Forum Replies Created
-
AuthorPosts
-
Bugs
Participant4plex,
Most bears don’t go that deeply into the underlying fundamentals when they talk about these problems. They don’t have to. Just the stuff that’s laying around on the surface is scary enough. When we dig a little deeper the potential downsides are so big they dwarf the consequences we speak of using the more “conservative” lines of analysis.
In other words, we usually understate the downsides so as to not look foolish, because digging a little deeper leads to numbers that basically defy comprehension.
In 2001, nobody could have grasped what 2005 prices would eventually look like – those increases were beyond what anyone would have believed because it was without precedent. We can’t know for sure at this point, but there is the possibility that the same “can’t believe it” could happen in reverse.
ParticipantNo, not the west village. Beyond that, I’m not at liberty to say.
Surveyor probably is right about the time it would normally take. Carlsbad is tough. They’re not the toughest but they’re also not far off.
I’ve seen a lot of developers over the years, and this guy really is top notch. Those of you who have been around on Pigginton’s know I don’t just toss that type of comment around lightly. We’ll see if he can pull it off.
Quite frankly, the appraisal may be more of a problem for them than anything else. It looks like the listings are running quite a bit lower than the sales from 2005. It’s kinda hard to tell, what with some of the long escrow periods.
ParticipantThe $100/SqFt includes the cost of the lot, too.
Fees and permits are a lot higher here because we pay more in advance for infrastructure, as opposed to pay as you go with the higher property taxes.
Labor and workman’s comp insurance costs are a lot more here
The subcontractors and suppliers work off of higher margins, and the developers take 100% of the difference between costs and sale prices. These margins are higher right now because the market will bear them, but they aren’t an entitlement.
When you see a subdivision cut their pricing by 10% and still continue to build, you don’t think they do that because their costs went down and they’re just passing the savings onto their buyers, do you? The prices go down for the same reason they went up – that’s what the market was willing to pay.
Land costs can and will decline (they already are in decline in some cases). Materials costs can and will decline as the suppliers compete with each other for an ever shrinking demand. Subcontractors can work for less, laborers can work for less, especially the English-Second-Language folks. And finally, the developers can work for less.
The only elements that don’t have room for reduction are the fees/permits, and possibly the workmans comp costs.
We could do $120/SqFt construction for similar quality homes here in SD, no problem. That includes the (higher) fees/permits and the lot.
April 29, 2007 at 7:55 PM in reply to: Flipper burned sues builder because builder reduces new home…Doh! #51414ParticipantHe really does seem to be having trouble with that “there are risks to investing” concept, ya?
ParticipantAt 33% of gross income, a $606,000 home (median among the sales) requires a household income of $153,818, just over double the median incomes in most communities in San Diego County. That’s at a 6% mortgage interest rate, and the 33% underwriting programs would already include consideration of the tax benefits.
At a 7% interest rate the income necessary to buy that median priced home is $168,000/year.
Bear in mind, 33% is the agressive underwriting figure and it requires a borrower with considerable discipline to be able to live on the remaining 67% of their income. At 28% of gross income, a 6% loan requires over $180,000 annual household income and a 7% loan requires just under $200,000/year. That’s pretty steep for a 15-year old tract home of average quality, which is what $600k buys in SD County.
Maybe that’s why less than 10% of the county’s residents make enough money to buy the median priced home at the fixed rate. By my count, 10% of the local population is a looong ways away from the 69% of households in the US who “own” their own homes.
ParticipantSewage flows downhill. This bank isn’t going to just roll over and pay up; they’re going to go back into their pipeline after the fraudulent loan applications and the fraudulent appraisals that enabled them. Everyone in the process who has dirty hands will be subject to scrutiny.
ParticipantAnd your analysis is based on the current interest rates. Higher interest rates will mean lower loan amounts.
ParticipantI maintain that defense job losses of the last bust were the trigger, not the cause of the last bust. The last bust occurred because the trend had overextended and had to correct. Had it not been defense jobs it would have eventually been another factor. The trigger for the bust of the early 80s wasn’t jobs, it was financing and taxes. The root cause of a bust is that portion of the expansion that is unwarranted present in the boom that precedes it.
We’re not having a bust here because of subprimes and RE job losses – those are just the trigger. We’re having the correction because these prices are way out of line relative to the overall population, employment and wage trends.
