Why Your Home Is Not the Investment You Think It Is

[sdrealtor]

I’m dug in where I am and will be here at least 15 more years. Most of my friends and neighbors are the same. I think you are experiencing a bit of bias in that your mobility puts you in a circle of people with similar mobility. Perhaps I am experiencing bias in the opposite regard. However, my anecdotal evidence comes from pulling comps/sales histories on streets and seeing alot more stability than you see.

[sdcellar]

I don’t *think* it’s the bias thing (well, it always is to some extent). My pool is family, lifelong friends, past and present co-workers, and the like. It could certainly be my age. In my mid-40’s, most of contemporaries haven’t even had the opportunity to have owned the same house for 20 years.

That said, I’m not particularly mobile myself. I’ve lived in San Diego since 1978 and California since 1970. Most of the people I’m talking about share similar demographics with the exception of some poor Ohioans. I am a technology guy, so that might have a bit more of a mobility bent.

I’d say your street thing is certainly less anectodal, but you’re definitely right that it will still have a socio-economic bias. Let’s have some fun with this, you pick a zip code, then I’ll pick a street and we’ll see what the metrics are (and I promise to pick a street that can be found in a 1987 Thomas Guide…)

[bob2007]

I agree with sdr. I was in my house 13 years. When I moved it was still in the same area – just a few miles away.

[kewp]

I’m in the mid 20’s-30’s crowd and most everyone I know is a renter.

[sdcellar]

Doesn’t matter if you’re in the same area. The question is how long people own their homes. Even your example doesn’t fit in the 20+ category.

Are you sure it’s not me that you agree with?

Also, I know I picked on you about the water tax, but I failed to commend you on your condemnation of farming subsidies. Another thread I know, but just want to make it clear that we see eye to eye sometimes!

[sdrealtor]

SDC,
Sounds like fun! Lets give it go. How about 92009. Pick a street and I’ll check the tax records.
SDR

BTW, we are of the same vintage.

[kewp]

sdcellar,

No problem, I give out lumps like they are going out of style, would be hypocritical to complain about ones directed my way.

I think where we diverge is that I am completely apolitical (I’ve never voted and have no interest in the political process); instead choosing take as best a scientific approach as possible in all matters.

I get the distinct impression that you are a libertarian of some sort.

Thats fine, I’m partially libertarian myself, however I do make quite a few exceptions. A big one is that I’m pro-regulation (as long as its enforcing a free market) and willing to accept taxation as method to encourage positive behavior and fund scientific research.

[sdcellar]

SDR, Let’s try Reposado Drive!

[Anonymous]

We are fortunate as renters in San Diego to have one fantastic option at our disposal should prices continue to rise with no relief in the years ahead — relocation. I get the sense that most of us on these threads could get paid the same salary in Austin, Denver or anywhere USA, and what a relief it would be to see homes in the 2-300s! We are surely more fortunate than those poor souls who are knee deep in subprime debt, as well as the folks in flyover country who still think that 200k is an exceedingly high price for a home. Drive east for 3,000 miles and you should be all smiles until you hit the DC area!

[sdcellar]

kewp– I like to fancy myself libertarian, but I make quite a few exceptions myself! I guess I like some government when it suits me.

I too, have accepted (and voted for) some taxes that encourage what most would generally consider positive behavior, but at some point it gets tough to determine when such measures transition into punishments and you’re taking it out on the wrong party! (and I also rarely have confidence that the money is used properly, especially in the long run)

Well, I better stop now as I’ve taken things decidely off topic and I’m dying to hear the results for Reposado Drive…

[Bugs]

Something you guys aren’t considering is that there are starter neighborhoods, move up neighborhoods and destination neighborhoods. All of them will have a different level of churn. I can go into some neighborhoods and see homes that seem to sell every 2 or 3 years, and I can go into other neighborhoods and see homes under the same ownership for 20+ years. Clairemont has more churn than Pt. Loma.

[sdrealtor]

Reposado? I’ll drink to that! Let’s see how it goes. There are 12 houses on the street and here is the tenure of each homeowner rounded off to the closest 1/2 year:

12.5 years
15.5 years
4.5 years
7.5 years
15.5 years
10 years
3 years
29.5 years
19.5 years
15 years
19.5 years
6.5 years

Avg tenure = 13.2 years!!!!

