Requirements for a significant price decline

[bearishgurl]

[quote=CA renter][quote=bearishgurl][quote=spdrun]Whether a home is paid off or not has no effect on value, only on whether the home CAN be sold without resorting to short sale or bank foreclosure.[/quote]

I understand that, spdrun. But an owner who has a paid-off property to sell (esp a longtime owner in CA with artificially low taxes) has many options. If they don’t get their price, they can rent it out or just furnish it, get an occasional landscaper and leave it “vacant” for occasional guests. Many do.

All I was trying to say is that these owners don’t have to entertain lowball offers or even need to price their listing in line with the comps. If they don’t get any offers that they will accept in a short period of time listed, they can just withdraw the listing and wait for a better day. And many do because it costs them very, very little to hang onto the property into oblivion.

I believe lots of these owners are just “testing” the market when they list. And they have the luxury of time and can do so.[/quote]

But this still doesn’t change the price they could get for their homes if they were to decide to sell. The only homes that matter are the ones that do sell to buyers who are willing/able to buy at a given moment in time. Those buyers are under no obligation to buy a house for any price, much less an artificially inflated one.[/quote]

Yes, of course. I agree that a withdrawn listing doesn’t constitute a “sold comp.” All I was trying to say is that withdrawn listings and properties turned into rentals or guest houses and never put on the market due to their ultra-low tax assessments could be marketed but are not. This leaves a permanent dearth of listings in established micro-areas (some very coveted areas) which cause prices to be permanently sticky there. The sellers who ARE motivated to sell in those areas have a “take it or leave it mindset” because they CAN. If buyers don’t like the prices there on the few listings available, they must go shopping elsewhere. This problem isn’t going to go away. It will only get worse as owners of these properties will simply hand them down to children/grandchildren, most of who will live in them, rent them out or keep them vacant. Buyers will continue to have little choice of inventory in the established areas (many of them coveted).

This phenomenon creates a situation where buyers lose out unless they can get an accepted offer on one of these properties. That means they’re going to have to pay at or very near what the seller wants or they don’t get the property. Would-be sellers in this category don’t lose out. They have several options at their disposal and always will.

These are the ramifications of the long-term effects of Prop 13 and its progeny, Props 58 and 193.

[bearishgurl]

[quote=spdrun]Bearishgurl —

Again: sale prices are still 20%(?) below their peak and were even lower before. Clearly, economic conditions did affect the market in SD. Your neighborhoods seem to the anomalous rather than the norm.[/quote]

Yes, they ARE 19% below the peak, on average according to Rich’s current graphs. BUT this means they may be 32% below peak in places like Lakeside and at or above peak in places like LJ or LaPlaya/Fleetridge SD (92106), for example.

It depends on the micro-area how values are currently faring in comparison to the (late 2005) peak prices. Some areas didn’t have a lot of bubble purchasers who purchased with funny money and hence, didn’t have a lot of distressed property afterwards. They had more all-cash buyers and well-heeled buyers with great credit who didn’t have to sign up for “funny money” mortgages in order to purchase the property.

[spdrun]

Again, you’re just arguing FOR my point that your sample neighborhoods don’t represent the County as a whole any more than Lizardside does.

[Jazzman]

The thrust of BG’s argument is that there is enough stability in the SD market due to baby-boomer participation. Since they bought when house prices were lower in real terms, and there are enough of them, the housing market is little affected by being over-valued. This is evidenced by their indifference to the need to sell, down-size, move, low-ball offers, and so on. But I’m not so sure the reasons they are not selling are all to do with “I’m alright Jack” as some just desperately hanging onto perceived wealth due to fear of not having enough to retire on. The question faced by many is how exactly do you capture this wealth, and the answer is the options are limited. So when/if alternative investments become available that story line may change for local buyers, and foreign investors who have comprised as much as 50% of recent sales in many metropolitan areas. On top off all the other points raised about lower sales, increasing inventory, higher anticipated rates, over-valuation, the number of homes that are in some stage of foreclosure in SD is 2,375, which is about the same number of homes that are for sale. My guess is that distressed homes are still at historically high levels, and will continue to play a role for some time yet.

The most logical way to look at the question of whether home prices will contract is to look at what pushed them up, and what happens when those factors are no longer there. The exact reverse trend should follow.

