Sell and rent until market drops?

[thejq]

[quote=AN]
What make you think price would drop 25%? I think that would put ITI well below rent.
[/quote]

Oh no, I’m not saying it would. It’s just a math exercise to prove that it’s better to sell and buy when the market is lower than trying to maximize your equity to sell and buy at the top of the market.

I hope it drops 25%, but I don’t it happen in the near future.

[temeculaguy]

Thejq, nice SALT reference, I think that is the X factor moving forward. AN and FLU, spot on stuff. The math is not the same, it makes more sense now. It’s not an automatic buy in every town and in every deal but it is in certain instances.

I’ve purchased three primary homes in my time on the planet and timed the market exactly once. I’m not a huge fan of that strategy. When I timed it incorrectly I had to stay a few extra years, when I hit the middle it didn’t matter due to a divorce and when I nailed it I attributed it to this site. But in retrospect, rnting and timing is a fools errand. Just be fundamentally sound and hope to get lucky.

[XBoxBoy]

I can’t help but think the last couple of days are a great example of how dangerous the OP’s proposal is. Interest rates are dropping a good bit, and that means that more than likely there isn’t going to be much if any house price drop. It just seems to me way too hard to know where the market is going and by how much in the next couple of years. Those of use who timed the last market correction correctly like to think we’re smart, but in truth we just got lucky more than anything.

[svelte]

I’m with flu on this one.

The 2008 downturn was a once in a lifetime thing. A 40-50% drop in SD house prices isn’t likely to happen again.

I doubt you’ll see more than a 10-15% price drop, if that, with the next one. So the question becomes: are you confident enough in knowing the peak and bottom to sell and wait? Because if you’re not, then you’ll capture much less than the 10-15% difference and in the meantime, you’ll have to put up with the headaches of being a renter. That could go on for several years.

On the other hand, prices in Temecula may drop more than San Diego, so that may need to be factored in to when you sell and buy again.

I have headed south out of Temecula in the 2-3 PM time frame recently and was shocked at the I-15 North traffic…it was outrageous! All the way from Pala up through Temecula. I wouldn’t be putting up with that commute unless I had absolutely no alternative.

Perhaps you can sell in T-town and buy a fixer in San Diego? That may allow you to buy more than you could otherwise afford.

Good luck with whatever you decide. These major financial decisions aren’t easy or perfect.

[spdrun]

Well… yield curve just fully inverted today (3 mo > 10 yr). Hang on for the ride, kids! As far as interest rates, we’re talking about only a $30 per $100k (about 6%) mortgage payment difference between 4.5% and 4.0%. I suspect prices will be sensitive to factors other than a 6% difference in payment (ex utilities, Mello-Roos, and taxes) either way.

https://www.bloomberg.com/news/articles/2019-03-22/u-s-treasury-yield-curve-inverts-for-first-time-since-2007

[gzz]

Spdrun, we are today 0.8% below the peak rates of four months ago.

For a common $650,000 mortgage, that’s a $300 a month difference in payments.

Conversely, if your max monthly payment before tax/ins is $3000/mo, your buying power went from $590k to $645k

Aside from buyers, current owners can refi at better rates, decreasing their desire to sell and making investor owned properties more profitable.

Finally, lower rates make alternative investments in bonds less attractive.

The old saying about yield curve inversion: it predicted 10 of the past 3 downturns.

[gzz]

Sure, we could get a RE downturn in a big recession. However RE doesn’t always go down in recessions. And it didn’t do that well in the giant 90s economic boom.

Then there is a certain upside risk us data-driven investors are not very good at dealing with: the risk there will be another bubble that sends prices up 30-40% over 2-3 years. I am not counting on that, but the absurd cryptocurrency bubble of mid-2017-early-2018 is a reminder such things can happen out of nowhere.

We are in some ways even more primed for such a bubble now than when it actually happened: economy is stronger now than in 2004, population is higher, rates are lower, and new construction is also lower and even more burdened by regulatory hurdles and tight labor markets.

The main thing we don’t have are liar loans funded by private MBS. But bubbles can happen without absurd lending.

[The-Shoveler]

I have to go with gzz

We are no where near an over supply of housing like we had in 2008 after years of over building.

Note: And no, I am not saying I think we are going into a downturn.

Housing in previous recessions

It’s somewhat counter-intuitive, but recessions don’t necessarily mean bad things for the housing market. In fact, they usually don’t.

ATTOM Data Solutions, a leading real estate data provider,
looked at home prices during the five recessions since 1980 and found that only twice—in 1990 and 2008—did home prices come down during the recession,
and in 1990 it was by less than a percent. During the other three, prices actually went up.

[FlyerInHi]

[quote=gzz]

We are in some ways even more primed for such a bubble now than when it actually happened: economy is stronger now than in 2004, population is higher, rates are lower, and new construction is also lower and even more burdened by regulatory hurdles and tight labor markets.
[/quote]

What about government debt sucking funding from the private economy? Remember the debt clock? Where is it?
I wonder how fiscal hawks respond to this.

[FlyerInHi]

[quote=svelte]

On the other hand, prices in Temecula may drop more than San Diego, so that may need to be factored in to when you sell and buy again.

