[4plexowner]

Sounds like time for another false flag event to distract the populace.

(Google ‘false flag’ if you don’t recognize the term.)

Or maybe a war with Iran so the sheeple don’t notice the economy tanking.

[4plexowner]

Here is how I think of reversion to the mean:

Over time prices oscillate around a trendline. Sometimes prices are above the trendline – sometimes they are below. The trendline may be flat or it may be upward or downward sloping.

When prices reach an extreme on either side of the trendline there is a tendency for them to head back towards the trendline or revert to the mean. Oftentimes, prices overshoot the trendline before stabilizing on or near the trendline.

That describes the behavior of reverting to the mean.

The only question left is, “What is the mean?”, and that is the question you are asking.

I think it is 1998 prices because, IMO, that is when the price of real estate and the rent that could be obtained for that real estate started to diverge dramatically (ie, from an investor’s viewpoint, property prices relative to rents no longer made sense).

Other people have different opinions about what the mean is and some people want to complicate the matter by trying to account for inflation.

I’m curious to see what others have to say on this topic.

[4plexowner]

I’ve stopped trying to account for inflation in my analysis. There are too many variables and my poor brain starts to overheat.

If we are going to account for inflation do we use the 3% lie that the government wants us to believe or do we use 9-10% which is closer to reality?

If housing only drops 15% but bread goes to $12 a loaf what does that mean?

If we are dealing with the US dollar how do we account for the introduction of the Amero when it happens? (Google on ‘Amero’ if you don’t know what it is)

Instead of trying to figure out some possible price in US dollars I prefer to think in terms of trends as Bugs and PerryChase are saying.

Two trends are applicable to real estate: sales price to earned income and sales price to rental income. San Diego real estate is several orders of magnitude away from the trend lines in both of these areas.

IMO, reversion-to-the-mean is one of the few absolutes in investing.

Bottom line is that we are a long way from a bottom.

[4plexowner]

8-10 rent multiplier is for multi-unit properties not SFR – when I started shopping in 1997/98 well located properties that I was willing to live in (one of my criteria for buying) were already selling for more than 8-10 times rents – in 2000 I paid 11.5 times rents for a 4plex in Mission Beach and thought I was paying too much – the last 4plex I sold went for 18 times rents

other forums have talked about rent multipliers for SFR – probably more like 12-14 or higher depending on the property – remember that SFRs are for you and your family to live in and are NOT investments for positive cashflow (I’m generalizing)

my sources for data are my feet, eyes and brain – I get to know the areas that I am interested in and I gather all of the data I can find on rents, sale prices, listings, etc – every area is different and local factors make averages less meaningful – for example, being walking distance to an especially nice park doesn’t show up in average rents or sales prices

1998 prices:
> I believe 1998 is when the bubble started – rents and sales prices began to diverge at this point
> all bubbles throughout history have been fully retraced (for all you naysayers: identify one that hasn’t and don’t include NASDAQ or DOW until at least 2011)
> retracing the bubble takes us to 1998 – overshoot would be even lower

[4plexowner]

One of the ways that GDP numbers are manipulated is through aircraft sales.

Here is some research I did earlier this year:

Airplanes are expensive items with long lead times to procure / build.

At http://www.boeing.com/commercial/prices/ I learned that a Boeing jet costs between 45.5 million and 253 million dollars to purchase.

Many aircraft that are ordered are never built – the “…civil aircraft sales…” referred to below are zero-down contracts that can be cancelled.

I find all of this interesting from an accounting perspective. Imagine the challenge of manipulating the books for a $12 trillion dollar economy – these aircraft sales are just one of the tools in the toolkit.

The revised durable goods numbers (done with almost all the govt numbers – announce glowing number this month and then revise it down in the footnotes of next mont’s meeting) won’t get much if any media attention. Neither will the cancellation of the aircraft ‘sales’.

