State of the economy and affect on housing in S California

[joec]

I think using PIIGS is a bad example and a different beast because all those counties don’t control their own currency and have to answer to Germany.

Had to quickly look up as I didn’t care for PIIGS, but (Portugal, Italy, Ireland, Greece and Spain) you can see all those are old EU countries with a ton of problems like massive youth unemployment, no fiscal policy (Greece now), high unemployment, yadda yadda yadda…

I’ve said many times, the fed would raise rates ONLY to get off zero, and even then, they are being so slow about it. The problem with current renters and I can understand their bitterness is that if rates are low for say 20-30 years, you’ve pretty much “used up” 20 or 30 prime years of your life. Japan is still stuck at lower rates (off 0 I think now). For all we know, if rates go up, people who have locked in will just rent places out. With such small inventory, rents will probably go up. Also, they may get more aggressive with longer term loans like 40 years, (100 years in Japan I hear) like what they are doing with car loans so payment may stay the same, but housing prices just don’t move much.

If you enjoy renting, that’s all great and good, if you hate rent increases (why we bought actually) and like a known housing payment on a commodity you MUST have to live in, then buying is such a load off your head.

You can always look for investment properties if you want to after your primary residence, but people should really (much easier for families) just live within their means in terms of a house and don’t see it as an investment. It’s just shelter and after 30 years, maybe it will be cheap shelter at that point. Much harder for the single folks here I think since you can tell from the posts how their mindset is very different from people who worry about a family/pets/etc…

SD Realtor, did you purchase a place yet? I don’t think I’ve seen a note here after following this place for almost 10 years, you’ve mentioned buying yet.

Also, for people renting, be cautious of your own renter bias just assuming things will collapse or go down. Similar to what AN said, a lot of buyers (even poor me) would try to hold on to our homes if we’re already at a much lower rate or our payments are significantly lower than comparable rents.

[EconProf]

All this may be irrelevant if interest rates don’t go up after all. Forecasters have been predicting interest rate increases for so long now and have been wrong. Tonight in premarket trading the 10-year bond is down to 1.83%.
At the beginning of 2014 it was at 3% and all predictions were for it to go to 4% by the end of 2014. Instead, it went down to 2%. At the beginning of 2015 most predictions were for it to go up throughout the year. Instead, it is falling, and I don’t see it above 2% at year end.
The reason is primarily a weak economy. The latest figures on a whole slew of economic indicators are pointing to a nearly flat economy this year: job creation, wage stagnation, weak exports due to a strong dollar, the rest of the world flat or in recession, weak consumer spending despite the gift of plummeting oil prices (thank you, fracking) to our family budgets, the list of bad news so far in 2015 goes on. Some economists say we are already in a recession.
The weak economy will convince the Fed to not take the punch bowl away for quite some time.

[CA renter]

[quote=joec]I think using PIIGS is a bad example and a different beast because all those counties don’t control their own currency and have to answer to Germany.

Had to quickly look up as I didn’t care for PIIGS, but (Portugal, Italy, Ireland, Greece and Spain) you can see all those are old EU countries with a ton of problems like massive youth unemployment, no fiscal policy (Greece now), high unemployment, yadda yadda yadda…

I’ve said many times, the fed would raise rates ONLY to get off zero, and even then, they are being so slow about it. The problem with current renters and I can understand their bitterness is that if rates are low for say 20-30 years, you’ve pretty much “used up” 20 or 30 prime years of your life. Japan is still stuck at lower rates (off 0 I think now). For all we know, if rates go up, people who have locked in will just rent places out. With such small inventory, rents will probably go up. Also, they may get more aggressive with longer term loans like 40 years, (100 years in Japan I hear) like what they are doing with car loans so payment may stay the same, but housing prices just don’t move much.

If you enjoy renting, that’s all great and good, if you hate rent increases (why we bought actually) and like a known housing payment on a commodity you MUST have to live in, then buying is such a load off your head.

You can always look for investment properties if you want to after your primary residence, but people should really (much easier for families) just live within their means in terms of a house and don’t see it as an investment. It’s just shelter and after 30 years, maybe it will be cheap shelter at that point. Much harder for the single folks here I think since you can tell from the posts how their mindset is very different from people who worry about a family/pets/etc…

SD Realtor, did you purchase a place yet? I don’t think I’ve seen a note here after following this place for almost 10 years, you’ve mentioned buying yet.