I have headed south out of Temecula in the 2-3 PM time frame recently and was shocked at the I-15 North traffic…it was outrageous! All the way from Pala up through Temecula. I wouldn’t be putting up with that commute unless I had absolutely no alternative.

Perhaps you can sell in T-town and buy a fixer in San Diego? That may allow you to buy more than you could otherwise afford.

Good luck with whatever you decide. These major financial decisions aren’t easy or perfect.[/quote]

That’s a more reasonable response. It seems to me like the OP’s goal is more to move to San Diego than to time the market. He just needs to find the best way to get equity out of Temecula.

[Coronita]

[quote=The-Shoveler]I have to go with gzz

We are no where near an over supply of housing like we had in 2008 after years of over building.

Note: And no, I am not saying I think we are going into a downturn.

Housing in previous recessions

It’s somewhat counter-intuitive, but recessions don’t necessarily mean bad things for the housing market. In fact, they usually don’t.

ATTOM Data Solutions, a leading real estate data provider,
looked at home prices during the five recessions since 1980 and found that only twice—in 1990 and 2008—did home prices come down during the recession,
and in 1990 it was by less than a percent. During the other three, prices actually went up.[/quote]

+1

Macroeconomic issues do not necessarily translate into microeconomic San Diego specific concerns. I would even say economic concerns in Northern California tech concentrated industry do not directly translate into SoCal and specifically concerned….

I’d like to use the great DotCom implosion as an example. When the Bay Area tech industry collapsed around 2001, there was a lot of unemployed tech workers in the Bay Area, an oversupply in the local markets, and there was a dent in the economy and real estate markets up there. 2001 in SD was hardly a recession-fested doom and gloom economy locally. In fact 2001 one was also known as a the great migration when many tech workers relocated to LA County and SD. During the Housing Bubble implosion that gripped SoCal, things weren’t nearly as impacted up in the Bay Area during the same period, because during that time the tech industry was more or less recovered and things were back to more or less the norm up there, where things traded based on one’s stock options and RSUs.

I think people are trying way to hard to connect macroeconomic things to what happens in the local economy and the local real estate market. Haven’t we learned, for example, that housing in say Seattle or SD or NorCal has very little to do with what goes on say in Upstate New York or DC? It seems folks are still underestimating the strength of the local SD markets, in that it’s not necessarily the strongest in tech, or finance, or tourism, or defense industry, or biotech. But because there is this mix, any cratering in one or more sectors is probably going to much more softer felt than in other geographical locations that have a unusually high concentration of one industry. All these talks about more tech companies moving more work into SD is good news from the local economy, because it’s just augmenting the sort of diversity we already have. If it all, tech was sort of the weak link down here.

Yes, housing has become unaffordable for some. For some, unfortunately, their wages, compensations, what have you have not kept up with home prices.
BTW:
https://www.marketwatch.com/story/existing-home-sales-roar-back-in-february-touching-an-11-month-high-2019-03-22

Northeast home sales looks like it’s tapering off when other West, Southwest, Midwest looks different.

[henrysd]

There are several elements of inverted curves before recession happened in the past, and they are still missing today:
1) The inversion is by larger amount like 40 base points
2) The inversion is for extended period of time. Last time it lasted a few years (2006 and 2007).
3) Overall credit condition is tight. Previously we had 6.5% (2000) or 5.25% (2006) fed fund rate, very tight condition. The current 2.4% fed fund rate and other short to medium rates are just a little above inflation, actually quite neutral.

The drop in 10 yield bond rate actually behaves like an automatic stabilizer and helps the economy and market. It also makes stock less expensive, S&P 500 has dividend yield of 2% with earning growth compared to 10 year treasury at 2.44%.

As for housing the 1991-1996 downturn was a result of recession, but only dropped 10% in 5 year time frame. There were massive layoff in San Diego, General Dynamics shut down locally, 40K people in GD alone lost jobs. Other defense contractors across Southern Cal reduced head count aggressively.

[moneymaker]

My take is if you are moving up you are best to do it at the bottom of the market, if downsizing then best to do it at the top of market. This is based on price, in other words a bigger house in Texas at a lower price would be considered a downsize. In other words just do the opposite of what everyone else is doing.

[gzz]

Flyer,

The government is borrowing a lot more after Trump’s tax cut. But that tax cut mostly went to the very rich and corporations. Both those groups for the most part just saved and invested their tax cuts, ultimately back into the US bond market. The increase in demand for loanable funds matched the increased supply, so no impact on rates.

In other words, the US government has the same spending as before, the rich and corps have the same investment and consumption as before, and rates are the same.

All that really changed is we handed rich people a bunch of bonds to get their money rather than force them through taxation.

It would have been pretty different in, say, the 70s when high rates discouraged corporate borrowing and a corporate tax cut would have led to more real investment. Likewise, a middle class tax cut in 2017 would have spurred consumption and caused rates, economic growth, and inflation to all increase.

[FlyerInHi]

gzz, I don’t disagree with you. Debt has always been savings for someone else that bought the debt, except when central banks just print money to buy assets in the secondary market.

But let me play the fiscal hawk for a moment. Remember Ross Perot’s charts and the debt clock? Then Ron Paul and his theory of dollar collapse? We ar borrowing more than ever before and unfunded liabilities as well as the eventual massive tax increases will collapse the economy for decades. The predictable black swan is coming.

[Author]

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