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Maybe this makes up for the reduction in volume countywide during 3rd Qtr 2005. I ran the numbers last week, and those numbers would have included the late posters from the agents. If memory serves, December 2006 was down 15% from December 2005, and 3Q/2006 was down by over 20% from 3Q/2005.

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I think part of 2007 might be better than 2006, but I also think the market’s attempt to rally will run out of gas real quick. When that happens the pace of decline might even accellerate.

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I dunno, I’m a big fan of the rule of law. It’s nice to live in a country where I’m not concerned about the government deciding to nationalize my house or “redistribute” it to the poor. It’s nice to know that if/when the police step out of line here I have recourse.

Healthcare availability is a good thing, too; especially as one gets up there towards their ’80s. I’ve heard a lot of expat retirees only stay gone for 10 years or so before they come back for the healthcare.

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I wouldn’t necessarily call this a “new” policy. It’s just unfamiliar to a lot of people who haven’t seen what financing looks like during a down market.

They’ll all get around to doing this if the current trends for decline continue, and the reductions on LTV won’t be limited to 5%, either.

And yes, I think the availability and terms of financing will have a direct impact on pricing, particularly for those buyers who view home purchases in terms of payments rather than price.

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Cashman,

There are two reasons you’re looking at housing depreciation vs. rental income in equal terms. One of them is a mistake. The investment in your home wasn’t leveraged, but it also didn’t represent 100% of your housing costs. You still had some housing costs because of the money you were spending on taxes and insurance + maintenance costs, which at the $1,000,000 level you started from would still have been about $1,400/month or so. Your $2,700 rent includes all that, so really, that $2,700 only represents a net monthly loss of $1,300 to you, even on your 100% cash basis.

Had your equity been only 50% of the total value of the home and had you been spending $6,000/month on a mortgage payment (+ another $1,400+/month in taxes and insurance) you’d be looking at your $1,300/month additional housing expense as being a complete gift, even when considering the tax writeoff for the interest. And when you look at the combined costs of maintaining that mortgage + the continuing losses from price declines and then compare that total loss to your total losses as a renter pale in comparison to what you’d be looking at had you been a typical leveraged mortgagee. And this is were 95+% of all recent buyers are.

By the way, I really don’t understand how you’d feel less secure as a renter than as a property owner. You have more than enough cash to make the jump back into home ownership again and you’re obviously paying attention to the markets so you’ll recognize when that time will be right for you. As I see it, your situation couldn’t possibly be more secure so long as your cash isn’t parked in some high-risk investment. It seems to me that if you had been holding your property and watching your equity bleed out (at faster than $1,300/month) THAT would make you feel less secure.

Seeing as how you’re interested in downsizing to what is now a $1,000,000 price range, your other alternative is to do that now and only lose half as much of your investment dollars (+ property taxes). Even that would represent a lesser loss to you than you would have experienced holding the $2mil property. In your place I wouldn’t even consider this alternative, but then again, I wouldn’t be experiencing angst just because I was losing (much) less as a renter than I would be if I had a 50% mortgage.

Personal perspective counts.

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Lereah = NARs Baghdad Bob

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The financial guys would probably tell you that parking all that cash in a house does away with your leverage of it. However, at 29 you’ll have plenty of opportunity to make more money for investment purposes.

The freedom to pursue your career goals without having to sweat a large housing expense could have a huge payday. If you have the freedom to focus on something you like it’s more likely you’ll excell at it and rise to the top. You can take more risks because they aren’t as risky for you.

Besides, life is about living.

[Bugs]

Jeez, the more I look into it the worse it gets.

Apparently the 2004 sale at $575k was not the result of an MLS listing so we’ll probably never know the circumstances of that sale. In looking at the sales data in the area there were a couple homes of similar size, age and canyon view that sold for about $570k, but both were in much better shape. Offhand (and without seeing anything in person) this sale price at $575k stands out. The properties that appear more similar are closer to the low $500k mark. If that’s correct we’d be starting off with an overpriced sale and $75k in the hole right from the beginning.

The only other listing in the MLS for this address was a listing in 06/2006, when it started at $550k and was subsequently reduced to $499k before coming off market 3 weeks ago. The seller was obviously trying to get out from under the loan without taking a short sale, but to no avail.

