[Bugs]

Land isn’t worth much of anything to anyone until someone is ready to build. That’s why not much gets built during downturns – no profit.

The site value at peak was probably in excess of $300k, maybe more. Not counting fees and permits, the costs to build are about $100/SqFt, and that includes a small profit margin for the builder. Those fees do add up though, which is why in California we probably won’t be getting down to $100/SqFt construction costs.

There’s no reason that site can’t devalue back to $50,000 or even less. As far as the value of an existing home never dropping below the cost of land and improvements, I direct your attention to Exhibit A; all the towns across the US where you can still buy an average condition home for less than $50,000. It’s all relative to local wages and employment, and if this place ever gets that bad for wages and employment the prices will reflect that reality.

“It hasn’t happened yet” is not the same thing as “It can’t happen.”

[Bugs]

Land isn’t worth much of anything to anyone until someone is ready to build. That’s why not much gets built during downturns – no profit.

The site value at peak was probably in excess of $300k, maybe more. Not counting fees and permits, the costs to build are about $100/SqFt, and that includes a small profit margin for the builder. Those fees do add up though, which is why in California we probably won’t be getting down to $100/SqFt construction costs.

There’s no reason that site can’t devalue back to $50,000 or even less. As far as the value of an existing home never dropping below the cost of land and improvements, I direct your attention to Exhibit A; all the towns across the US where you can still buy an average condition home for less than $50,000. It’s all relative to local wages and employment, and if this place ever gets that bad for wages and employment the prices will reflect that reality.

“It hasn’t happened yet” is not the same thing as “It can’t happen.”

[Bugs]

First, a comment about my position: As an appraiser I’m not “hoping” for a specific percentage of correction. I’m hoping for an orderly and somewhat rational market. That is, a market where there is a direct relationship between the pricing and the income necessary to support that pricing over the long term. If the market decides that this region is so special that people should be willing to pay half their gross income for their housing from now on then so be it.

As has been mentioned by other posters, although I think the -50% over several years could easily happen I also think that type of decline will cause a lot of unintended consequences for a lot of residents in this region. A lot of collateral damage, and I’m not talking about the people who are holding overpriced properties right now. That’s why I wouldn’t mind being wrong about the 50%.

As for the lenders, I really do think it’s a matter of being overwhelmed. While they can play a little dodgeball with their quarterly earnings, sooner or later they have to state their annual earnings. I think that’s when everything is going to come to a head – at year’s end.

[Bugs]

First, a comment about my position: As an appraiser I’m not “hoping” for a specific percentage of correction. I’m hoping for an orderly and somewhat rational market. That is, a market where there is a direct relationship between the pricing and the income necessary to support that pricing over the long term. If the market decides that this region is so special that people should be willing to pay half their gross income for their housing from now on then so be it.

As has been mentioned by other posters, although I think the -50% over several years could easily happen I also think that type of decline will cause a lot of unintended consequences for a lot of residents in this region. A lot of collateral damage, and I’m not talking about the people who are holding overpriced properties right now. That’s why I wouldn’t mind being wrong about the 50%.

As for the lenders, I really do think it’s a matter of being overwhelmed. While they can play a little dodgeball with their quarterly earnings, sooner or later they have to state their annual earnings. I think that’s when everything is going to come to a head – at year’s end.

[Bugs]

From the bottom up. It’s true that the high dollar buyers are bringing cash to the table so there is still come volume there.

At Magnolia Estates in Bressi ($2 million homes), they’ve been selling just under 1 unit a month, and they have 5 completed units standing vacant. This, despite the fact they slowed their construction process down to a snail’s pace. Oh yeah, and their list prices have come down 10%, not including the freebies they’re now including that were additional last year.

These markets are all connected and Carmel Valley isn’t immune.

[Bugs]

From the bottom up. It’s true that the high dollar buyers are bringing cash to the table so there is still come volume there.

At Magnolia Estates in Bressi ($2 million homes), they’ve been selling just under 1 unit a month, and they have 5 completed units standing vacant. This, despite the fact they slowed their construction process down to a snail’s pace. Oh yeah, and their list prices have come down 10%, not including the freebies they’re now including that were additional last year.

These markets are all connected and Carmel Valley isn’t immune.

[Bugs]

Scrffy’s location (L.A. or O.C) probably has a lot to do with his perspective. Because those areas do have more employment and more diversified employment they are lagging behind the residential areas that support them.

Those more centralized areas haven’t yet reached that tipping point where it’s obvious even to the layperson that there are problems with home values. He cites the median, which we already know is a lagging indicator; he cites anecdotal observations of the retail trends. He doesn’t delve deeper into the median to understand that the data distribution is different or that on a house-to-house basis there are a lot of market segments in those areas that are already demonstrating declines.

These markets are connected, though, and as these trends continue these areas will get sucked further into the declines. Eventually even Scruffy will come to recognize that his house of cards is subject to changes in wind direction and the winds of change are currently blowing from the east.

[Bugs]

Scrffy’s location (L.A. or O.C) probably has a lot to do with his perspective. Because those areas do have more employment and more diversified employment they are lagging behind the residential areas that support them.

Those more centralized areas haven’t yet reached that tipping point where it’s obvious even to the layperson that there are problems with home values. He cites the median, which we already know is a lagging indicator; he cites anecdotal observations of the retail trends. He doesn’t delve deeper into the median to understand that the data distribution is different or that on a house-to-house basis there are a lot of market segments in those areas that are already demonstrating declines.

