Would you purchase or wait in my position?

[svelte]

Rent here in San Marcos is $1700/mo for a two bedroom 1000 sf apartment, plus or minus $100. And supply is pretty limited.

I know, I’ve been assisting a friend of the family.

They ended up scraping together a 20% down payment and buying a 2 bedroom condo with a 2 car garage. Their payment is less that rent would have been.

There are so many submarkets in San Diego it is very hard to make a general statement about the entire county that means anything at all.

[an]

[quote=svelte]Rent here in San Marcos is $1700/mo for a two bedroom 1000 sf apartment, plus or minus $100. And supply is pretty limited.

I know, I’ve been assisting a friend of the family.

They ended up scraping together a 20% down payment and buying a 2 bedroom condo with a 2 car garage. Their payment is less that rent would have been.

There are so many submarkets in San Diego it is very hard to make a general statement about the entire county that means anything at all.[/quote]I’m pretty sure you can make a general statement if you preface it with except for undesirable areas. Then you can point to areas like Carmel Valley and say I was right, and areas like San Marcos and Mira Mesa as either undesirable or borderline undesirable.

[joec]

[quote=livinincali]
The biggest unknown right now is will rates move higher, how much will they move higher, and what potential effect does that have on the price of homes. In the worst case scenario I could see home prices significantly lower than they are now.[/quote]

I sorta see the opposite actually. Remember, we live in a global economy now. Watching Bloomberg, they are saying that people are buying blocks of homes in favored big town areas (like NY, LA, SF) from China with cash. This makes it hard to see prices selling for significantly less since unlike a stock, selling a house is less easy (move, less willing to take a loss, etc…). The recent buyers in the past 5 years were also very well financially qualified so those hands aren’t weak hands. They all have equity.

Also, every single developed nation has negative interest rates. Unlike 40-50 years ago, people nowadays buy international assets much more, especially in the US and there are insane levels of wealth out there.

Since international rates are negative, foreign people are more likely to BUY more US bonds. This pushes the yield even lower since the same equivalent bond in their country is like 2-3% lower…

Inflation is not a worry, everyone is concerned with deflation in Europe. I really think Feds won’t raise rates materially (to 75 basis points+) till 2020 or later…

You can quote me on the above.

[spdrun]

joec – where are those “blocks of homes” in the NYC area that are for sale and being bought up by Chinese buyers? There are very few recent developments with identical tract houses around NYC. And the foreclosure crisis hit the area differently. There really weren’t any overbuilt places where 8 out of 10 houses were up for distressed sale. Really nothing like parts of Riverside County out here. Nothing like Detroit either, except maybe in Camden, NJ outside of Philly.

The only thing I can think of are apartment and commercial buildings, but those tend not to be for amateurs. Probably some REIT buying. Also, some Indians (not Chinese) buying in very specific neighborhoods.

I’m watching the market around NYC (particularly in NJ). Inventory has tightened A LOT in NYC itself (at least in the good parts), but not much is changing in the NJ suburbs. If anything, the number of REOs has more than doubled over the past year and a half due to delayed judicial foreclosures hitting the market.

Lastly, what you’re saying is exactly what they were saying in the 1980s. Japan will buy the US up, etc, etc, etc. Didn’t happen so fast 🙂 Cash investors aren’t as strong hands as you think, either. If the market burps, they’re actually more likely to sell at (say) a 20% loss than mortgaged investors. Why? Because they can, unlike people with 3% down which have to wait for a short sale, deed in lieu, or foreclosure. There’s really no way to manage how many people run for the hills at once.

[scaredyclassic]

i saw a pretty ordinary but largeish (3300 sq ft) house a week ago in temecula right near my kid’s piano teacher that was renting for 2300. that struck me as superhigh. piano lesson was tonight but i didn’t notice if it was rented.

[CA renter]

[quote=spdrun]

Lastly, what you’re saying is exactly what they were saying in the 1980s. Japan will buy the US up, etc, etc, etc. Didn’t happen so fast 🙂 Cash investors aren’t as strong hands as you think, either. If the market burps, they’re actually more likely to sell at (say) a 20% loss than mortgaged investors. Why? Because they can, unlike people with 3% down which have to wait for a short sale, deed in lieu, or foreclosure. There’s really no way to manage how many people run for the hills at once.[/quote]

Exactly. It’s like BG claiming that heirs to fully paid-off homes won’t sell until they get what they want. Hogwash. Those are the very sellers who CAN sell for whatever houses are going for at that moment in time. Strong hands don’t have to wait for a rising market, and if returns on investments are far higher elsewhere, they will be quick to sell the least profitable investment (possibly houses) to free up cash for more lucrative ventures. For these owners, it’s just business…no emotions involved.

[Coronita]

strong hands won’t sell if they cash flow much better than that 1%CD that most people have been tucking their money into. Just saying.

