[bearishgurl]

[quote=CA renter]Sorry, BG, but I have to disagree with your assertion that rich people are fools just waiting to be parted from their money. They will expect a certain type of house, but they won’t have a pre-determined price they are willing to pay for it without taking into consideration the houses above and below that level, and what those houses are selling for. They are not fools, and they have no intention of throwing their money away on anything, including housing. Why on earth would they offer $5 million on a place that is worth only $3 million? They simply wouldn’t do it. These are the people who tend to analyze everything, and you can be certain that they understand the relationship between asset prices and interest rates (some exceptions might be brand-new money with poor management and/or lottery winners who, statistically, stand to lose all/most of their money at some point).

And I disagree with you about what buyers are willing to settle for. Those 3/2, 1,500 tract homes in old neighborhoods are different today than they were 30+ years ago. They are often older, and more likely to have crime issues than they were back then. People don’t have higher expectations these days; the neighborhoods have changed. If crime rates are higher and houses are older, people will not want to pay as much as similarly-situated buyers did 30 years ago.[/quote]

I wasn’t referring to the $1M and over market, CAR. Depending on area, residential RE values in the upper tiers are very subjective, due to only a fraction of them being “on tract.” The majority are custom-builds. I’m not even referring to “rich” buyers. I was referring to “typical” FTBs and STBs, downsizers, second-home buyers and vacation-home buyers. Believe it or not, these are all “regular people,” the first two types likely being “worker bees.”

If anything, 50+ yr old areas in SD County are MUCH BETTER now than they were 30+ yrs ago for the following reasons:

-invention of the double-paned vinyl window and mass replacement of windows on these homes;

-mass-remodeling done to the extent that there are little to zero “fixers” left to buy in a given area;

-mass replacement of shake shingle roofs due to fire insurance requirements;

-mass replacement of (unsanitary) carpet and linoleum with hardwood, travertine, engineered flooring, ceramic tile, etc;

-mass replacement of appliances with energy-efficient models;

-mass replacement of “Formica” countertops with granite and stone;

-mass replacement of “plywood” cabinets with euro-type cabinets (which roll in/out smoothly);

-mass replacement of asphalt t-lock shingles with slate and tile;

-unparalleled urban views and waterviews available which are not found in suburbia or exurbia;

and, most importantly, civic improvements in local parks, tree maintenance and sidewalks as well as newly established “upscale” local businesses within walking distance and higher-earners moving in as houses turn over, one by one.

In addition, 19+ years ago there weren’t any *distracting* API scores to confuse homebuyers because they didn’t exist. MANY “inner-city” schools now have a plethora of available services that were unheard of in the ’70’s and ’80’s, such as:

-pact with local CC for “free” HS credits;

-GATE programs;

-performing arts and science programs;

-many more AP class offerings;

-IB programs now available;

-state of the art vocational training while in HS;

….just for starters.

No one can tell me that today’s highly-paid legal and medical professionals (yes, even those with minor children at home) are not attracted to prized ‘hoods in 92115, 92104, 92103, 92102, 92106, 92107, 92110 for all of the above reasons …. as they were in previous generations.

Location will always trump size and age in coastal CA counties and this will never change. This is why a buyer will get less sf for the money in these areas than in suburbia/exurbia. You get what you pay for in this life. After about ~1850 sf for a family of four, the rest is excessive, unless that family entertains a lot. In that case, ~2200+ sf would be better … with a 7500+ sf lot.

The miles of tract subdivisions in suburbia and exurbia with 3000+ sf mcmansions with soaring ceilings situated 6-8 ft from one another being the norm are unnecessary for 90% of families (of 4 people and under). The excess space is unused and needs to be furnished, heated, cooled, cleaned and dusted. They would be better off (by realizing less commuting cost and higher appreciation) in a closer-in <=2000 sf house with a large backyard for the kids to play in.

[bearishgurl]

[quote=CA renter]BG,

Interest rates affect how much a buyer can pay for a given house, they do not affect whether the house they purchase is a move-up/down house once prices have adjusted for the interest rate movement.

The only time interest rates will affect what a person can buy (as opposed to how much they can spend on a given house) is if those rates are available only to an exclusive group.

It’s just like with the homebuyer tax credit — it affected the PRICES that people were able to pay for a given house; it did NOT mean that they were able to buy “more” house. Why? Because everybody else had access to that same tax credit, which pushed up everybody’s purchasing power. This pushes PRICES up all across the board (though price changes lag as they roll up and down through the tiers), it does not enable people to buy a nicer home.

Given that mortgage rates are at/near all-time lows, what happens when they double and go back to more “normal” levels?