These markets are connected, though, and as these trends continue these areas will get sucked further into the declines. Eventually even Scruffy will come to recognize that his house of cards is subject to changes in wind direction and the winds of change are currently blowing from the east.

[Bugs]

I subscribe to the point of diminshing returns theory when it comes to sales volumes vs. inventory. I think that after a certain point of adding more inventory it no longer matters how much excess inventory we have. What’s the difference if we have 12 times as many listings as monthly sales or 9 times as many? Too many is too many, and the only sales that do go off will be the ones where the sellers were sufficiently desperate that they were willing to accept those losses.

What’s really relevant is the number of “must sell” listings vs. the sales volumes, ’cause that’s the combo that will drive the pricing structure towards equilibrium between supply and demand.

[Bugs]

I subscribe to the point of diminshing returns theory when it comes to sales volumes vs. inventory. I think that after a certain point of adding more inventory it no longer matters how much excess inventory we have. What’s the difference if we have 12 times as many listings as monthly sales or 9 times as many? Too many is too many, and the only sales that do go off will be the ones where the sellers were sufficiently desperate that they were willing to accept those losses.

What’s really relevant is the number of “must sell” listings vs. the sales volumes, ’cause that’s the combo that will drive the pricing structure towards equilibrium between supply and demand.

[Bugs]

A property inspector specializes in the physical attributes of a structure – that’s what they’re trained to observe. Appraisers only deal with the physical (and legal) attributes on a superficial level and only to the extent necessary to appraise the property; they deal primarily with the economic aspects of property ownership.

You want to find a home inspector who has experience working in the trades, preferably as a general contractor. They’re the ones who are qualified to perform the technical inspections you’re talking about.

My brother in law is a construction superintendent and has extensive experience in both residential and commercial construction. When he and his wife bought a new home from a builder he made numerous visits to the site at various stages of construction and made the builder fix every last item. They must have hated him by the time he got done with them.

[Bugs]

A property inspector specializes in the physical attributes of a structure – that’s what they’re trained to observe. Appraisers only deal with the physical (and legal) attributes on a superficial level and only to the extent necessary to appraise the property; they deal primarily with the economic aspects of property ownership.

You want to find a home inspector who has experience working in the trades, preferably as a general contractor. They’re the ones who are qualified to perform the technical inspections you’re talking about.

My brother in law is a construction superintendent and has extensive experience in both residential and commercial construction. When he and his wife bought a new home from a builder he made numerous visits to the site at various stages of construction and made the builder fix every last item. They must have hated him by the time he got done with them.

[Bugs]

Nationally it could work out, but regionally I doubt there are enough of the borrowers who are “only” marginal for restructuring to have any noticable impact. Restructuruing a mortgage so that it’s $200/month cheaper in a $100,000 market like Kansas City is one thing; trying to do the same with a $1,200/month extra payment in a $600k market like SD is completely different. Night and day different.

The debts are owed, the investors are holding the paper and they’ve foregone payment so far. They can’t do it forever even if they wanted to and they DON’T want to.

Talk about restructuring sounds warm and fuzzy but it’s not even going to put a dent in the market here. It’ll just prolong the agony for a few of these marginal borrowers, and when the conventional rate finally does take effect they’ll lose it all then. Meanwhile the prices will continue to decline, thus creating more and more of these marginal and downright unviable refi situations.

[Bugs]

Nationally it could work out, but regionally I doubt there are enough of the borrowers who are “only” marginal for restructuring to have any noticable impact. Restructuruing a mortgage so that it’s $200/month cheaper in a $100,000 market like Kansas City is one thing; trying to do the same with a $1,200/month extra payment in a $600k market like SD is completely different. Night and day different.

The debts are owed, the investors are holding the paper and they’ve foregone payment so far. They can’t do it forever even if they wanted to and they DON’T want to.

Talk about restructuring sounds warm and fuzzy but it’s not even going to put a dent in the market here. It’ll just prolong the agony for a few of these marginal borrowers, and when the conventional rate finally does take effect they’ll lose it all then. Meanwhile the prices will continue to decline, thus creating more and more of these marginal and downright unviable refi situations.

[Bugs]

The last “unobstructable view” lot I know of that sold in Carlsbad (across the street from the stairs at Terramar) sold for $1,500,000 back in 11/2005; and it’s now a pending after being listed for $2,400,000. It was about 10,000 SqFt but was only good for a single family residence. There are several parcels up on the east side of Pacific Ave in Oceanside that have sold in the $1,000,000 – $1,500,000 – most of those are underimproved and purchased for site value.

I don’t know what the deal is with the parcel you’re talking about, but I do know there are serious problems getting water on the east side of the Scenic Highway in some areas, and sewer or septic is a problem as well. I also know you’re not going to get a 40-unit tower on a 32,000 SqFt lot, much less the additional row houses. This might be part of a larger parcel or you might have your numbers mixed up.

A lot can happen between purchase and completion of construction down there. I know of a residential subdivision that’s been completely built out but can’t be inhabited until they buy their water rights. Dumb gringos.

I wouldn’t want to be in the development business down there right now. Baja Norte’s RE markets have been distorted by California’s bubble and they’re falling even faster than we are because the money isnt flowing down there the way it was when times were good. I anticipate a lot of the second home purchases down there are going to get resold at whatever the market will bear. Some of the money that went to Mexico during this last run up is going to end up staying there.

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