Also, there’s a fundamental reason why some of the latest foreigners from asia are different from what happened during the japan days..When the Japanese went on the real estate binge, it was about speculation. The latest real estate binge isn’t strictly about speculation. It’s about the 1% in those countries taking a hedge against political/economic instability in their homeland, in case the government decides to start going after them. Besides, foreign purchase, BTW still doesn’t make the majority of home purchases, despite the media the rhetoric- 25% i believe was the last number for all foreign purchases, most of them from canada. And most of them from asia are at the high end of real estate. So you folks worried about an “Red Dawn” like invasion can stop worrying.

Also, don’t discount how much homes are held by institutions. Remember that many of them got into the rental business as well and are just waiting to home prices to rise to sell and profit, as many other folks that bought at low prices will.

Personally, I’m in no hurry to sell. The only time I would is if/when home prices reach 2x of what I paid for, and then I might consider it of if San Diego turns into blight town (which is unlikely, and if that happened, you wouldn’t be interested in buying anyway). Why sell when it’s a steady source of rental income, that will most likely beat that CD for a long long time? And for more “affordable homes” that were bought at good times, that’s the problem that I see. There’s no hurry to sell.

[Coronita]

[quote=scaredyclassic]i saw a pretty ordinary but largeish (3300 sq ft) house a week ago in temecula right near my kid’s piano teacher that was renting for 2300. that struck me as superhigh. piano lesson was tonight but i didn’t notice if it was rented.[/quote]

More of my colleagues have been successful renting their 3000sqft homes in my hood for close to $4000/month, and people are paying.

[scaredyclassic]

[quote=CA renter][quote=spdrun]

Lastly, what you’re saying is exactly what they were saying in the 1980s. Japan will buy the US up, etc, etc, etc. Didn’t happen so fast 🙂 Cash investors aren’t as strong hands as you think, either. If the market burps, they’re actually more likely to sell at (say) a 20% loss than mortgaged investors. Why? Because they can, unlike people with 3% down which have to wait for a short sale, deed in lieu, or foreclosure. There’s really no way to manage how many people run for the hills at once.[/quote]

Maybe it’s better then to sell your house before you die. Hold out for a better price…

Exactly. It’s like BG claiming that heirs to fully paid-off homes won’t sell until they get what they want. Hogwash. Those are the very sellers who CAN sell for whatever houses are going for at that moment in time. Strong hands don’t have to wait for a rising market, and if returns on investments are far higher elsewhere, they will be quick to sell the least profitable investment (possibly houses) to free up cash for more lucrative ventures. For these owners, it’s just business…no emotions involved.[/quote]

[ltsddd]

Low interest rates have a lot to do with the high prices. Prices seem steep if you’re looking at prices and prices only. As a home buyer, I think it’s more important as to what your monthly payment is going to be vs. the (crazy) prices that the market is dictating. Assuming a 20% down payment, and you’ll have to cough up a little more up front, monthly payment for a $450K house at 3.5% interest rate is ~ a $300K at 7.0%.

[wallers]

I think one of the potential pitfalls is that a 450k house 3 years ago is now 650k. So for the 700k and under market there eventually/if not already although it still seems to keep going up will be an affordability issue based on incomes.

Investors drove this up. Followed by Jim and Jane in a panic that they will be priced out forever if they don’t pay these prices. Most investors buy low. Jim and Jane buy high. At a certain point investors don’t invest because Jim and Jane can’t afford to buy even in their panic mode. Investors leave. Jim and Jane who stretched to buy are now underwater. Media interviews with Jim and Jane about the poor state of the housing market and screaming headlines about things going bad and what are they to do now. And it’s time once again for investors to come back and buy Jim and Jane’s house for a fraction of what they bought it for.

Alot of people don’t peel the onion. They take prices for face value. And doubt things will ever change. Good for some. Bad for alot.

[svelte]

[quote=AN][quote=svelte]Rent here in San Marcos is $1700/mo for a two bedroom 1000 sf apartment, plus or minus $100. And supply is pretty limited.

I know, I’ve been assisting a friend of the family.

They ended up scraping together a 20% down payment and buying a 2 bedroom condo with a 2 car garage. Their payment is less that rent would have been.

There are so many submarkets in San Diego it is very hard to make a general statement about the entire county that means anything at all.[/quote]I’m pretty sure you can make a general statement if you preface it with except for undesirable areas. Then you can point to areas like Carmel Valley and say I was right, and areas like San Marcos and Mira Mesa as either undesirable or borderline undesirable.[/quote]

WTF man I said a general statement about the “entire county” and you made a statement using exceptions to specify submarkets!!

You took my statement about apples and talked about oranges.

[joec]

As most Asians know, the Japanese CA buyer is a very different buyer than Chinese IMO. If you look at CA immigrants of Chinese or Japanese, there are very few Japanese and most Japanese don’t want to leave Japan. I don’t look at any place other than CA honestly since it doesn’t affect me.