The listing itself includes the following blurb: “Plans and permits paid and approved for 1500 sf explansion w/as built appraisal valued at $1,050,000. Plan expands and adds 2nd story & balcony…” So we can chalk up some more costs to this seller (plans and approvals) that put them even farther behind.

I looked at the homes in the immediate neighborhood and I saw a house that’s a few houses down and has the same view. This house has a dynamite pool/spa deck and landscape package ($50k easy) plus a nice remodel, but no addition. It sold for $630,000 in 04/2006. This is the high sale for this portion of the neighborhood, and it shows that even if our subject property had been remodeled but not enlarged it wouldn’t have sold for more than about $600k tops and the $575k initial price was way too high.

The immediate neighborhood has homes built in the 1950s, most of which are in the 1025 sf ranges; and about 6 or 8 homes with additions, the largest being about 2200 sf. However, there is apparently a small pocket of some newer 1978yb homes in the 2200 -2400 sf ranges. I didn’t find any recent sales of those homes, but I’d be shocked if any of them were even close to $1,000,000, and I’m reasonably confident that our subject could not have legitimately appraised out at $1,050,000 even with a completed addition and maxed out landscaping. There might be an appraisal that says that, but it can’t be legit.

So we have an expansion/remodel that would have resulted in somewhat of a white elephant for the neighborhood (which is why nobody else ever went to those lengths). The cost wouldn’t have justified an $800k return, it’s as simple as that.

Bottom line is that this seller was either not getting good advice from their appraisers and realty agents, or (just as likely) was getting it but ignoring it. Their greed overrode their common sense and the market didn’t rescue them from their foolishness. Thirteen years ago this would have been a very familiar tale; I think that 3 years from now it will again be a very familiar tale.

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I just looked this property up and the story gets worse in some ways. Apparently, the bank is into the property for $487k, so even if they sell at $390k they’re taking a loss of $100k.

The property does back to a canyon, so it would have some view, but everything else looks rough. It’s not a shell – the pics in the MLS listing show what appears to be the original kitchen.

I looked up sales from the last 4 months and they range from a low of about $420k (another bank-owned foreclosure) to $550k for the fabulous remodel with canyon location and very nice landscaping. I reckon our subject would require a solid $75k+ in hard costs to equal this one. There are a bunch of sales in the $460k ranges, so with the canyon view let’s call it an even $500k if refurbished to average condition at minimal expense.

At $500k we’re talking about replacing the dated 1959 kitchen and bathrooms with very average quality Home Depot replacement fixtures and appliances. Some minor drywall and celing repairs (at least) and possibly a new roof or some exterior repair – one or the other but not both. All new paint and average quality flooring, and a little landscaping, particularly in the rear. You might be able to get all this done for $35k in hard costs, although $50k could easily happen. Let’s split the difference and call it $40k in hard costs.

So the cost to cure is $40k; the costs of sale at $500k would be $20k if at 4%; the property tax payment that’s due in April would be $3,450 because it would be based on the prior sale price at $575k; and figure another $400 for insurance. If the property was financed with a construction loan to do the remodel (non-owner occupancy) we’re looking at probably a $300k loan with construction loan terms, so that would equal $2,200/month even if it was interest-only; and we can figure at least 30 days to complete the remodel and another 5 months to sell and close the property – that’s 6 months, or $13,300 by my reckoning.

So without considering any profit, here’s what a potential flipper is looking at: $40k (rehab) + $20k (cost of sale) + $3.5k (Tax/Ins)+ $13.3k in holding costs. All that adds up to $76,800.

But wait, there’s more: We’re in a declining market and we could easily be looking at another 3% (~$15,000 from $500k) decline over the next 6 months; and the above costs include no contingency for unforeseen expenses (~$6,000 at 15% of costs) that commonly occur with remodels. So that’s another $21,000 in addition to the $76.8k. So now we’re at $97,000 in combined costs. Our investor has already sunk $90,000 in down payment, has spent 30 days physically putting the house together and has sweated the declining market for another 5 months before closing. You KNOW an investor isn’t going to go through all this without a payday, and considering all the risk and effort and costs and lack of liquidity of their own down payment, you KNOW that payday has to be at least $50k to make this worth their while.