Incentives that are broadly available benefit sellers, not buyers.[/quote]

CAR, I agree that those “ill-thought-out” tax credits benefited no one but sellers.

However, in CA coastal counties, I don’t believe that price points within the residential tiers of RE are set on the prevailing mortgage interest rate (MIR). They are set purely upon what a buyer is willing to pay for the property.

This has always been so because there is a captive audience and large cohort of “nearly all cash” and “all cash” buyers in all of these (resale) micro-markets.

The exception to this rule is the new construction tract where the developer assists buyers in financing alongside their on-site “preferred lender.” These subdivisions typically attract the highly-leveraged buyer and typically have little or no surrounding sold comps to justify the prices they are asking (and hold fast to).

IOW, in CA’s most coveted areas, offers coming from highly-leveraged potential buyers have historically been at a distinct disadvantage.

With the ultra-low MIRs of recent years, FTB’s (as well as 2nd time buyers) have been able to buy much more house than they would have been able to had fixed MIR’s been in the “normal” 7-9% range. These buyers have been “spoiled” by what they (or their peers) have been able to buy, so much so that a “regular” house in a “regular” middle-class area in coastal CA counties is no longer “acceptable” to them.

As we all know, it is much more (psychologically) difficult to “trade down” in house/neighborhood than it is to trade up. This younger subset of buyers who has never seen “normal” fixed MIRs in their adult lifetimes can’t “envision” themselves living in one of those “regular” houses or in a “regular” ‘hood. They feel they are “above” doing this where similarly-situated and above previous generations “expected” to “pay their dues” as a prerequisite to “climbing the housing ladder.”

The current cohort of buyers in “family-raising mode” has to have it all NOW or they won’t buy at all. If they DO break down and buy in an established area (usually only because that is all that is available in a particular locale), they often won’t even move in until the home is remodeled to their satisfaction.

[bearishgurl]

Good for YOU, spdrun! And at last fall’s price … that’s WONDERFUL! All due to your stoicism and “persistence,” no doubt (I don’t think I could play the SS-buyer game, lol).

Maybe you can “retire” there yourself someday :=D

[bearishgurl]

[quote=ctr70]A the time being sure doesn’t seem like it’s depressing SoCal home prices. They are rocketing upward. OC is up 26% year-over-year. SD is up 18.6% and LA up 24%.

http://www.dqnews.com/Articles/2013/News/California/Southern-CA/RRSCA130417.aspx
[/quote]

…The typical monthly mortgage payment Southland buyers committed themselves to paying last month was $1,252, up from $1,154 the month before and up from $1,063 a year earlier. Adjusted for inflation, last month’s typical payment was 47.8 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 57.3 percent below the current cycle’s peak in July 2007…

Good article full of data, ctr. I was struck by the passages which I bolded. I’ve always believed this to be so but didn’t have any data. Apparently, Dataquick does.

If truth be told, the historically low mortgage rates of recent years have enabled homebuyers in “family-raising mode” to buy “move up” and even “luxury” properties (if not the property itself, then the area) for their first or second homes (Gen Y and younger Gen X). Between mid-2003 and early 2007, buyers of all ages and stripes were buying move-up and luxury homes for their first and second home and even putting zero down, due to “exotic financing” being the norm. Many of the young buyers who waited until after 2007 to purchase their first homes saw their peers buying these types of homes and/or in these types of areas during the millenium boom, wanted same for themselves and will not settle for less. The very low MIRs we have been experiencing since the late 2008/early 2009 crash in home values further enabled these buyers to buy in a move-up or “luxury” area.

Due to the these longstanding ultra-low MIRs, we now have an entire “family-raising buyer group” spanning about 20 years and two generations (now aged 25-45) who believes it is their G@d-given right to own their first home in a move-up or luxury area in coastal CA.

A lot of these same folk lament that the boomer generation “had it easy” and “bought RE at ultra-low prices.” However, the “data” shows just the opposite. SD County “professionals” (with 7+ yrs of higher education) with less than ten years work experience in their field back in the eighties bought what they could qualify for under the prevailing RE climate at the time (namely, much higher MIRs, much less freeway capacity and little newer construction to choose from). In addition, most of the homes we boomers bought needed work, which was done after move-in as time and money permitted (usually DIY).

Now that it is 2013 and RE prices are attempting to revert to their mean everywhere, home shoppers who haven’t yet bought a principal residence STILL have visions of purchasing a “move-up home” and/or in a “luxury” area for their first or second home purchase. Unfortunately, by not “settling” (as family-raising generations before them did), many of these wishful homebuyers will likely never be able to consummate a deal. The mere fact that this group doesn’t yet have their own home today says out loud that they didn’t want and don’t want one bad enough and are too fixated on properties and areas that they can no longer qualify to buy into. And when they DID qualify to buy into them (not so long ago), they didn’t like what was on offer in them so didn’t make offers or enough offers/counter offers.