I think it’s a huge mistake to think that 2003 is the cutoff date for overvalued loans and foreclosure activity. For one thing, the “parity” level is farther back in the trend at the beginning of 2002 or so. For another, there have always been a lot more refinance transactions than sales; on the order of 3:1 (or more) in many areas. Many of those borrowers were smart enough not to tap the ATM, but there are enough of them who weren’t that disciplined to dwarf the number of at-risk 2003+ buyers.
These borrowers go all the way up the economic spectrum into the $2,000,000 ranges.
One other thing to bear in mind is that in addition to the occupations directly tied to the RE business, there are a lot of buyers in the middle and higher price ranges who are business owners, and whose fortunes rise and fall based on the general economic conditions. For now they are doing okay, which might contribute to the stability of some of these market segments. However, in a general downturn these guys are even more prone to reversals of fortune than most; and when they go down they take their employees with them.
You can’t call RE the economic engine of this last boom without calling it’s demise the “trigger” of the downturn.
ParticipantThat’s to be expected. These markets are not completely rational. If they were, market psychology would tend to run relatively flat and it wouldn’t be as big a factor in the pricing trends as it is now.
The perception does influence the reality, and the media largely influences the perception. Every politician knows this, which is why much of politics is pure theater; packaged for public consumption at a 9th grade reading level. They all know that “feelings” count for more than facts.
ParticipantIt just so happens I’m appraising a piece of land that will be built out as a subdivision right now. This one is located in Carlsbad. The timeline to get all the preliminary work done necessary to obtain approvals and record the subdivision map is at least 2 years, and that’s if the developer is on top of things.
One of the things that’s apparent is that the market for subdividable land is extremely weak. Sales were steady up to the middle of 2005 and then it basically dropped off a cliff. Big surprise.
Anyways, my point is that many of the new sales are being built on land that was initially purchased as far back as 2002. After those lots are built out, there will be a 2-year lag between land purchase and sales of homes. Inevitably it is that lag that helps fuel the initial stages of the upcycle.
Of course, we still have to burn through all the standing inventory of new and resale homes before there will be significant demand for new construction. It might be worth noting that in 1995, the MLS recorded about 16,000 sales, which is about 50% of the volume sold in 2005. We now have 20,000 listings in the MLS, not counting the people who might like to sell but can’t.
IMO, these numbers do not favor a turn in the cycle until 2009 at the earliest. I’m GUESSING a 24,000 overall volume for 2007, followed by maybe as few as 18,000 in 2008. That might even be a little optimistic – one never knows.
If those numbers do come about, developable land may be a good bet in 2008. If you have the cash, you can lock a parcel up in contract whilst pursuing the development approvals and sell to a builder when the map is ready to be recorded. The builder pays the final installment of fees and permits, starts building and has product ready to sell in 6 months.
April 28, 2007 at 1:40 AM in reply to: Last month SD RE Prices up 2.1% sales up 34% . . . is market firming???? #51350ParticipantOh those kids; they’re always up to some mischief. He’s comparing March to February. Think about that. EVERY March shows an increase of sales relative to the February preceding it.
What he didn’t say was that the volume this March was down by about 20% compared to March of 2006, and that’s saying something. The overall volume of sales in San Diego for 2006 (at 29,000+) was the lowest since 1997 (at 27,200). In other words, 2007 is shaping up to be even worse than 2006. If this keeps up we’re going to pass 1997 and approach on the lows of 1996 (22,800).
The median price is misleading too, because many of the sellers are including all sorts of incentives that get counted in with those sales prices. If those incentives were taken out of those sale prices it would show a very definite decline.
April 27, 2007 at 8:06 PM in reply to: 4S Ranch – (3000+sq/ft update) Pienza / Evergreen / Maybeck #51333ParticipantYa’ know how the bulls like to characterize their willingness to overcommit their resources as being a form of boldness and courage? I’d agree that applies when times are good and the market is reaching ever upward. However, I think the bold and courageous decision right now is to resolve to hold off buying until the market settles.
When your significant other is on your case to buy now it takes some hair to stand up and say “time is on our side and the longer we can wait the better off we’ll be”. Those who lack that courage will pay for it.
The people who have held off from buying during the last 18 months have, for the most part, been well rewarded for their patience.
ParticipantI will say one thing – a weaker dollar means everyone has to pay for those prices being more “reasonable”. Inflation by any other name is still inflation.
ParticipantAnd who is an appraiser working in compliance with the Uniform Standards of Professional Appraisal Practice.
-
AuthorPosts