar to what I’ve been writing here (amidst the name calling and gyrations about housing price medians).

“But neither Gin nor Thornberg is overly worried that year-on-year home price changes have crossed into negative territory in San Diego. A 1-percent drop is insignificant at this point, Gin said, and there will have to be larger, more sustained home price drops before he starts predicting doom and gloom for the housing market.

Both Gin and Thornberg described the drop in prices as “statistical noise.”

Woodpack: Craigslist.org is a fantastic free service to find and advertise rental properties. Also check out SDUT online to check rental prices.
Are you trying to landlord this Poway home yourself from Virginia – or are you using a prop mgr? (which I’d recommend due to the distance).
I don’t know the demand for Poway rentals but I would guess its probably strong as ps indicates. SD Apartment Mgr Assoc latest report showed a surprising 10% yoy increase.
Predictions for future r/e prices vary tremendously, from unrealistic NAR ~6% yearly appreciation to doom & gloom -50% scenarios. I predict ~10% decline for MEDIAN SFR prices over 6 years assuming unemployment stays down. Obviously your future plans will determine a sell decision.

[(former)FormerSanDiegan]

Sell or keep ?

woodpack : There are several more considerations for keeping your property versus selling that have not yet been pointed out. IMHO the following are the most important considerations.

1. Did you previously line in the property as a primary resicence ? If so, and if you can sell at the point where you lived in it 2 of the past 5 years, you will owe no capital gains (except for depreciation recapture).

2. Consider all the costs of selling versus projected loss in value / gain in rental rates. The costs of selling should include :

a. Broker commisions. Assume 5-6% in this environment.
b. Capital gains taxes. Assume 15% of the gain, after selling costs
c. Depreciation recapture. This is 25% of the amount you claimed in depreciation over the time the property was rented.
c. Cost for repairs, termite, etc. Amount ???? AT least 1% of the price.Depends on the property.
d. Vacancy. Consider lost rent for at least 3-6 months required to sell the property. What matters is the difference in the vacancy between tenants (e.g. 1 month) versus vacancy while selling. At current CAP rates in SD this might be about 2% of the property value over 6 months.
e. Home values decreasing. Assume that you will have to sell at least 2-3% below April/May 2006 prices.

3. If you add these costs up, you’ll come up with the costs of selling. Compare this to anticipated decrease in home value and gradual increase in rent (at the inflation rate) over the next few years.

4. Most importantly : Consider your current cash flow and the relative value of the home with respect to your overall net worth. If the property is cash-flow positive, it will be easier to hold on to psychologically when home prices continue to decrease. If it is cash flow negative, it is more difficult to hold on to a depreciating asset.

[powayseller]

FormerSanDiegan, an excellent analysis. I obviously did not consider any of this, since I have no landlord or 1031 experience. Wise advice. Also, check with a CPA about the capital gains and other costs.

murray: I laughed at Thornberg’s report. I attended the May 2006 conference, and put a 3 part rebuttal on this site. You can find it in the archives. Thornberg has the right data, but his conclusions are flawed. The most important point, is so important, that I will write it again.

Thornberg said that historically, home prices have dropped only in recessions. Recessions occur when you have major job loss in 2 sectors, typically manufacturing and one more. There is no indicator for recession, and voila, no job loss and thus home prices cannot decline.

The weakness in the Thornberg analyis is that he does NOT ever mention, not ONCE, the exotic financing. Not one simple mention of 60% of recent purchases made at 100% financing with adjustable rate mortgages.

Thornberg needs to broaden his understanding of what drives home price declines. It is not limited to job loss.

Home prices decline when large groups of people are unable to make their mortgage payments and must sell, regardless of whether that inability to pay is due to job loss or their ARM adjusting. Thornberg omitted the impact of ARMs, which is the same as that of a job loss of recession.

There will be job loss of recesison magnitude; more on that below.

There will be 50,000 – 100,000 San Diegans who will need to sell in the next few years as their mortgage payment jumps 30-80%. The national figure is $2 trillion in ARM loans adjusting over the next 18 months, and I extrapolated to CA which has the highest amount of these loans. We sell 30,000 homes per year, and these homes set the price for the other 1 million homes. These ARM adjustments will be a home value killer.

