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A lot of boomers might aspire to “retire in place” in the classic sense, but only a fraction of them are going to be able to realize that aspiration. It takes a lot of money to continue to live a $75,000+ annual income lifestyle, and the equity that’s tied up in their housing doesn’t count.

I think a lot of boomers will just continue to work til they drop, either because they have to or because they choose to in lieu of changing their location and lifestyle.

There are a lot of areas in the U.S. that got emptied out as a result of migration to employment. Housing is cheap and the pace of life and consumption is a lot slower.

I would imagine some of those areas will be attractive to retirees who have less than the multi-million dollar net worth it takes to retire in the coastal economies. I can imagine some of these small farming towns coming back to life as the result of boomers seeking a lower cost of living in what remains a nation governed by the rule of law. Retirees coming back to spend money in those local economies will revitalize some of them.

Bonus – they won’t have a learn a new language or worry about a revolution that would kick them out.

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The point where the upswing met the long term trendline was in late 1998 or so. That’s that point from which you would measure the “should be” value and start adjusting forward.

Starting at 2000 gives you an artificially high baseline because you’re measuring from farther up on the upswing. The average SFR price in the 3rd qtr 1998 was $279,000; the average price in the 3rd qtr 2000 was $355,000. That’s a 20+% difference right there, and relative to the 1940 price the difference between 279 and 355 is even greater.

I don’t think the real avg rate of increase is 9%/year.

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Cashman,

I would still dispute whether you actually missed out on that much equity, but that’s a matter of opinion.

Regardless, if you were following Piggington’s you know that we are SD-centric. What you may not have realized is that the south LA/north OC areas are running on a different clock. If the market in SD County is fragmented that variance would be compounded exponentially when analyzing different regional economies. SD County is separate from the LA basin areas.

The area you sold in is only now levelling off in preparation for its participation in this correction.

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Raybrnes,

“Yeah their payment is changing but relative to their incomes they are not living any different. The increased payment is actually representative of a smaller amount than what they initially purchased their first place. They were stretching more at that time than they are now.”

You couldn’t be more incorrect about what percentage of their income people are paying in order to debt service these prices.

At the top of Rich’s homepage he actually has an update to a piece he wrote a couple years back about rates, prices and payments. Unfortunately I was unable to find his original article ’cause it was a doozy.

Rich explains that during the same period when interests rates dropped to their currently low levels, the percentage of income people were paying actually increased by 75%. That means that even though their purchasing power had increased as a result of the lower interest rates, the prices were increasing at an even faster rate, wiping out any savings they would have had.

And logically speaking, that would make sense. How else could a region that’s had maybe 15% growth in wages since 1996 possibly support a 300% increase in home prices, if not for it coming in the form of some buyers paying a larger share of their income? Your assertion that people are actually paying less not only flunks a cursory review of the statistics on wages vs. pricing, it flunks the reality test as demonstrated by the explosion of the NOD/NOT rates as well as the most basic of analyses using simple deductive logic. +15% in income and -15% in interest rates will not support 300% increases in pricing.

Think about it and let us know if you can refute that simple line of reasoning.

Most recent buyers are paying MORE of their income towards their housing that they were prior to 2001, not less. The only exceptions would be people who purchased prior to 2001 and didn’t withdraw equity when they refinanced, which to be sure includes some people, but not the majority of recent buyers. I agree that anyone who has a 50% equity stake in their home is in no danger of losing their home, but that doesn’t mean their equity is safe.

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There’s a big movement among the architects and planners right now to get away from the “snout houses” that we’ve been building for the last 40 years. The snout being the garage. Apparently the planners are trying to get back to the walking neighborhoods where people sit on their porches and hang out with their neighbors. The snout house supposedly detracts from the walking neighborhoods because the garage and driveway are part of the front “elevation” and people tend to drive directly into their garages and shut the door behind them before they exit their cars.

Landscaping and its demands on the water supply are also a part of it. The whole idea behind “smart growth” planning is to concentrate the residential areas onto smaller lots and include services within the neighborhoods so as to minimize the time people spend driving around and contributing to traffic. The environmentalists hate 20,000 SqFt subdivision lots and 10 minute drives to the nearest elementary school.

These so-called “alley” subdivisions aren’t really any more efficient in terms of land use because the alley cuts into what your rear yard area would normally be. It does prevent people from parking 4 cars on their front lawn, though. It is about the only way you’re going to get the “picket fence” effect in a neighborhood.

The other “good” thing about the alley house design is that it enables a nice front elevation even if the lot is relatively narrow. A 50ft wide lot still enables a house with a 40ft wide front elevation – no garage to spoil the effect of the big house.

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Whats bad for the realty agents is bad for a lot of people.

I’d be willing to bet that there are at least as many loan originators on that list as realty agents, and the only reason there are fewer appraisers on that list is because there are fewer appraisers in general. There are probably a bunch of contractors and subcontractors on that list, and probably some car salesmen and “motorsports” business owners who relied on MEW money for their wares.

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I’m one of the biggest bears, but I come by that honestly – I work in the business of RE valuation. It’s literally all I do.

I will confess to a certain amount of frustration, but my furstration is not directed to foolish buyers or the realty agents who encourage foolishness. After all, that’s what buyers and realty agents do – it’s their nature.

