[Bugs]

I saw a sign for this stuck in the ground as I was getting on onramp for s/bound I-5 this morning. I also say “Auction” signs in front of this project when I was over in that nieghborhood earlier this week.

[Bugs]

The challenge was to either put up or ….

I have no doubt he probably will sell the house, and the seller will probably get their price. Amarillo is still on the upswing side right now.

But did you catch his comments about the imported money comprising a good part of his business? That’s what we were getting at when we asked about the role of imported equity in his market. I hope they’re not getting dependent on that windfall because once our tap turns off they’re going to dry up too.

It’ll be really interesting to see where this buyer ends up 2 years from now, and if they’re doing any hand wringing.

[Bugs]

One of the arguments for the wholesale mortgage trade – that’s where mortgage brokers originate the loans – is that it affords the regulated lending institutions with some plausible deniability. Since they didn’t originate the loan themselves they can say they didn’t know the documentation was dummied up the day before at the MBs office or that there were 3 appraisals ordered on the same property until one came in at the right value.

There are some efficiency benefits, too; but as they say, “the ability to look innocent – priceless”.

[Bugs]

Rich,

It would probably be pretty interesting to keep track of any correction using adjusted dollars. That way we can keep track of how much of the correction is from price changes and how much due to inflation.

What bothers me about devaluating the dollar to avoid the nominal price correction is that everyone ends up paying for the mistakes of the foolish/greedy, and encourages and enables them to do it again. They made their mistakes, why should the rest of us have to pay for it?

[Bugs]

And all this time I was trying to sell the “it’s how you use it” line. Bummer. Well, back to the drawing board.

Seriously, all the demands we’re making for more beef and less bun probably do come across as being hostile. Still, even you have to admit that these are the types of questions all smart buyers should ask before making such a big decision. We have several realty agents who are regulars on this board and who stand prepared to back their observations and opinions up – and we love them for that. We’d love to love you, too, as long as you’re willing to share your data with us and help us to make sense of it all.

Don’t take it personally. A few of our members held a lynching here a couple days ago for a very respected local economist who was quoted in the local paper. Now THERE was some hostility. We’ve asked him to clarify his claims just like we’re asking you, and to date he has declined to respond. There’s no doubt about it, this is a tough room and if you can sell it here I daresay you can sell it pretty much anywhere.

[Bugs]

Mr. Young,

You apparently don’t have ready access to data that would answer these basic questions about the economic fundamentals in the market you’re attempting to sell here. That’s too bad, because around here that puts you at a disadvantage. Around here, data talks and sentiment walks.

You might be able to make a very sound economic argument in favor of your sales pitch, but we’re never going to be able to see it unless you can get it together and show us. And yes, the burden is on you because you’re the one who’s come here to sell us on your idea.

What are the dominant growth industries in your town of 183,000? What kinds of professional opportunities are currently available and/or are coming to town soon? How many universities are in town to encourage economic growth and support new businesses? How many households in town are making the $150,000+ it takes to buy the homes you’re selling? After all, that’s our market if we go to sell later when there is no more imported equity.

And that’s just the start. You’ve got a loooong way to go before you’ll be able to land a buyer off of this board. If you’re not up to it then this may not be a productive way to spend your time.

[Bugs]

Or, you can cash out now, rent here in SD County for a couple years, and pick up that Amarillo castle out of foreclosure for $400k. Texas foreclosures are through the roof right now and no area is going to escape that trend.

There are so many options to bleeding out that the hard part is picking one that fits within your sensibilities. They’ve all been sorted out in other threads.

Word to the wise, you might get a better response by approaching one of the investor club blogs. Those people are all looking for great opportunities.

[Bugs]

I agree that some of the responses have been a little harsh, but if you had taken the time to read our content here you would realize that if we think a house like your’s would be overpriced here then there’s no question as to what we think about that price in your town.