Thornberg admits the loss in construction jobs, but is too conservative. As he said, the majority of hiring lately has been in real estate industries: construction, lending, and realtors. I got up and asked a question at the conference,and I led it with, “San Diegans have built an economy based on buying and selling homes to each other, financed with money from China”. Thornberg chuckled, and said, “You’ve just summarized our entire presentation”.

Where Thornberg fell short, and this is his 2nd weakness, is in stating the effect of MEW: 70% of GDP is consumer spending, and with flat wages, consumers got their money from MEW and HELOCs. Once housing prices stay FLAT, let alone drop, the gig is up. Rising home prices allowed consumer to go on a spending spree, increasing employment in car dealerships, home improvement stores, restaurants, all retail, travel agencies, nail salons, florists, etc. When the housing ATM is dried up, those employment figures will reverse. I made a thread a few weeks ago about the specific employment losses. Conclusion: with the projected outflow of 40K people/year, and the tens of thousands of job losses, our unemployment will be over 6%. But most of the people losing jobs will seek cheaper and greener pastures elsewhere.

So we will have a recession, because our 2 main sectors that are going to have MAJOR job losses are: construction and retail. Add to that realtors, title officers, appraiser, interior designers, retailers, restaurants, travel agencies, tourism (less travel), and I wonder who will even have a job left?

I got my employment data from Cheryl Mason at the Labor Department, but the conclusions are mine, not hers. I have the Excel file of the labor data, and have studied it for several days. There is no magic bullet for new jobs here. Even Ms. Mason told me the only promise was some hiring for homeland security, but we ended up not getting the grant money. My hope is after housing prices drop and we have huge population exodus, our governor will make a hospitable business climate, and we can grow our businesses again.

[lindismith]

Murray –
Gin and Thornberg both have a vested interest in saying 1% is nothing to worry about.
Gin himself teaches a class through UCSD extension on how to do condo conversions. The class alone brings him thousands of dollars! And that is only one small aspect of how he makes money through real estate. I have met him and he is a very nice guy, but again, it is not in his interest to forecast anything dire.

[Bugs]

It ain’t just “statistical noise”.

A countywide stablization or slight decline in average prices is more than just “statistical noise” if it’s being compared to the former trend of increases. The number isn’t what’s important here, it is the pace at which the trend has changed from a slowing increase to decrease that the economists should be commenting on. Statistical noise aside, you’ll notice it didn’t even flatten out for any length of tme. It went straight from + to -. Every month, more and more market segments are going negative. As this trend continues the countywide averages will decline at a faster pace until the market psychology takes on its own life and perpetuates itself.

As I’ve said before, the passing of July 1st marks the end of the use of yr2005 sales data comparables in SFR appraisals. Since those sales are now all 6+ months old they can no longer considered recent enough to be relevant except possibly as secondary indicators in markets where no recent sales have occurred. That means that appraisers will be forced to use yr2006 sales even though they’re lower, and the resulting appraised values will decline along with the market’s sale prices.

[sdrealtor]

Bugs,
We essentially flattened out 2 years ago (after Summer 2004)and did not go directly from + to – unless you are looking at the worthless median stats. As a Realtor who has sold over 40 homes in the last two years I can say that few if any had any appreciation the last 2 years. Several sold for prices this year that were lower than they would have sold for a year or even 2 years ago.

[ybc]

Here is one data point on rent going up.

Our former landload is trying to rent her UTC house at about 30% higher than what we paid two years ago. (It seems that she might have done some remodeling work, and based on our experience, probably at the previous renter’s expense – just a guess). Apparently, she can’t find a renter quickly. So now she’s only asking about 20% higher than what we paid two years ago. So it looks that it’s difficult for landlord to keep asking for a high price and shoulder the cost of vacancy. To rent our current place, we did negotiate a little and get a little consession too.

BTW, if anyone is looking to rent a house in UTC and wonder if this is the one, let me know. Because I’d advise anyone against it! (The day we moved out, our neightbor told us that she ran through 6 or 7 renters in 5 years)

[SD Realtor]

On the front lines

Murray, I admire you for sticking to your guns. Once again, I feel that people who take the data as a lump fact and then apply commentary are making a mistake. It is simply not a correct thing to do.

Okay I service the entire county. I have listings from Oceanside to Eastlake and as far east as Harbison Canyon and a new one out in Pine Valley. To use a simple single median number is NOT THE RIGHT THING TO DO.