Also, for people renting, be cautious of your own renter bias just assuming things will collapse or go down. Similar to what AN said, a lot of buyers (even poor me) would try to hold on to our homes if we’re already at a much lower rate or our payments are significantly lower than comparable rents.[/quote]

Agree about those countries not controlling their own currencies. Just pointing out that interest rates can go up during deflationary times. Of course, if people start to question the value of our currency, that’s another story… I’ve long said that we should avoid stepping into Japan’s shoes. I certainly don’t want to trade places with them, but fear that we are going there.

The portions of your post that I’ve bolded, above, are spot on. This is largely why we wanted to buy, as well. It’s largely psychological, but when you have a family, stability is #1. It’s not a matter of whether or not a house is a good investment; some of us just want to settle into a home.

[masayako]

I can’t do Market Timing, so I just keep investing with what I can afford. Last time I checked, 2008 was the best investment time in my lifetime. I gained much during that period. Looking back, as my brother-in-law said: “it takes steel balls to buy stocks in 2008.” I’m glad I did.

I can’t predict the future, but here’s my educated guess. SD housing price will go up/down/sideways depend on each local neighborhood & availability. From what I see, sellers are not desperately try to sell and buyers are not desperately try to buy at all cost. The housing market won’t crash in the short term. Lending industries are not misbehaving like they did back in 2003-2007. So, I don’t see it crashing yet.

State of the economy:
Stocks are going up. Lots of folks with lots of funds to invest. I don’t see huge growth coming. Things are not cheap. I am holding and buying more when opportunities arise. No one can time the market, I’m just a boring buy & hold long term investor, so it doesn’t bother me too much what comes the next 5 years down the road. In fact, I hope for a correction so I can buy more at a cheaper price.

There will always be wars, recession, corrections, deficits, gold bugs, threats of U.S. going bankrupt etc.. Sure… in the end, S&P on average is still up 5-7% every year. Sit tight, save a little more, consume a little less and everything will be fine.

[fun4vnay2]

I think the wildcard is interest rate
Right now, the govt is propping up a lot of prices here n there by keeping rates low.
Not sure how do you differentiate crash Vs correction. But as we all agree, a correction is coming both in stock market and housing market.
I see a lot of people dis-agreeing saying “this time is different” but history has taught us otherwise.

A correction is due, the reasons may not be the same. So each time is indeed different.

[CA renter]

Agreed, rockingtime.

[joec]

[quote=rockingtime]I think the wildcard is interest rate
Right now, the govt is propping up a lot of prices here n there by keeping rates low.
Not sure how do you differentiate crash Vs correction. But as we all agree, a correction is coming both in stock market and housing market.
I see a lot of people dis-agreeing saying “this time is different” but history has taught us otherwise.

A correction is due, the reasons may not be the same. So each time is indeed different.[/quote]

The problem is every government has low interest rates with Europe (Germany) well in the negatives now (you pay them money to have your money in their bank)…

Another problem I see is they can extend this game far longer than most of us will care or be alive. Japan has been low for near 30 years now (80s?) and if the US or Europe does this, do you really care you “got in” at the best prices?

If rates don’t change for a long time, you may be dead before you can even enjoy a home.

In the end, buy if you need to and if not, just rent and accept that

Unlike stocks, since you have to live in a place, I say save enough to not put much stress on your budget and buy a place to live (small if you are single to keep cost closer to rent) and don’t worry about where housing will head. While you wait, take advantage of the tax benefits (if possible) and save a war chest for any collapse (if any)…IMO, no collapse is happening anytime soon.

[fun4vnay2]

Thanks Joec,
It is important for me to keep a tab on general people’s opinion as this gives me an entry point to market: be it stock or housing.

I invested a bunch in stock and in housing in 2011 when every one said not to do so… I think I did decently good.

I am looking for more opportunities like this.

This time, it may not be interest rates, something different….

We’d see..

[bearishgurl]

Whether the residential RE market in CA is currently holding its own or increasing in value is entirely local … on a micro-level.

I’ve been “saving” SFR listings online located in Napa, Sonoma and Mendocino counties since about mid-January 2015.

