[Bugs]

When the ratio gets down to 1.5 sellers per buyer then you’ll have a market that will start to move. We’re so far from that right now that the end of this downswing is nowhere in sight.

People seem to think that if they blink they’ll miss their opportunity, which with RE is preposterous. There will be lots of advance warning before the market bottoms out, there’ll be a couple months while it wallows on the low end and then some of the more desirable areas will start moving first. It’ll take months before the other areas and price ranges follow suit. I daresay a savvy buyer will have a 6 month window to buy in at the absolute bottom, and maybe 18 months to buy at prices that are well below the long term trend. Possibly longer.

You’ll either have to be not looking at all or in a coma to miss the next best opportunity to buy. If anything, there will be people who will jump the gun a little and buy low but not at the absolute low. Nothing wrong with that, because it’ll still turn out well for them.

[Bugs]

A 10% annual increase in rents + a 10% annual decrease in sale prices would still take at least a couple years to close the gap; maybe even 3 years. And that’s assuming interest rates or downpayment criteria don’t change during the meantime.

There are limitations in the potential for rent increases, too. No matter what, people have no incentive to spend 50% of their income on housing in this region. Period. And wages aren’t even coming close to keeping pace with these rent increases. Except for the people who were smart enough to withdraw from the market, the market has already absorbed all the first time buyers that came close to qualifying. I don’t see any huge demand (with means) just sitting there waiting to get in. They literally can’t get in at these prices and many of them still wont’ be able to get in at half these prices.

BTW, these rent increases are not universal, regardless of what the article says. I do rent surveys for apartments on a regular basis and there are some areas where those rents have been dead even for the last year and are still down slightly from 2 years ago. Most apartments in this region are not part of professionally managed projects and I strongly suspect they aren’t being adequately counted in these surveys. My point is, people still have options when facing a rent increase in this region.

The bottom line here is that rental tenants should be settling in for the long haul because there won’t be any reason to dive into this market in 2007 and probably not in 2008, either.

[Bugs]

The minimim bid for a unit w/1 parking space is $150k. Additional parking spaces are extra. That doesn’t mean you can actually buy a unit at that price. This project sold as a whole in 07/2005 for $180k/unit and they put some remodeling costs into it besides that. I don’t know if the project actually had a condo map on it or not when it sold, but if it didn’t that would have been a substantial extra cost too.

I don’t have enough information to know for sure, but I can imagine that any units that sell below ~$230k would represent a loss for them when considering the costs of sale and holding costs.

[Bugs]

Those papers are published by the Gannet Company, which also publishes USA Today

http://www.gannett.com/web/newspapers.htm

[Bugs]

CB,

What can I say – I turn 50 this next year. On the one hand I was thinking it was possible the property could sell for more than the bottom of it’s listing range. On the other hand I’ve become so inured to seeing big losses that a $15,000 loss registers as a carrying cost even though it’s a loss. Sorry.

[Bugs]

I wouldn’t necessarily call this one a flip. It could be someone whose situation has changed, like if they were involved in an RE-related occupation. Or, it could be someone who changed their mind afterwards. I’d bet on the former over the latter or the flip.

The MLS listing indicates “recent” improvements, which probably means they were improvements made before the prior sale. If they can sell within the listing range they might break even or come close after selling costs. It could be worse.

[Bugs]

There are two other homes listed on that street, one of which has a distant blue water view and the other of which is a larger home. Both are listed below this one’s prior sale price. This property had to be reduced in order to compete with these other listings, and isn this price range, many of the sales that close will do so well below their listing ranges.

Looking at the sales data for this year in Encinitas Ranch and considering this property apparently has no view amenity, the other sales appear to fit the trend demonstrated by these listings. I can see one sale that appears out of line with this trend but besides that I’m not seeing any sales that would fit in with a 04/2006 value of $1.3mm.

There’ll probably be a loss; the question is how much?

[Bugs]

The key phrase in describing 1991 prices is “prior peak”, which for that particular cycle means those prices were already 25% above the long term trend.

I think price retraction to 1998 might be a little too agressive but then again it’s hard to say if this downswing will indeed stop short as the bulls are telling us, contract right to the long term trendline, or overcorrect past the trendline into “undervalued” territory. A correction to 1998 pricing would represent an overcorrection that corresponds to other overcorrections following the spikes in the past, so although I think it might be a bit much this time it could turn out to be dead on. There’s more precedent for it happening that way than not.

The last time our prices intersected the long term trendline was in late 2000 as it was on its way up, and prior to that it intersected in 1993 on the downside of the prior cycle.