Murray, to be more specific, single family detached homes, in the majority of neighborhoods have already experienced depreciation. This includes many of the central San Diego neighborhoods like North Park, Normal Heights, College area, San Carlos…. South San Diego, especially the Eastlake zips have been hammered. North county inland has been whacked as well.

Please do not include high end. Yes Rancho Santa Fe, high end La Jolla, Fairbanks Ranch, Del Mar and other coastal communities have done well and will not be affected as much by the downturn. Do not include high end properties either.

Again, it does not help the first time homebuyer, or the young couple thinking about buying to lump all this stuff together and form an opinion based on numbers that have been massaged by the industry. If you have some median priced homes in some of these zip codes I will be more then happy to run numbers for you to see what the true depreciation or appreciation has been compared to last year even.

I admire your points but disagree with most if not all of them. What I see now is alarming for many reasons but the biggest is a very substantial lack of traffic. The demand is substantially less for a variety of properties I have listed in many locations in the county.

It is scary Murray.

[sdrealtor]

SD you are right on with you assessment of the market. Every home/area is unique and only a detailed analysis by an experienced, ethical and knowledgable Realtor can tell the true story TODAY! I am talking about TODAY, not what might be next month or next year (which no one knows) but TODAY! Interestingly, my two active listings are still getting great traffic, averaging about 5 to 7 showings a day. No offers, but plenty of traffic.

[powayseller]

I agree that a good realtor will help you get the best buy. Perhaps someday buyers will have the information needed to determine a fair market value.

A good realtor shows you the homes you selected, and in addition, takes you to other homes which you may not even have considered, because they are a good buy and similar to what you like. They tell you the fair market value of the home you want to buy, based on the market trends. You cannot rely on past comps or zillow or the median to tell you the fair market value of a home. Without a realtor, how will a buyer know how much to offer? 10% under list price? How do you know if the list price is right? Get an appraisal? Can you trust that is accurate?

Realtors can negotiate a better deal than a buyer alone. For example, how many buyers would have thought to write up 3 offers, send out one at a time with a 24 hour expiration, and say “firm and final”. How many buyers can make it through the purchase process with a cool head, when emotions come up in regard to contingencies and repairs? How many buyers know what is the current common thing to ask for, i.e. closing costs, # of days for inspection, who pays the title report fees, if they should demand seller pays half of escrow fees or all of it. There are so many things in the contract…

How does a buyer know they are getting all the disclosures that are required? Can they bargain with the seller to get their side fairly represented?

I think buyers should ask their realtor for a refund, as SD Realtor suggested. I don’t think a buyer saves money by going alone. Sellers will not reduce their asking price just because you don’t have a realtor. They will try to split that savings, or pocket it themselves. They think since you have no realtor, that savings can go to them. So they will be harder on the repair list, thinking the buyer has so much extra money saved by not having a realtor. The seller’s realtor will take advantage of the inexperienced buyer in the contract. Why shouldn’t they? Perhaps the buyer has a lawyer who reviews the contract, but how knowledgeable is the lawyer about current RE practices, and what is paid by each side? That is not their specialty.

Ultimately, using a GOOD realtor will save the buyer more money, than trying to go it alone. I believe that, but I am willing to have my opinion changed.

I know there are people on this forum who do not like realtors, and I wonder if any of them would prefer to buy a house without a realtor, and what the advantages are that they see.

[murray]

Rents are indeed up!
“Two-bedroom units surveyed by the county association rose only about 4 percent over the year, Pinnegar said yesterday. In contrast, single-family-home rents rose by nearly 16 percent, he added. Studios rose by about 13 percent and one-bedroom units increased by 5.8 percent”.

I have a 2000 sq ft sfr turning over Sept 1. I’ll keep you informed on the outcome.
What’s the prediction for the future?

[no_such_reality]

Averages or specific units?

Keep in mind, the market is flooded with speculators that are trying to cover their mortgage on an inflated purchase.

In addition, average rents are going up in complexes, but the average is going higher-faster becuase more new complexes are going up that are geared to the “executive” or “luxury” apartment home.

[SDLaw06]

My wife works in property management for one of the big apartment companies in the US and even she is amazed on how much their rental prices have gone up recently. They determine prices based on a supply and demand computer system that changes hourly. OK, I just realized how profound that is, supply and demand price setting, but you know what I mean.

[lindismith]

Did she say why their demand is up? Or, where these renters are coming from?

[Author]

Posts