In places like Cupertino, UC Irvine, many foreigners from China, Taiwan, Hong Kong, Asians from Canada buy and have no plans to leave. Those places I think are now > 50% asian already and they aren’t going anywhere. Asians also don’t trust “stocks” as much as real estate so those hands aren’t as weak as people make it out to be. It’s really hard to explain this to non-asians since the white man lives a totally different life/upbringing.

This makes their purchases MUCH more sticky than what happened in the 80s with Japan.

As flu mentioned as well, rent vs buy is also the ultimate calculation since interest rates will be stuck low for a very long time and people who are well off have more cash and very little options on their money. As has been reported, if people can move up, many are trying to keep their old homes to rent since they cash flow well.

Rent in 4S is 3700+/month already for 3k sqft homes already:
http://sandiego.craigslist.org/search/apa?bedrooms=3&housing_type=6&query=4s%20ranch

[FlyerInHi]

Joec, interesting comment.

Back in the 80s, the Japanese bought commercial properties.

Today, Asians from China, Taiwan, Korea, etc… buy houses to live in, or for their kids to live in and go to school. They travel back and forth. I know a gal from Taiwan. Her parents bought a house in Irvine so that she and her brother could go to University High. She lived there with mom while dad did business in Taiwan/China. That was a couple decades ago.

Also, today, immigrants are high skills. They are much more mobile and stay in touch with their home cultures and relatives via Skype, Facetime, satellite TV, etc…

It’s not just Asians, but high skill immigrants from all over the world. One of my neighbors in San Diego is Eastern European. Wife works in biotech and husband is in computers. They speak to their son only in their native language so that he is fully bilingual. They are looking to move back to Europe for their son’s middle and high school, before coming back to America later when the son is ready for college.

[CA renter]

[quote=flu]strong hands won’t sell if they cash flow much better than that 1%CD that most people have been tucking their money into. Just saying.[/quote]

Right. That’s why I said this in my previous post: “Strong hands don’t have to wait for a rising market, and if returns on investments are far higher elsewhere, they will be quick to sell the least profitable investment (possibly houses) to free up cash for more lucrative ventures. For these owners, it’s just business…no emotions involved.”

[quote=flu]Also, there’s a fundamental reason why some of the latest foreigners from asia are different from what happened during the japan days..When the Japanese went on the real estate binge, it was about speculation. The latest real estate binge isn’t strictly about speculation. It’s about the 1% in those countries taking a hedge against political/economic instability in their homeland, in case the government decides to start going after them. Besides, foreign purchase, BTW still doesn’t make the majority of home purchases, despite the media the rhetoric- 25% i believe was the last number for all foreign purchases, most of them from canada. And most of them from asia are at the high end of real estate. So you folks worried about an “Red Dawn” like invasion can stop worrying.

Also, don’t discount how much homes are held by institutions. Remember that many of them got into the rental business as well and are just waiting to home prices to rise to sell and profit, as many other folks that bought at low prices will.[/quote]

Many of those institutional buyers are working on behalf of foreign buyers. And it’s not just the Chinese who feel that U.S. real estate is a more secure store of wealth than their own currencies and local investments, people from many different countries are buying U.S. real estate as a hedge against their currencies collapsing. Some Americans are doing this, too!

As you know, I’ve long been pointing to institutional buyers as being part of the problem, irrespective of the nationality of their clients.

I don’t think that people are worried about a “Red Dawn” invasion, just that all of these extra buyers are putting pressure on prices, forcing locals out of the market.

Americans have been doing this to people in other countries, too, like Mexico (decades ago, it was the big thing to buy land down there because it was so cheap to buy with US dollars) and other developing areas that have a much weaker currency/poorer local population than ours. The locals in those countries don’t like it when we do it, either, which is perfectly understandable, IMO.

[quote=flu]Personally, I’m in no hurry to sell. The only time I would is if/when home prices reach 2x of what I paid for, and then I might consider it of if San Diego turns into blight town (which is unlikely, and if that happened, you wouldn’t be interested in buying anyway). Why sell when it’s a steady source of rental income, that will most likely beat that CD for a long long time? And for more “affordable homes” that were bought at good times, that’s the problem that I see. There’s no hurry to sell.[/quote]

Yes, you’d be right to hold on to your real estate if CD rates are <1%, but what if rates were to skyrocket to 10%, or higher? How would you feel then? And what if housing prices were likely to decline at the same time that other investments were offering much higher returns (and the potential for much higher capital gains, too), particularly if rates rise significantly?

That's the issue. If rates go up significantly, or if some other investments suddenly look much better than real estate, speculators will start to shift away from real estate, and many of them will sell if they feel that housing prices will go down in the future and/or if they want to free up more cash in order to purchase these other assets.

As others have pointed out, low interest rates around the world are really fueling this speculation. Both because there is nowhere else to turn, but also because it causes concern among many investors/savers/speculators regarding the future value of the currency they hold -- pushing them into hard assets as opposed to cash or similar holdings.

[Author]

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