A couple comments. This is an established neighborhood so naturally you will find longer tenure than a newer neighborhood. Come back to a 5 or 10 year old neighborhood in 20 years and you will see the results.

One home has resold 3 times in the last 6 years. Two homes have resold twice in the last 10 years. I see this quite a bit where one home sells over and over again while most homeowners in the neighborhood are there long term.

Three of the properties have different mailing addresses indicating they are probably now investment properties or 2nd homes for the owners.

With the exception of the most recent purchaser all have LTV’s below 50% (the new guys are about 70%).

Many have zero loan balances or loan balances below $100,000.

These folks are all still on the clock and we have no idea how much longer they will stay.

This is probably what I would consider a move up neighborhood to possibly a destination neighborhood to address Bugs comment.

Lastly, this is probably a more stable street than most but I think that it is interesting to see that places like this do exist in SD.

Want to try another?

[sdrealtor]

Here’s another that I picked which is more of a starter home street. It’s in the same general area as the last and the name of the street is Gaviota Circle. Homes were built in the mid 70’s and range from about 1500 to 2100 sq ft. Lets see how it goes:

9 years
5 years
29 years
2 months! (prior owner there 7.5 years)
9 years
5 years
10 years
23 years
19 years
12 years
28 years
29.5 years
8 years
25 years
29 years
12.5 years
20 years
29.5 years
7.5 years
2 years (prior owner there 25 years)
28 years
3 years
14 years
8+ years (looks like it was passed down to children and original purchase date not in my data but likely 20+ yrs)
11 years
12 years
16 years
3 years (prior owners there 6 and 10 years)
2.5 years (prior owner there 8 years)
8.5 years
6 years
12 years
10 years
21.5 years
8.5 years

This is a nice street with 35 nice starter to lower level move up detached homes but nothing anyone would consider extraordinary.

[sdrealtor]

Here’s one last street that is a bit newer (mid 80’s) and as entry level detached as it gets in my area. The street is calle san Felipe and there are 29 homes on it.

2.5 years (prior owners 5 and 11 years)
21 years
9 years
6 years
9.5 years
10.5 years
5 years
11.5 years
4 years
2.5 years (prior owner 18 years)
13 years
5 years
21 years
10 years
7 years
14.5 years
22 years
22 years
1 year (pror owner 20 years)
21 years
9.5 years
22 years
13 years
2.5 years (prior owners 7 months/flipper and 18 years)
4 years (prior owners 8 and 9 years)
13.5 years
2.5 years (prior owner 6 years)
5 years (prior owner 10 years)
9 years

This one surprised even me!

[Bugs]

This somewhat ties in with the question of how many distressed sales does it take to swing a market. If the average holding period for SFRs in one of these neighborhoods is 10 years then the number of sales in any given year would average 10% of the total. If that’s the average then the actual number for one of the down years in that 10-year cycle might be 70% or 80% of that, because the upswing years will compensate.

These economists talk about foreclosures stemming from these mortgage rests as running a certain percentage of the total number of homes. What they don’t talk about is that the number of distressed sellers doesn’t just include the bank-owned foreclosures; it also includes those borrowers who are smart enough to let go before they lose it all. If only 30% of the NODs get to foreclosure and 30% get cured without a sale that still means that foreclosures only comprise half of the must-sell-right-now inventory.

You can see how even if 1% of all homes get to the must-sell status those transactions will heavily influence the pricing for the other 7% that sell during that same time period. At 2% of the total (not annual) it’s all over – they’ll drive the market.

Between 01/2003 and 01/2006 there were over 118,000 sales through the MLS, and that doesn’t count the new home sales that didn’t go through the MLS. In addition to those buyers there were a ton of refinance transactions on properties purchased prior to that, probably most of which substantially increased the debted encumbrances on those homes. We’ve seen estimates that as many as 70% of the mortgage financing transactions (including refis) during that period involved ARMs and other non-conventional terms.

They aren’t all stressed to the breaking point, but then again they don’t have to be.

[Author]

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