[bearishgurl]

It’s not just “boomers,” Jazzman …. it’s the already retired and long retired, the WWII and remnants of the Greatest Generation. These are the generations which managed to buy the SD County “bread and butter” house in a “plain jane” ‘hood for $4K to $17K, a similar house in a “coveted” ‘hood for $18K to $25K and the “trophy” or “expansive view” house in SD best areas for $25K to $45K (yes, incl LJ and Coronado).

A huge portion of these folks will die in their houses (perhaps with part-time assistance).

I’m going to tell y’all again with a straight face that this demographic typically doesn’t need the proceeds from the sale of their home. They’re living on SS and pension(s) and many have been “savers” most of their lives, due to living through the great depression. The vast majority of them are are used to living a far more “spartan” lifestyle than the rest of us are and many of them are now too old to travel. They’re just going to hand their residence (and any rental houses they picked up when they were young whippersnappers) down to their heirs. It’s the same story up and down the state. After their deaths, their heirs’ lawyers will tell them that they are fools to sell a perfectly decent SFR in a perfectly decent area and lose it’s ultra-low tax assessment. So, if at all possible, one heir will buy out the others in a multiple-heir family.

Nor do I see boomers “fearful” of running out of money. I see the ones who have already retired content with steady monthly incomes (pensions, SS). The ones I see that have owned their current residences more than 25 years have either paid them off or have a small encumbrance left (often a HELOC taken out at one point for repairs and remodeling). A very small minority have not handled their finances well and some of that has to do with giving too much to adult children when they (invariably) get themselves into financial jams and beg for money from parents.

Not EVERYONE wants to retire and go around the world. A lot of people just want to visit county/state campgrounds or visit relatives in other counties/states where they won’t be paying for lodging. They’ll just pack up and hit the road (even taking pets with them). I’m a “boomer” and this is how I often travel. I’ve offered numerous times to take my own Gen Y kid(s) with me, who have only joined me on three out of over a dozen trips I’ve made in recent years (and they flew back one way at some point on the trip). They won’t even join me when they themselves are on vacation because they don’t like road trips. They want to fly and rent a car (way more hassle, expensive and lacking in flexibility, IMO). This is the difference in values between the generations.

The reality is that the older generations are lower maintenance.

In spite of what all the “financial advisor” types seem to be spouting on the intrawebz (spdrun’s word, lol), I don’t think a retiree needs as much income as they had while working. In most cases they can live on less and certainly far less than they lived on when they still had kids in school and college.

Jazzman, do you have any idea WHERE those 2375 (defaulted-upon or foreclosed?) currently “distressed properties” are located in the county? Could it possibly be that 90%+ of them are located in outer lizardia which was built within the last 15 years?

If so, how does this affect property values in SD County’s most established areas? Who is the demographic who typically goes into foreclosure and why did this happen to them? And who was the demographic who bought into micro areas of the state which were hard hit by foreclosure and decimation of residential property values?

Oh, and Jazzman, I forgot to add that I don’t believe San Diego County RE is “overvalued.” If anything, some areas of the county are still “undervalued.”

[CA renter]

BG, you’re still assuming that the heirs will want to hang onto these properties, or that they will be able to. Many of these heirs are living paycheck to paycheck, have no savings of their own, and have been waiting for their inheritance so that they can pay off their debts and/or finally buy that car that they’ve been holding off on buying.

In most cases, there’s more than one heir. The kid who’s willing to live in mom and dad’s 1940s bungalow with 1970s green shag carpeting and faux wood paneling probably can’t afford to buy his/her siblings out, especially if he/she is so fixated on the low tax basis.

I only know of two people (my MIL being one of them) who’ve stayed in their parents house by buying out their siblings, and I’m a Southern California native, so I’ve known a LOT of families who’ve been in this situation. All the rest were quick to dump the house so they could divvy up the cash and go about their own lives.

You’re also forgetting about the elderly people who have no savings outside of the house, and when they/the kids want to put them in a home or have them live with one of their kids, so they sell the house to help pay for this.

Again, any money is found money when it comes to inheritance. The heirs are much less likely to be emotionally attached to their parents’ homes, so will sell for whatever the market will bear when they want to sell it, especially since many of these homes have a lot of deferred maintenance and need tens of thousands of dollars (or more) in repairs.

[scaredyclassic]

i am led to believe from my son that real estate is not as stable as I thought. the earth’s crust is basically floating on a molten core, it’s moving, actually, and changing at a fairly rapid pace. The actual words he used i think were “floating crap”, basically floating dirt. i also had thought real estate was a pretty stable thing, but now im not so sure. so i wouldnt invest in this stuff too heavily, as it is floating an d unmoored to the deeper middle earth, and also because i think the future is in something else.