Durable goods orders in US beat forecasts
By Christopher Swann in Washington
Published: April 26 2006 17:59 | Last updated: April 26 2006 17:59

US durable goods orders surged by 6.1 per cent in March, more than three times faster than analysts had been expecting.

“The bulk of the rise in durable goods orders was due to a 14 per cent increase in transport orders, with civil aircraft sales climbing 71 per cent. Boeing reported bookings for 112 aircraft in March, up from 25 in February.

Excluding the volatile transport sector, orders rose by 2.8 per cent. Economists had expected a rise of just 1 per cent.”

[4plexowner]

The only stupid questions are the ones you don’t ask. You are doing your homework first instead of jumping in and THEN trying to justify why you bought in a declining market.

There are many different opinions expressed here on Piggington’s about how far the market will decline – my opinion: in 2009/2010 I expect to be buying rental properties for 1998 prices – that means entry-level single-family homes in Clairemont for about $225-275K in 2006 dollars – well located multi-unit properties (I like 4plexes) for 8-10 times yearly rents – Liberty Station wasn’t built until 2004 so it is harder to estimate a bottom price – I would guess there will be some desperate sellers in Liberty Station letting their townhomes go for $500-600K before this correction is over

[4plexowner]

I’ve commented on Liberty Station several times – short answer to your question: “No, I don’t believe the upside to the location will make up for the potential loss in equity” – even the detached boxes in Liberty Station are just fancy condos – don’t be fooled into thinking of them as single-family homes – the prices of condos throughout San Diego are going to sink like a rock and the housing in Liberty Station is more condo-like than SFR-like – here are my comments from the archives:

~

One of my properties was near NTC / Liberty Station so I kept a close eye on the development there.

Navy records show 50-60 toxic hot spots on the property and there are questions about how well these sites were cleaned up.

The most telling point to me is that McMillan trucked in six feet of clean topsoil before building on the home sites. Wouldn’t want anyone to test the soil in their front yard now would we?

McMillan told the city that he needed the extra height so the sewage would drain which is interesting since none of the historic buildings are being raised but I assume they will have bathrooms in them???

Here’s a website that tracks ongoing issues at Liberty Station: http://www.ntcsd.org/ – spend some time at this site if you want to see how badly the city and McMillan are screwing the public on this deal.

~

I was jogging through Liberty Station this morning (used to be NTC in Pt Loma) and noticed numerous For Sale signs.

I assume that most of these houses were bought by speculators and they are now bailing.

These houses had been selling for as high as $1.3 mil but they aren’t anymore.

I have been watching one in particular that came on the market just under $1.1 mil back in Oct/Nov of 2005. It is still on the market today – asking price is $899K.

~

The houses in Liberty Station are so close together you could borrow a cup of sugar from your neighbor by sticking your hand out the kitchen window.

I watched these things being built in 2004 and I was amazed that people were paying $800+K for them.

Even more amazed when they started turning over at $1+ mil.

Not surprising that many of them are currently For Sale.

Remember that these fine homes are just a few blocks from being under the flight path and they also get to enjoy the road noise from Rosecrans / Nimitz / Harbor Blvd along with the Navy jets on North Island.

Not to mention that McMillan had to remediate the hazardous waste at NTC before he started building these homes.

~

I took another swing thru Liberty Station this morning.

There are 16 For Sale signs with one of them flying a SOLD sign.

There are 209 detached boxes in Liberty Station so currently, 7% of the development is for sale. Anyone know how this compares to other developments around town?

Interestingly, ALL of the streets have at least one box for sale and some of the streets have as many as 4.

~

Interesting factoid about Liberty Station: McMillan didn’t want to remediate the contaminated topsoil from the home sites so he trucked in 6 feet of clean topsoil before laying foundations.

Told the city that he needed the extra height so the sewage would drain!

Not to mention that he was then allowed to build up to the 30′ height max after starting from the new raised ground.

~

Don’t get me wrong about Liberty Station.