I just visited my “saved” listings today and had to delete all 14 of them which were “withdrawn” from the market just day(s) or week(s) after listing. The majority of these were last purchased in 2007 (the sellers obviously didn’t feel they could even get within $20K of what they paid in 2007), not even taking into account the costs of selling.

I’m finding that there are a lot of would-be sellers out there “testing” the market this spring.

Only one actually sold, a listing in Rohnert Park, a relatively “close-in” city in Sonoma County (not rural or semi-rural as are most of the areas I’m interested in). It sold for $2K more than asking price in less than 60 days (incl escrow period).

Yes, the closer-in bay area counties are “on fire” and thus devoid of listings which last more than 3 days but that is not the case everywhere in CA.

My spot checks in LA County show that SFR listings seem to be disappearing fast everywhere … at all price points. Even heavy fixers in “working-class” areas are selling fast there! Condos seem to be taking twice as long to sell as SFRs but do sell nonetheless. Except for just a handful of small cities which still have too many current short-sale and FC listings, the distressed inventory seems to have been cleared out of LA County. Some zip codes and micro areas in LA County are every bit as “hot” as the bay area right now … market wise.

LA County has next to zero “community facilities districts” (areas with MR) and far fewer neighborhoods with HOAs than does San Diego County as it is far more well-established. Thus, it never had degree the distress that SD, RIV and San Bern Counties did (Orange Co to a much lesser degree). Most of LA County’s residential distress appears to me to have resulted from homeowners taking out subprime cash-out refis and HELOCs during the “easy-lending” era … much moreso than homebuyers who simply bought at the wrong time.

Even in SD County, there are still small pockets all over the county which still have too many current “distressed” listings dragging down local asking prices (and likely future sold comps). Would-be sellers would be better off waiting to list if at all possible if their properties are located in any of these micro-areas, IMO.

In all cases, I don’t think interest rates, the state of the economy or perception of future water availability have a damn thing to do with anything, especially in CA coastal counties. It’s obvious to me that when a listing closes escrow 10-20 days after being first listed, it was an all-cash sale.

[fun4vnay2]

Just curious, How do you define coastal california ?

Would whole of SD be qualified as coastal ?

For my perspective, everything is cyclical and nothing keeps going up for ever. This gives us opportunity.

A lot of people tried to convince me otherwise about SD real estate in 2007, I disagreed with them and bought in 2011.
The first house I bought in 2001, I sold it in 2007ish..

I am sure, my current house valuation would come down with due time

My guess: Wages are going to be stagnant at best which would affect the housing prices as well.

[bearishgurl]

[quote=rockingtime]Just curious, How do you define coastal california ?

Would whole of SD be qualified as coastal ?

For my perspective, everything is cyclical and nothing keeps going up for ever. This gives us opportunity.

A lot of people tried to convince me otherwise about SD real estate in 2007, I disagreed with them and bought in 2011.
The first house I bought in 2001, I sold it in 2007ish..

I am sure, my current house valuation would come down with due time

My guess: Wages are going to be stagnant at best which would affect the housing prices as well.[/quote]

Yes, in relation to inland CA counties, SD County is considered “coastal.” However, the TRUE CA “coastal market” is within 2-3 miles from the coast, IMO, given varying land elevations creating coastal views showing whitewater. The “coastal market” is also located on the western side of major geographical boundaries such as freeways and RR tracks. A property with a “peek’ view of blue water which is located several miles inland from the ocean isn’t really considered to be in located in a true “coastal market.” But ALL coastal CA counties have more temperate weather than inland counties and thus their RE prices reflect that.

Consider the vast pricing differences between LA County and it’s neighboring county to the east, San Bernardino County. Even similarly-sized houses on the LA side of the county line are worth nearly 2x as much as those on the other side of the county line (SB County).

There are good reasons for this, not the least of which is much better zoning (less “mixed use” zoning) and less density in the part of LA County bordering SB and RIV Counties. Many inland CA counties and micro-areas within those counties where the land is cheaper still have a lot of mixed-use zoning on the books which lowers the value of ALL surrounding properties. (Part of unincorporated Spring Valley is a good example of mixed-use zoning in SD County.)