[Bugs]

Incidentally, I think Zillow is just one of what will eventually be a number of such programs, and those programs will improve as time progresses. How useful Zillow is to people will depend on how they use it. If they’re using it solely to get a Zestimate then they’re not going to be happy at all because of the inherent limitations.

The cool thing about Zillow is that it provides a portal to the data that hasn’t been as readily available before. As with most data sources the trick has always been to figure out how to use the data.

[Bugs]

By the time it’s all over I expect that area will do a lot better than most because…proximity to employment and services. Not to mention the bay and coast.

[Bugs]

The main thing you folks want to remember about appraisals prepared for mortgage lending is that the beneficiary of those appraisals is the lender whose money is being used to finance the mortgage. These appraisals are not being developed for the buyer to verify their purchase decision or for the loan originator to close a deal.

I say that by way of explaining that the decision of what type of inspection process is used to develop the appraisal originates at the lender. The big lenders use automated underwriting systems that recommend which types of appraisals to use for the different mortgage programs. Other lenders manually underwirte their loans and come up with similar criteria for which loan applications need a more thorough appraisal and which ones don’t. This is another expression of risk management, which is the current buzzword among lenders.

For example, if the borrower’s credit is good and the loan-to-value ratio being sought is below a certain point (like 80% of a purchase price), these lenders don’t see any added value in spending the extra $50 to have the appraiser physically measure the structure and conduct an interior inspection. It’s the lenders’ money and therefore it’s basically their call. The only exception is that the appraiser is SUPPOSED to be able to retain the right to bump the process up to the more thorough inspection if they think it’s necessary. That said, the appraisers usually don’t get paid additional if they exercise that discretion; and they are usually discouraged from exercising the discretion because it tends to slow down the process.

An appraiser will often insist on increasing their process to include an interior inspection if they suspect there are problems with the interior or if the size of the structure obviously doesn’t jibe with the information in their public records sources. Another reason would be if the borrower has mentioned recent interior upgrades that would affect the value. In other words, if they think they have a reason to do so they are supposed to do it.

It’s a given that an appraisal with no interior inspection requires the appraiser to make an assumption about the quality and condition of the interior; most appraisers assume the interior is consistent with what they see on the exterior. The fact that the appraisers are making that additional assumption is included in those reports, along with the appropriate notification that if that assumption proves to be incorrect it would probably have an effect on their value conclusion.

[Bugs]

I gotta second PD on that one. I thought the last bust would have positively proven to would-be high rollers that RE can lose. I won’t ever make that assumption again.

[Bugs]

I didn’t care for the use of the median a few months ago when it was providing a distorted picture and I don’t think it’s any more accurate now. The comparisons of prices during these different time periods is based on an implied assumption that the datasets are similar in composition. This is an assumption that we already know isn’t true.

It’s valid to the extent that it can be interpreted as demonstrating the direction of the trend, but the actual average decline on an apples-apples basis may be less or more than the percentage shown.

It shouldn’t be considered as being that accurate just because it confirms our judgement that the market is in decline.

By the same token, I think DL must have a little shrine in his office honoring Baghdad Bob, and he must be talking to that shrine on a daily basis. 2007 will not be a good year for the bulls and I don’t think 2008 is even going to be as good as 2007.

[Bugs]

Flippers are just pursuing the American Dream. Unless we vote Communist in 2008 I don’t think Congress isn’t going to penalize people who are working within the system to get ahead.

It’ll be lenders and appraisers, and not necessarily in that order, who will be held responsible for the excesses.

[Bugs]

Detached condos are not a bad deal. It’s much faster and cheaper for a developer to do a condo map on a smaller parcel than to go through the subdivision process. That’s why most detached condos are in the smaller size ranges; the subdivision lots tend to get built with larger houses to justify the increased costs and risks associated with subdivision mapping.

You are subject to CC&Rs and HOAs, there will be dues for those. Among other things, the “streets” are usually owned and maintained by the HOA and many of those HOAs prohibit parking on them. Depending on the CC&Rs there are often limitations of paint schemes, yard improvements and maintenance; structural improvements and additions.

As for “ownership” of the land, you do have that; it’s just not the same form of ownership. You (and everyone else i the project) own an undivided share of the interest in the entire project as well as the right to occupy a specific unit.

If you have no plans to enlarge your home or paint it purple there’s not that much of a downside. The small sizes of the pads and reduced side setbacks would probably be of more effect on the value.

[Author]

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