IOW, in the eighties, the well-located WWII-era 1400 sf charmer was an acceptable first home for the 4-person family of an attorney who had eight years work experience but the same property or even one 20 years newer is NOT acceptable today for a Gen Y “professional” with 4-5 years of college … not even to move their dogs into.

First-time buyers today are shunning entire swaths of well-located and well-built homes in coastal CA counties, many of which are still in their “price range” (but not for much longer) because they still have a “move up” and “luxury” area-preference ingrained in their heads. This mindset will only cause them to lose out entirely and forever remain tenants as long as they reside in said counties.

Note: I believe the phenomenon of ultra-picky young buyers isn’t present in every coastal area of CA. In the counties which were built out long, long ago (ex coastal LA Co, San Mateo Co, SF Co, Marin Co and more rural CA coastal counties which have low or no growth initiatives in place), FTB’s have always bought what was available in their price ranges. It IS present, however, in coastal CA counties such as SD Co and the OC, where urban sprawl has been allowed to go unchecked over a span of more than 20 yrs, due to gross overbuilding resulting in severe freeway congestion.

In hindsight, I no longer believe the “ultra-pickiness” in young buyers has much to do with their “value differences” because every family needs a home. I now think it has everything to do with the easy mtg money flowing freely between 2004 and 2007 and the (artificially-set) rock-bottom mortgage interest rates prevailing since the crash. This group has NEVER SEEN “normal” 7-9% MIR’s in their entire adult lives! Therefore, buying their first home in a “move up” or “luxury” area seems “normal” to them.

It’s not “normal” and never was.

[bearishgurl]

SK, I think kev was shopping in the central (urban) OC market. He/she was distressed about the low inventory there, as well as the asking prices and the speed at which properties (in what he termed mediocre or “working class” areas) flew off the shelves.

The inventory situation is likely just as bad (if not worse) in the OC than it is in SD County. We addressed kev’s complaints in the thread below, showing that there WERE available listings to consider in the OC but it seemed he wasn’t interested in what was actually available in his/her price range.

http://piggington.com/tons_of_inventory_in_san_diego_none_in_orange_county

When a “disconnect” like this occurs in a prospective buyer’s mind, they likely won’t buy at all. This is a common problem in CA coastal counties and the sole reason why a lot of practitioners (agents/brokers) won’t work with buyers, even if well-qualified. They feel they will just end up working 100+ hours (usually running around burning gas previewing and showing) for nothing …. and they would be right.

I note that kev374 signed up here over 6.5 years ago. One has to wonder if he/she was ever a SoCal homeowner in that time frame and/or how long he has been “shopping” for a residence in that time frame.

[bearishgurl]

[quote=flyer] . . . Like many real estate investors, we eventually want to be able to turn everything over to our kids, and, IMO, that is why much of the “trophy real-estate” in places like San Diego rarely goes on the market for anything other than a stratospheric price. Of course, there will always be a few exceptions.

In my circle of people who have lived here for many years, it has been handed down from one generation to the next, and I think that will continue here, and in many locations going forward.[/quote]

Thank you for this post, flyer.

I’ve been trying to tell members of this forum for years that there are many thousands of families in this state who have the same goals (of handing down their acquired CA RE portfolio to subsequent generations) as you do. This practice has had and will have the effect of keeping a good portion of the best-located residential properties permanently off the market.

For each successive year that Props 58 and 193 remain on CA’s books, more and more properties will be handed down. In any case, if wholesale or piecemeal repeals of these sections ever get before the Legislature, those soon-to-be affected owners will simply hand down their affected properties early … prior to their deaths ;=]

If any Pigg is dreaming of buying a coastally-located “trophy house” in the far future (after liquidating their “working class” rental portfolio), I would suggest they immediately sell one or more investment properties, if necessary, and actively shop for that “dream trophy house” now.

There are very few, if any, “fixer” view trophy houses available in coastal SD anymore but that is what I’m advocating buying today if at all possible, short of a structurally-damaged home costing more than $30K to fix properly (unless the buyer has deep pockets and bought way under market value).

Based upon only the listing photos, I think jpinpb just posted a listing which could be made a “trophy house” with a <$50K investment after COE, IMHO. http://piggington.com/about_as_crazy_as_ever#comment-229115

The "bones," lot and view on it are very, very good. They are out there ... but rare. The only reason this one is out there is because either none of the "heirs" wanted it or there were no heirs.