My frustration is aimed at the lenders and investors who have ignored the obvious signs that they were participating in a very risky ponzi scheme that was doomed to collapse from the moment we got past +25% of the long term trend. The higher the variance, the greater the collapse. I’m particularly frustrated that these lenders have not only ignored but have marginalized the appraisers and other market watchers who have been telling them this was coming.

Whomever is telling Alex_Angel to hang on one more year is being dumb. Alex should plan on sticking around for at least 3 or 4 more years. This trend isn’t going to be anywhere near done in a year.

BTW, the open houses may look busy, but the volumes are still in decline. That should tell you that any bump in pricing that possibly could occur would do so only on a temporary basis – there is simply nothing in the fundamentals that would support stabilization right now, let alone a trend toward increasing prices. We should anticipate there will be at least 3 mini-rallies during this downswing. It’s happened before during the prior downswing and it happened during the upswing as prices were going up.

We need to watch this from the 20,000 foot elevation and not rely overmuch on the 100 foot view.

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I’m no techie, so forgive the question: I was under the impression that Qualcomm’s technology was an offshoot of work done at UCSD, and that the wireless and biotech research that goes on at the University has a lot to do with Sorrento Valley’s status as a tech hub.

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Wasn’t Qualcomm’s choice of locations heavily influenced by its proximity to UCSD?

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Herewego,

Your question wasn’t directed to me but I can answer it any way. Hwy 56 links up the I-5 and I-15 corridors, and there are ample office and industrial projects on either end. In addition, there are office projects and areas zoned for office projects all along the freeway. It’s going to take a while before much development occurs there because we’re not done with the other areas like Poway, Rancho Bernardo or even Sorrento yet. But I’m sure Hwy-56 will eventually end up looking a lot like Hwy-78 (only newer) before its all over.

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I like Carlsbad, I live in Carlsbad (15 years now); but I never forget what it is vs. what it isn’t.

The CEOs of companies large enough to own jets don’t live in Carlsbad and won’t live in Carlsbad. They probably won’t live in Encinitas, either. They’re in Del Mar, La Jolla, Rancho Santa Fe, etc.. There’s no part of Carlsbad that will even directly compete with those areas for the high rollers.

And since I prefer to use numbers to back my opinions, here’s a couple numbers for you:

The MLS reports that in 2006 there were a total of 7 sales above $2,000,000 in all of Carlsbad. Of these, 2 were oceanfront properties that back to the water (one was purchased for development of a hotel, not as a residence). Excluding those sales, the other 5 sales sold between $2,000,000 – $2,650,000.

Neighboring Encinitas is a little different: In 2006 Encinitas had 34 sales in excess of $2,000,000; of those, there were 8 sales in excess of $2,650,000.

Going back farther, the MLS reports a total of 129 sales in Encinitas in excess of $2,000,000; Carlsbad has a total of 39 such sales.

If Carlsbad isn’t even equal to Encinitas, it’s not even close to Rancho Santa Fe, which is where your jet setting CEOs are more likely to reside. RSF showed 627 sales total, and 97 such sales in 2006 alone. Not 39/7.

I think you’re looking way into the future with those forecasts. There are already a lot of vacant industrial and office properties within a 5-minute drive of So. Carlsbad and so far the N.SD companies haven’t been relocating.

So. Carlsbad will eventually mature and stabilize, at which point it will act less like a boomtown and more like a Scripps or Pt. Loma; areas where listings only come up occasionally. But before that happens they have to get done with building out all the little infil subdivisions fist, and that isn’t going to happen any time soon. It may happen by the end of the next cycle, but it certainly isn’t going to happen in the next 12 months.

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It’s probably fair to say that the median is going to be a lagging indicator because although all the different market segments are interconnected those connections are not rigid. The market as a whole doesn’t move in a monolithic lock-step fashion, but in bits and pieces, in fits and starts.

We’re so busy watching the leading indicators that the published lagging indicators seem hopelessly outdated. This is why we tell Piggingtonians not to worry about missing the bottom because they’ll see it coming long before it actually hits. The newspapers will be saying that it’s still getting worse and we’ll be saying that the time is ripe for a good move.

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My personal experience only dates back one complete cycle prior to this one, so I have no information regarding the GRMs back in the early 1980s. Sorry.

Applying GRMs to single family residences is not normally considered a reliable or accurate method of valuation. Part of this is due to the variations of rationality involved at different times, and part is due to the difficulty in really pinning down the rental rates. The only reason I brought it up is because our original question involved trying to figure out how to establish a reasonable baseline.

Exploiting the relationships between income and sales price works quite well when the property types are typically rental-driven. Inasmuch as the commercial property types have generally followed the same trends as the residential, albeit at somewhat of a lag, the trends that are showing in the commercial markets can be compared to the residential trends as a secondary indicator. Commercial income multipliers have increased in the same way, and those increases are attributed to investor agressiveness and the expectations for continued price appreciation. Why else would an investor buy a property that doesn’t currently cash flow, if not for the expectation of making those losses up at the time of sale as a result of price increases?

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Yeah, they’re making much better decisions as a result of reading the newspapers that are quoting David Lereah and Leslie Appelton-Young.

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Just kidding.

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