Bottom line here is that if anyone buys this property for less than $350k they’re either taking some big risks or… well, there is no “or”.

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It’s not just the people who bought in 2004-2006 who are stressed; it’s anyone who has maxed out their financing during that time frame. That’s a lot of people by now.

There will be a few people from 2002/2003 who could also lose even if they didn’t max out their financing if the prices decline below that point. And that remains a possibility. If you’re under water in terms of equity and you lose your job or get a divorce it doesn’t matter when you made your purchase.

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There’s really no excuse for either of these appraisers to do what they did and just hearing about it pisses me off. These are the guys who are ruining my standing in the community as an appraiser. “Doesn’t matter” is a decision for the lender to make, not the appraiser.

This is an example of the problems appraisers face on a regular basis. What the appropriate terms for a loan are for a house with an incomplete 2nd bathroom is a lending decision, not an appraisal decision. But the reality is that many of these loan originators don’t want to go to the extra effort and work to make and justify that decision. They just want their deals to look clean so that their job is easier. Every appraiser has stories about lenders asking them to remove negative information about the subject property (lie by omission) from their appraisal reports because the offending information will “kill the deal”.

If it really was just a sink, the appraiser should have included the photo, estimated the cost to cure at less than $500 and say it would have no material affect on either value or marketability (which is 100% true) in the market. Then let the lender make their own decision and take responsibility for that decision. Instead, this lender was most likely pressuring the appraiser to lie for them so that their decision would be easier. I can virtually guarantee the appraiser didn’t just do this of their own accord.

It’s still no excuse, though.

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Again, California is California and does not represent what happened nationwide.

Besides, the effects of Prop.13 on the baseline set in prior to 1982.

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If you’re going to look at national figures then your argument is about national figures, not local figures. If you look at prices locally between 1989-1996 and several other 7-year periods in our history you will see the reverse of prices tracking inflation. If you narrow your window to 5-years or 3 years you’ll see even more examples of that.

Incidentally, the changes in 1975-1982 time frames were due in part to the changes in the tax code, and in California, due to the effects of Proposition 13. Tying property taxes to purchase prices rather than to market value had a huge effect over the long term to the pricing structure.

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“Property was n the middle of a remodel that was not completed” can be interpreted as “interior is a shell; all new finishes are required.” Even if you skip the granite counters and travertine floors this could easily be a $75,000 cost to complete.

Appraisers can and do appraise properties in varying stages of completion on a regular basis. If an appraiser declined to finish an appraisal because of a missing bathroom sink it has nothing to do with whether or not they are capable of appraising the property that way. Almost certainly, the appraiser was aware that their client would not be able to fund the loan they were seeking for that property under their loan propram.

The most favorable loan terms go with loan programs that have specific requirements about borrower qualification and collateral quality. From there the terms get less favorable in relation to the wrinkles the deal presents. There are loans for properties in varying conditions, including pre-construction, but the terms for those programs are not as favorable as the programs that require an intact home.

With the unfinished bath, your otherwise perfect home became a square peg. The lender could have chosen to have the appraiser make the appraisal subject to the completion of the bath (or the remodel), but that almost always results in the lender retaining and controlling the funds used to complete the repairs. Another option would be to lend on the property in it’s “as is” condition, KNOWING that if they have to take the property back they’re going to need to complete the repairs themselves.

Either of those two alternatives will net less to the property owner, and the appraiser was probably aware or was possibly instructed that this would kill their client’s deal, so there was no point in completing the appraisal. The only way that loan would have been made under those terms would have been if the appraiser had lied about the condition of the home, which I’m sure is not what the property owner here would have wanted.

Anyways, back to the remodel in Clairemont Mesa, The financing of this property will likely involve a construction loan at those terms with the lender retaining fund control over the costs to complete, so the price probably reflects an anticipation that upon completion the home will be worth about $500k or more. It should not be interpreted as meaning prices for this area have dropped to the low $400k ranges.

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The majority of the price increases for the new homes went into the developers’ pockets. The majority of the price decreases have been the results of these developers being willing to do the same job but for less profit.

Think about what it means when a developer can cut pricing on a subdivision by $100k or more per unit and still make enough of a profit to economically justify finishing off the project.

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