In 2007, SD County’s residential RE market had already started to come down a little in price but did not really hit bottom until the last quarter of 2009.

By the last quarter of 2010, the market was already beginning to rise in some (not all) areas. This wholly depended upon the level of distress in the micro area. By 2011, many “coastal” micro markets had already bounced back or were beginning to.

I DO still think there is opportunity out there today …. for CASH buyers who have the ability and access to tools to do a lot of DIY.

I do not believe stagnant wages (or even an “employee’s market”) affect RE values in well-established areas of coastal counties. This phenomenon MAY affect home values in newer tracts which are adjacent to white-collar suburban or exurban job centers. It does NOT affect values in the most desirable, most established urban/coastal areas of coastal CA counties because a very large portion of the sales occurring within them are all-cash sales and another portion of those sales are buyers using a >50% downpayment. In these markets, the typical buyer is NOT Joe Q. Workerbee, his spouse and 2.3 minor kids.

In rural/semi-rural coastal CA counties, the bulk of the residential sales there are all-cash sales. There aren’t any high-paying white-collar jobs within commuting distance of those towns/small cities (except maybe local govmt jobs). Thus, the bulk of the buyers in these markets today are “retirees” or second-home buyers.

RT, if you’re depending on “stagant wages” for your next CA RE buying “opportunity,” you’ll need to choose your shopping parameters very carefully, imho.

[joec]

[quote=rockingtime]Just curious, How do you define coastal california ?

Would whole of SD be qualified as coastal ?

For my perspective, everything is cyclical and nothing keeps going up for ever. This gives us opportunity.

A lot of people tried to convince me otherwise about SD real estate in 2007, I disagreed with them and bought in 2011.
The first house I bought in 2001, I sold it in 2007ish..

I am sure, my current house valuation would come down with due time

My guess: Wages are going to be stagnant at best which would affect the housing prices as well.[/quote]

I don’t know. You seem to be set that things have to go down.

Again, I can say it can “eventually” go down too, but if it happens in 20-30 years, who cares? I’m probably dead already.

As Rich has posted, we are no where near any bubble levels of the 2005s and the stock market is near all time highs. This means like you and I’m sure many of the posters here, many have TONS of cash sitting on the sidelines not sure what to do about it.

I don’t know who or what they were disagreeing with you in 2007, but 2011 probably actually missed some of the upside in some areas. A lot of people here (you can see their posts) bought in 2009 and 2010 (we did in 2009).

As I’ve mentioned before, in some areas, wages for “those” people are not stagnant. They may get more of their income from stock options or stocks in general. People buying 600-1 mil homes aren’t making “middle class” household salaries I don’t think.

You also have foreign buyers. I don’t buy the collapse I read here due IMO, to rents. Rents are way too high in the areas I watch for housing prices to collapse. Add in low interest rates for people who bought those homes, low investment options in other areas, and you have most people not willing to sell for less than what they paid IF THE RENTS easily cover their holding cost.

As posted, supply still seems rather lowish from what I’m seeing.

All this is due to me only looking at areas I’d personally wouldn’t mind living in (1-2 miles from beach, CV…etc…)

No condos, east or south side as you lose the “asian” buyer I feel in those markets. Asians love real estate and you can tell from simply going to 1 new development opening in Carmel Valley. Last time I went to one, there were hundreds of people.

You bought in 2011 and I doubt any of us would “miss” things if it truly crash. Other than a nuke or something like wars, I don’t see any easy opportunities.

[fun4vnay2]

I think a correction/may-be-not-crash is due in SD at least. This correction stands true for both real estate and stocks.

I can see everyone trying to desperately prop up the prices here with all the means they have.

For me, it’d be interesting to see how would it play out because each time is different and we all have out own binders ON.

I won’t be surprised if my own house go down below for what I bought.

[joec]

I think that’d be true if the general public even liked this stock market at all. This is the most hated stock market rally in the history of stock markets I believe and until that changes, everyone still thinks it’s going to collapse meaning it will probably continue to rocket higher.

At near 0% everywhere else, people have no where else to put their money so they put it in stock and hope/pray…poor people don’t invest in the market because they don’t have money…

I hear China jumped up like 100% in one year now? because the guvment is looking to do some stimulus there now?

[Author]

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