[UCGal]

I’m going to agree with CAR on this, which is pretty ironic. Ironic because I bought the house I’m living in from my dad (and have the low property taxes that BG and CAR hate so much.)

My neighborhood is very much a neighborhood of more than average “original” or “near original” owners. At least 5 homes on my block are original 1960’s owners who are now in their 80’s. Another 10 or so bought in the 70’s…. so the homes have been paid off for a while, and the owners are retired. Additionally I’m one of 3 owners that bought from parents. You’d think that would make me agree with the argument that BG put forth.

I don’t. My block is very atypical. I do NOT see it repeated elsewhere. The blocks around me are mostly owners of 10 years or less. I’ve seen several drawn out estate sales. The kids did not want or couldn’t agree which child would get their parents house when the parent died. Part of it might be that the children of the original owners are all in their 50’s and 60’s – and have homes of their own that they enjoy… they’re not starting out with young children… most enjoy low property taxes because they bought well before the bubble in their own homes (not parents homes).

Oh and the second generation of owners on my block are all nearing retirement or already retired… and their kids are too young to buy them out.

[bearishgurl]

I’m living in an area which is 10 – 20 years older than UCGal’s (depending on street). I also have at least a dozen neighbors (that I know of) in their 60’s who “inherited” their parents home (or bought their sibling(s) interest(s) out) and are residing in it. I think the difference here is cost. It is easier for a sibling to buy out the others to get title to a parent’s home when the appraised value is only $350K to $550K as opposed to values in UC (not sure what they are now but have always been higher than my area of dtn Chula Vista).

A few of my neighbors purchased their deceased parents’ homes from sibling(s) as far back as the early ’80’s for the $35-$50K range (with temporary OWC financing to the executor, due to exorbitant prevailing interest rates).

This same phenomenon occurs in many other communities in San Diego County with tracts of smallish “mid-century type” homes, the kind that Joe 6pack Rohr or Convair worker used to buy to raise his family in. (Lemon Grove comes to mind but there are many others.) I’m not sure UC fits that criteria as the homes there tend to be a little larger and a bit newer (1961-1968+ ?) than most run-of-the-mill tract housing built when SD was a manufacturing town. In addition, UC has mushroomed in value (above and beyond other similarly-situated communities) over the years due to tech companies moving in nearby. I could see how it could be a challenge at today’s values to buy other siblings out in UC when it was likely that none of the heirs were planning on attempting to qualify for a mortgage when their last parent passed away. If one needs to get a mortgage to buy other siblings out, that takes advance planning and you can’t plan death.

Heirs taking over their deceased parents property is very common in the established areas of South County. Extended family usually always finds a way to do it to keep the family home in the family if it has an ultra-low assessment. As is the case in many other moderately priced areas in the county. Hence, the neighborhoods are very, very stable.

I think those many extremely fortunate CA heirs of parents’ “trophy properties” were either an only child, the only surviving child, a sibling who was well-heeled enough in their own right to enable them to make the deal or there was enough cash in the estate to settle with any other siblings so one of them could take title to the parents’ trophy (ocean view, historic, etc) property.

[bearishgurl]

[quote=CA renter] …. You’re also forgetting about the elderly people who have no savings outside of the house, and when they/the kids want to put them in a home or have them live with one of their kids, so they sell the house to help pay for this…[/quote]

The 75+ yr old demographic that I’m seeing have Tricare for Life at very little cost out of their military pensions and/or: union pensions, plenty of savings and rentals and other comm’l property which one or more of their children are managing. They don’t need to worry about “being put into a home” by one of their children. They have their EOL docs in order. I also see widows/widowers having local meals on wheels delivered at least 5 days per week and have a part-time companion to help them out with household maintenance and errands and a gardener. Their children help them with home repairs, as needed. Many of the WWII and (dwindling) Greatest Generation homeowners I come into contact with (yes, 85+ yrs old) are still driving and have absolutely no need whatsoever to liquidate their home equity. As a matter of fact, a good portion of them are no doubt still saving due to having “double-dipped” on their pensions in their working years and have way more income coming in than they need to survive month to month.