I just checked the SD Assessor site and the current taxes on it are currently $733 year.

If there ARE heirs, none of them must have the ability to buy the other(s) out or don't want to. It is a shame that the $733 annual tax will be lost forever upon sale. This is precisely the reason that the vast majority of similarly-situated properties will never hit the market.

[bearishgurl]

[quote=kev374]You should realize that there have been interesting articles in the press lately about investor enthusiasm dying down slowly. Do you know that rents are actually deflating now because there are simply too many rentals and it’s expected to get worse. Think about it logically, when rental supply increases rents WILL go down, this in turn causes investments to generate lower returns.

When investments generate lower returns the urge to cash out accumulated equity increases and people start dumping their properties. This dumping starts a deflationary cycle leading to even more dumping and even lower prices.

http://finance.fortune.cnn.com/2013/04/05/housing-rentals-investors/

http://www.cbsnews.com/8301-505145_162-57577568/investors-cooling-on-housing-market/

A mania cannot be sustained forever, this is common sense…eventually things cool off, some investors will get out in time and make a killing at the expense other POOR SOULS who thought paying half a million dollars for a dump in a blue collar neighborhood was a good idea!!!

The only shame is that these POOR SOULS will go crying to the government about how they are suffering because they are now losing their homes. They did not bother to use a thing called “Reason” that would’ve told them that an entry level house in a middle class neighborhood with teachers and accountants living in it should not cost half a million dollars![/quote]

Well, then, kev. I guess you are expecting to pay less rent in the near and far future (since it appears you will still be renting).

Your post would be more accurate if it was referring to Oklahoma City, OK … but alas, in San Diego or Orange County, CA …. not so much.

Carry on . . . .

[bearishgurl]

WOW, a 9700 sf lot??

Of course, the Hartford listing is worth more than $499K. Not sure about $662K, but I haven’t looked at the comps up there in awhile. I have friends who sold a one-story house which was bigger (1800+ sf?) up there but it had a smaller lot. This was in 2011, I think. I’m pretty sure they got between $610K and $630K.

This house, lot and view combination in the middle of SD is a very rare listing to come on the market at this price point as it appears to only need “cosmetic work.”

[bearishgurl]

[quote]….It was listed for 499k. It sold for 662k 2856 Harford. Yes, the view was great and great potential….[/quote]

That’s a nice house, jp. It’s technically in or on the border of “Bay Ho” but has a Clairemont zip code.

$662K is a lot for this size house, but it is a wonderful representation of a mid-century view home …. very rare on the market, I’m certain! I would buy it to live in and wouldn’t do too much to it except replace the carpeting and laminate with hardwood floors (or rip it out … maybe they’re already there in some rooms) and the replace the aluminum slider windows with low-e vinyl. The kitchen, paneling and even draperies and shutters are all fine (drapes may need cleaning).

It appears there may be a bit of room to widen the 1.5 car garage (typical for that era) but this would involve a roofline (partial truss) change.

By subterranean parking, are you saying the investors who made an offer on it want to dig the lot out further and put a SFR on top of the new garage … or build multi-family housing? I didn’t think 2-4 units was allowed up there.

Thanks for sharing, jp. That’s my kind of house!

[bearishgurl]

[quote=SK in CV][quote=bearishgurl] At those prices, USD students aren’t usually heavy party animals.[/quote]

Times have changed. When I was in college they were way crazier than us Aztecs. Confession, if they went, took hours and hours. And that was the guys. Women, even longer.[/quote]

LOL, that was back when FT USD undergrads paid ~$2700 semester and FT SDSU undergrads paid ~$200 per semester! (Yes folks, that’s hundreds.)

Now, FT USD undergrads pay nearly $21K per semester, graduate school students pay over $1300 per credit hour and FT law students pay $46K per (nine-month) year (tuition/fees only).

Since we’re now discussing “real money” here, today’s students are likely to get “cut off” by parents in a flash (and certainly cut from any scholarships they are on) if they party so much that they’re getting D’s, F’s and incompletes at a college such as USD. Additionally, there are too many qualified students whose applications to both institutions were turned down and who would be only too happy to take the slot of a “non-performing party animal.”

Indeed, it’s a new world, now.

[bearishgurl]

Adame, if your condo is near Fashion Valley, those (3-4) large established complexes are favored by USD students as they are just down the hill from campus. When I was an active RE salesperson, there were several agents in my brokerage who bought them for their USD-student children and collected rent from the parents of at least one roommate.

These agent/parent/LL’s also paid all the utilities and HOA dues and just charged the other students’ parents monthly rent accordingly. As I recall, most of the parents of the renting (usually out-of-county) students paid rent to the local agent/parents by the semester (prepaid).

