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ParticipantOh, and I anticipate there may be a dead-cat bounce here; possibly as a result of a stabilization of mortgage interest rates.
ParticipantI don’t have access to the long term MLS listing data and I doubt that even the boards that comprise the MLS here in SD County have it.
“Timing” the market before it does its thing is not possible, in my opinion. There are too many variables, some of which have nothing to do with “what should be”. There are some things we can do to narrow the possibilities down, though: extrapolate past trends into the present and near-term; watch the micro indicators as possible precursors to the macro trend; and try to understand the “why” of what’s happening as well as the “what”. That’s pretty much what we’ve been doing here.
Beyond that, there will always be some risk due to the X factor of human irrationality. We can manage that risk to a certain extent but I don’t think we can avoid it.
As an example, many of us on this forum (and even Rich) were aware that the trends for increases couldn’t continue and there was a problem; but nobody could have forecasted in advance exactly when that peak would pass.
Although your own example was about as close as you can get – you guys were questioning that last $20,000 – but it did involve a certain amount of luck, too. Had you stumbled onto the various internet sources a few months earlier or a few months later your timing would probably have been a little different. I don’t say that to detract from your success because it took a lot of hair to make the decision you made when you did it- I only mention it to point out that had you come to that decision a year earlier you would have left a little more money on the table, just like a few of our other posters.
ParticipantMarket psychology is an interesting thing. It’s one reason why the bubble transcends national boundaries. I think that if SD and other metro areas in the US suffer the big correction, that correction will extend to every other distorted market in the U.S., and may even touch some of the heretofore stable markets. I also think that if the trend for correction overwhelms the U.S., it will also affect all the other bubble markets. It may be that London did the dead-cat bounce because on a global basis there isn’t enough panic yet.
ParticipantAs far as the foreclosure situation works out I wonder too. This time might really be different because of the numbers. The nation is stll paying for the S&L Bailout of the 80s, and the current number of at-risk residential loans and the extent of price distortion dwarfs that spike. Losing $25,000 in principal on a $150k mortgage loan was bad news back then. I can only imagine what’s going to happen when we’re talking about $150k losses on $600k mortgages. (Which, BTW, only represents a 25% decline).
At the current interest rates and origination fees the lenders are charging, how many $150k losses can they suffer without going down?
ParticipantMost unpermitted living area improvements are made by either enclosing a patio or converting a garage. With garage conversions, “curing” the unpermitted area tends to be pretty simple – they go in and remove any partitions, take up the carpeting and make the garage door functional again. Patio improvements tend to get ignored (in terms of value) by appraisers and realty agents.
Full-on frame/siding additions with foundation are not nearly as common. Ironically, it’s often contractors who put those in their own homes – they know how to go through the permitting process but they just skip it. These additions are generally built to code and can be permitted after inspection and testing by the city’s inspectors, if that city is one that will allow permitting after the fact.
It’s the handy do-it-yourselfer you have to watch out for. These guys watch Bob Vila on TV and think they can figure it all out from one of the home improvement books that Home Depot sells. They have good intentions but they do tend to make mistakes. They tend to look like crap, too.
ParticipantUnpermitted additions can cause a property owner lots of problems:
1. The city can come through and demand the addition be demolished and the structure be returned to its permitted size – that’s at the property owner’s expense.
2. As an alternative, and solely at the city’s discretion, they can choose to issue permits in exchange for the appropriate fees and inspections and a pentaly surcharge. In order for that to happen the structure would have had to been built to code and it would have to withstand whatever inspection process, including drilling holes to check for slab depth, framing spacing, electrical conduit, etc. Some cities will not do this, others will.
3. Most lenders will not lend on building area that is known to be unpermitted, because…
4. Insurance companies will generally not insure unpermitted building area, and in some cases will not insure structures with unpermitted building area. Substandard construction can lead to damage to the permitted structure to which they are attached.
Bottom line is than in this region it’s not smart to mess around with properties that have unpermitted additions. If a buyer suspects the permits may be lacking they absolutely should make the sale contingent on the seller providing them.
In some cases, the structures may have been built prior to the dates the city or county has permits on file. Those structures can generally be considered permissible. For instance, the City of San Diego generally does not keep their permits files prior to 1955 handy and they wouldn’t get excited about structures and additions built prior to that time.
ParticipantThere were a number of differences in 1989. For one thing, those buyers were’t engaged in what I’d call speculation. There was no real flipping, at least not in the way we saw it this time around. People were mostly paying extra out of fear. I called it “fear-buying” at the time. These buyers were genuinely concerned that if they didn’t buy then they would never get in.
I haven’t seen much comment about this, but one of the factors driving the fear back then was that there was some political acticity on the so-called “slow-growth” initiatives. Rent controls in various cities and counties were being enacted and pressure was being applied to the cities to curtail growth by downzoning densities, increasing fees and the like. People were literally sold on the idea that we were out of buildable land.
We didn’t have people quitting their jobs to dabble in RE flipping, they werent’ exporting their equity to other states, and there was no “property ladder” train of thought. People simply wanted a place to live and were afraid their time was running out. Property investment was mostly about generating positive cash flow through rental income, not about holding for a year and expecting a 30% return from price appreciation.
At least, that’s how I remember it.
ParticipantI remember the 90s vividly. I had a front row seat for it, albeit I was working in the OC at the time. I watched the prices peak in late ’89, watched it plateau for 3 months and then start to decline in early-mid 1990. The media finally figured it out in late 1990, about 6 months after it had already been in motion. Does that lag ring a bell with anyone?
From mid-1990 on it dropped at a pace that was only slightly slower than the run-up that had preceded it.
If we extend the same reverse slope to this run-up the decline would be faster and farther because the run-up was both (much) faster and farther than the run-up in the late ’80s.
I don’t know if the past will repeat this time, but so far it sure looks that way. As far as I can see, 2006 is playing out exactly like 1990.
ParticipantIf the current rate of decline continues I’m betting that by the end of 2007 we will see a few markets where the decline from peak is 25%. We’re already at yr2004 prices in a lot of areas, and they aren’t just the less desirable neighborhoods, either.
The mortgage resets haven’t really even got going yet and there are already some people getting reset right out of their homes. Gas price increases may hurry that along.
ParticipantThey would probably have still made out if not for the 2 ARMs, OR the extra child OR the intial cost of the house. All of these were decisions they made that came after the decision to enlist with a Reserve commitment.
It’s just like any active-duty service member who spends their enlistment bonus on the big car. Although we are a grateful nation they still have to make their car payments or they’ll lose their car; they still have to pay their rent or they get evicted.
ParticipantReally bad combo; the home was only affordable with the 2 ARMs, they had a new child, and he had a Reserve commitment. If it had been one less wrinkle they could probably have worked it out.
ParticipantPrinting money punishes everyone; price corrections only punish the dumb and/or greedy. I detest the idea of subsidizing and enabling someone else’s poor decisions. I say let the prices correct and leave the rest of us out of it.
August 8, 2006 at 5:51 AM in reply to: U-T: “Caught in the Middle” – making ends meet on $50K/year #31209ParticipantYeah, those places are a great place to live if you like ultra-humid environments, ultra-high density, authoritarian governments and speaking Cantonese.
ParticipantThe commercial markets march to a different beat. They usually lag behind the residential markets. That end of the market will slow down soon enough.
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