[UCGal]

[quote=bearishgurl]

The 75+ yr old demographic that I’m seeing have Tricare for Life at very little cost out of their military pensions and/or: union pensions, plenty of savings and rentals and other comm’l property which one or more of their children are managing. They don’t need to worry about “being put into a home” by one of their children. [/quote]
Tricare for life is only for military. And, if I’m not mistaken, it also becomes secondary/supplemental to medicare when the person reaches 65.
Medicare does NOT pay for nursing homes except in a limited way for max of 100 days if they transfer to the home directly from a hospitalization. Medicaid does pay for nursing home care – IF you spend down all the assets. So there’s no leaving assets to your children AND having the government pay for the nursing home. (And that is how it should be.) There is a 5 year look back – so perhaps the more savvy elderly folks you’re seeing have already transferred title to their grown children – in hopes of having it in place longer than 5 years- to beat the lookback.

[bearishgurl]

[quote=UCGal][quote=bearishgurl]

The 75+ yr old demographic that I’m seeing have Tricare for Life at very little cost out of their military pensions and/or: union pensions, plenty of savings and rentals and other comm’l property which one or more of their children are managing. They don’t need to worry about “being put into a home” by one of their children. [/quote]
Tricare for life is only for military. And, if I’m not mistaken, it also becomes secondary/supplemental to medicare when the person reaches 65. Medicare does NOT pay for nursing homes except in a limited way for max of 100 days if they transfer to the home directly from a hospitalization. Medicaid does pay for nursing home care – IF you spend down all the assets. So there’s no leaving assets to your children AND having the government pay for the nursing home. (And that is how it should be.) There is a 5 year look back – so perhaps the more savvy elderly folks you’re seeing have already transferred title to their grown children – in hopes of having it in place longer than 5 years- to beat the lookback.[/quote]

I understand all this about Tricare for Life, UCGal. I realize it is a Medicare Part B and D supplement (one of the better ones, btw). I don’t think any of these octogenarians + are planning on going into assisted living or a skilled nursing facility. They’ll just use home health care/companions, etc, as long as possible. Some are stubborn and don’t even want to move in with kids who have room for them. They’re planning on dying in their homes. If that’s from a fall that isn’t discovered until 1-3 days later, then so be it.

In any case, 100 days is a long time for an 85+ year old to continue to survive who was moved to a skilled nursing facility directly from a hospital. Their mental health (and will to live) usually takes a turn for the worse when they are told they cannot return to their homes.

[CA renter]

[quote=UCGal]I’m going to agree with CAR on this, which is pretty ironic. Ironic because I bought the house I’m living in from my dad (and have the low property taxes that BG and CAR hate so much.)

[/quote]

Just want to clarify that I am not opposed to an inherited Prop 13 tax basis, but only as long as the heir is using it as their single primary residence.

It’s BG who is opposed to the inherited tax basis, while I’m opposed to the corporate loophole and Prop 13 protection for second homes and investment properties. Basically, I think Prop 13 protection should only apply to a single primary residence.

[UCGal]

[quote=CA renter][quote=UCGal]I’m going to agree with CAR on this, which is pretty ironic. Ironic because I bought the house I’m living in from my dad (and have the low property taxes that BG and CAR hate so much.)

[/quote]

Just want to clarify that I am not opposed to an inherited Prop 13 tax basis, but only as long as the heir is using it as their single primary residence.

It’s BG who is opposed to the inherited tax basis, while I’m opposed to the corporate loophole and Prop 13 protection for second homes and investment properties. Basically, I think Prop 13 protection should only apply to a single primary residence.[/quote]

I guess I’m still in doo-doo on that one too. We built the granny flat – so we’re technically multi-family not SFR… and the granny flat is a rental property. If it helps – our property taxes went up to triple what they were when we built the granny flat. They charge current rates when you add on new square footage or extensively remodel.

[CA renter]

No, not in doo-doo for that, either. 😉 It’s still your primary residence.

Personally, I LOVE accessory units because they provide affordable housing in a way that doesn’t cluster low-income units in one area, which often cause higher crime rates and blight in the area. It also tends to hold landlords more accountable because most people won’t be slumlords when their rental is in their backyard.

As you’ve noted, the accessory unit is assessed at current market value (not sure about their exact formula, but seems to take construction costs and/or FMV into consideration), so you ARE paying market tax rates on your granny flat.

As for the ongoing Prop 13 protection that would cover the extra unit, I think that the benefits listed above, as well as the fact that you are building an additional unit (as opposed to just buying at existing unit), which benefits society by providing additional shelter that didn’t exist before, is worth the tax subsidy. Also, if the unit us used for elderly or disabled family members, this helps reduce the burden on public service members who are often called to check on elderly family members who live apart from other family members, or are called to help them get up off the floor, or help get them back into bed, etc.

[Author]

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