This private school has a good reputation and also has renowned graduate/law schools. Both the undergraduate and graduate schools are fairly selective. At those prices, USD students aren’t usually heavy party animals.

[bearishgurl]

[quote=SK in CV][quote=FormerSanDiegan]

This wasn’t directed at me, but there is a big difference.

In 2005/2006 the Price to income ratio in San Diego was at an all-time high of about 14. ( C-S price divided by per capita income).

As of 2011 (Last time Rich updated the chart) that ratio was at an all-time low. Today it is maybe 10-15 % above those all time lows, but below historical norms.

The primary lesson that made Piggington was looking at those fundamental indicators :

– House price to rent ratio
– Monthly mortgage payment to rent ratio
– Mortgage payment as percentage of income
– Price to Income

These are what really matter. It is dangerous to assume that recent price appreciation is either indicative of future increases or indicative of a speculative bubble without looking at the underlying fundamentals, such as the ratios listed above.[/quote]

Very nice job. That’s all.[/quote]

Yes, thank you, FSD.

[bearishgurl]

[quote=kev374]…Let me ask YOU – why is the speculative sentiment that prices will keep rising now any different from 2000-2006? At that time people like you were also saying the same exact thing – that prices will keep rising ad infinitum. People like you were proved very wrong in the last bust, why should this time be any different?[/quote]

Actually, kev, when “people” were buying a painted-over-but-completely-dryrotted ~60 yo 1500 sf house with stuck sash windows, a broken wall heater and an unpermitted room addition down the street from me for $590K, I thought the market was nuts but wasn’t really paying attention at that time as to WHY it was nuts. It wasn’t until I found out from neighbors (after foreclosure of same property less than two years after its $590K purchase) that these buyers had occupations of landscaper and hotel housekeeper that I did some investigating of my own by viewing the trust deed that was foreclosed on. It was then that I realized that “creative financing” (exotic and/or usurious) was the sole driver of the unrealistic high housing prices I was seeing.

People like me are among the most pragmatic you will ever find, kev. This pragmatic nuts-and-bolts type has got a message for you. Since you (apparently) missed the excellent-RE-buying-opportunity train of the last few years (for whatever reason), you should now try to hitch a ride by crawling on the caboose at its next stop and holding on after the train leaves the station 🙂 Since you (apparently) are a day late and a dollar short, I would suggest you try to work out a deal on a OC house ASAP, condition be damned.

After closing, open up a 6-mos-0% interest account at Home Depot.

You need to make agressive offers ASAP, ESPECIALLY if you need to live in the urban OC. Unlike the SD burbs, most of these smallish cities are self-contained, extremely convenient and close to many well-paying jobs. The all-cash buyers you are seeing (sight-unseen or whatEV have likely all known this their entire lives … HELLO?). I don’t care if these ‘hoods are circa 1953 or 1961. Get over it. They’re not going to get any cheaper.

It’s different this time, kev. Why?? Because there is no comparison between the all-cash and <=80% LTV buyers of today and the zero-down-fog-a-mirror-get-a-loan(s) buyers so prevalent between 2004 and 2006. They are completely different animals. Buyers today aren't in danger of having to sell in a "down market," due to the fact that they used little or no leverage to purchase. You can't fix this. It is what it is. OR, you can rent into oblivion and continue to lament weekly here over how much properties that interest you have recently sold for to see if anyone will lament with you. It won't matter if you find a dozen or more Piggs here to hold your hand. The fact remains that YOU (and your family?) STILL won't have a house. Your choice.

[bearishgurl]

[quote=kev374]best to stay out of this market as it’s a mania right now and it is very dangerous to get caught up in these kinds of manias.

I saw a listing on Thursday, called the Realtor, he told me I needed to put in an offer for 15% over asking by Saturday and I can see the house from the outside only. WTF? Are these people crazy?

So, this house was sold on Saturday for 100% full cash at 20% over asking by someone who did not even care to see the inside…per the Realtor. Oh, and there were 45 bids on the property and it was priced at $250 sqft in La Habra, CA.[/quote]

Hi again, kev! Just me again.

What does this “mania” tell you? Do you think a principal residence for yourself (and possibly your family) is going to get any cheaper in the OC in the coming years?

Uhhh, you DO realize that you can sort out the “inside” of the above listing with your inspector if your offer should be accepted with an inspection contingency, right??

What exactly are you waiting for to happen before you feel compelled to place an offer, kev?

[bearishgurl]

kev, I take it from your post that you still haven’t found a place to make an offer on yet? Are you still `in the market’ or have you `given up??’

[Author]

Posts