This property will be a gem in San Diego’s crown once all of the development is complete.

From my perception however, there are 209 FB’s living there and we haven’t even discussed the multi-unit crap (oops, I mean condos) that was built.

[4plexowner]

Seems to me that posting in the forums dropped off after the U-T published the “17% drop” article.

It provided confirmation for what the bears on the site have been saying and a big slap in the face for all of the polyannas.

Not much that either the bears or the pollyannas can say at this point – only time will tell whether we revert to 2001 prices or all the way back to 1998 prices.

[4plexowner]

IMO 17% is just the start.

1998 prices, here we come!!!!

[4plexowner]

powayseller, the point I was trying to make is that you come across as someone with knowledge giving advice and then you don’t follow your own advice – worse yet, you back away from your original advice by saying “I don’t know anything about what I was giving advice about”

~

I have finally realized that people don’t need my bad advice and they won’t follow my good advice, so for the most part, I don’t give anyone advice about anything (except when I do).

[4plexowner]

“Precisely why it is not too late to short the homebuilders. … Shorting the homebuilders now could yield 2x – 6x return.”

4plex: sounds to me like someone with experience shorting stocks giving advice

“I know nothing about shorting and options, so I decided to play it safe.”

4plex: sounds quite a bit different than the first post

[4plexowner]

My experience with FSBOs is that the seller thinks he should pocket the money saved on realtors and the buyer thinks he should pocket the same savings – ie, there is an impasse between buyer and seller so the deal is less likely to close.

My realtor says that most times when she has been involved with FSBO sellers she ends up doing the paperwork which a seller’s agent usually does.

As a seller I would never do a FSBO because of the liability involved. It helps me sleep at night knowing that my agent shares my liability as a seller and is therefore motivated to protect me from doing something stupid / illegal / questionable.

Bottom line for me: it isn’t worth the liability to sell as a FSBO.

[4plexowner]

Given the level of education in this country today it doesn’t take much to be ‘gifted’.

We are currently at 31 year lows in SAT scores.

California’s public schools are dropout factories – it really amuses me to read about people picking a certain neighborhood because of the ‘great’ public schools.

If you really care about education you have to send your kids to private schools and take an active role in their education.

If being able to afford private schools means renting instead of paying $800K-$2mil for a low-quality tract home in north county then so be it.

And besides the education factor, the biggest influence you can have on your children is to control their peer group. You do this by sending them to private schools so they aren’t rubbing shoulders with the kids in public schools who are just waiting to drop out.

[4plexowner]

One of my friends has their Clairemont house on the market right now. Absolutely no activity in a month.

The house is priced well (one of the lowest priced houses on MLS in Clairemont) but not even a nibble. We have talked about lowering the price but don’t think it would make any difference.

The realtor has a flyer showing two ways to buy the house:

1. 20% down and a 5/1 ARM at 6% – monthly PITI $2989

2. 0% down with 5/1 IO ARM at 6.375% plus HELO at 9.15% – monthly PITI $3498

The first time I saw this flyer I laughed at how absurd it would be for anyone to pay that kind of money for a small, 50 year old house in Clairemont.

When I gave it some more thought these questions came to mind:
1. who has 20% down these days ($90-100K)?
2. why would anyone pay $3000/mo for a house that they can rent for $1700/mo?

I expect houses like this one to be available for about $275K (2006 dollars) when the market finally bottoms.

[4plexowner]

Here are the monthly payments on $400K at 6% fixed:

30 yrs – $2398.20
50 yrs – $2105.62
70 yrs – $2030.77
100 yrs – $2005.04

I was surprised the first time I realized that extending the length of the loan doesn’t really change the fact that homes are unaffordable.

Even so, the Japanese were obtaining 100yr mortgages before their real estate market collapsed.

Imagine what your kids and grandkids will think of you when they are struggling to pay off that shit-box in Clairemont decades after you have passed on!

[Author]

Posts