Here’s a serious question that I often ask of appraisers all across the nation:

What percentage of price appreciation would you attribute to imported equity (from Calif, New York, Florida or wherever) and how much is attributable to local employment enabling local move-ups? ‘Cause the word I get from appraisers in various areas is that equity flight from the metro areas is fueling most of the increases in the more outlying areas.

Without imported money initiating the increases and competing with local money, many of these other areas would have never started into this current upswing. That’s a generalization and I really don’t know how applicable it is to Amarillo, but you might give that some serious thought. It stands to reason that as our pricing declines, so will our exported equity. To that extent it will have some effects on other areas of the nation and some of them will follow us into decline. Regardless of where the money is coming from your stability will ultimately be tied to your local wages – how are local wages doing anyway? Are they also increasing at 14% a year?

BTW, my ex-wife moved to Amarillo back in some years ago with a job change, and bought a little ranchette outside of town for $125,000. When she moved 3 years later she couldn’t sell the place for what she had bought it for even though they had made a number of improvements. It took them almost 2 years to sell at a break-even. Now I realize her place was nothing like this house and that neighborhood was nothing like this neighborhood, but I would also point out that $125,000 is not $650,000. If the lower price ranges got squashed that badly last time around, what makes you think this much higher price range is so stable?

As for quality of life, it all depends on a person’s priorities. If I didn’t have family here, if I didn’t surf (a lot), if my business wasn’t here and if I didn’t hate the desert then I’d probably think Amarillo is a wonderful place to live. Alas, I don’t have the priorities that would allow me to enjoy life in Texas.

[Bugs]

I thought Amarillo was one of the last remaining hot spots right now for the itinerant investor class. Is traffic slowing up some?

That same type of house went for that same price level here in eastern SD County (Ramona Country Estates) back in 2003, which means we may very well see it again before this cycle is all over. And if San Diego county shakes back down to yr2003 prices (or lower), then it’s a cinch that Amarillo’s gonna drop a lot, too.

So I wish you good fortune in selling that house, and I hope your buyers have what it takes to hang in there for the coming loss.

[Bugs]

Sometimes a politician leaves the microphone on. Sometimes eyewitnesses come up with different descriptions of the suspect. Sometimes one hand doesn’t know what the other hand is doing. Even an idiot is sometimes right and even a liar sometimes tells the truth. In the real world these things just happen.

Of course I’m skeptical, but I’m trying to look at the information itself to see if it jibes with what I’ve already seen and I try to question it’s source separately. I’m accustomed to seeing conflicting and contradictory indicators out there and the only rational way for me to reconcile those strays is to realize it’s not all going to come out in shades of either black or white.

This could indeed be a conspiracy by NAR to open a new marketing angle from which to profit. I may be very suspicous of their motives. However, I’ve learned that hard way that the more I publicly dally with accusations I can’t back up, the more likely it is that I’m going to occasionally be proven wrong on those accustations in an equally public manner. Much easier to stick to the information first and deal with it’s sources as a secondary point of interest.

In my opinion.

[Bugs]

Geez, they really can’t win, can they? We complain about it when they spin the data and we look for ulterior motives when they don’t.

I don’t trust the PR machine either, but that doesn’t have to mean that everything they put out is tainted. Could you consider the possibility that maybe they played this one straight down the middle and aren’t trying to spin anything?

It could happen. Maybe they’re trying to give their members the straight scoop so they can plan accordingly.

[Bugs]

Mr. Gin,

I apologize for my tone and my insinuations and my negativity. And you’re right about Alan Nevin – he’s very optimistic.

Now with that out of the way, perhaps you’d care to drop a couple pearls here for us. The article that started off our shootout here in the OK Corral attributed the following to you:

“Meanwhile, overall home prices across San Diego will plateau, Gin predicted.”

So that we can all understand the context of your prediction, would you care to share with us what your definition of “plateau” is at is relates to pricing here? Are we talking about staying generally even with yr2005 prices, yr2004 prices or at some other level?

“The conditions aren’t there for a big rebound in prices or for a big drop,” he said.

When you use the term “big drop”, how would you define “big”? I mean, to some people a 10% loss as has already occurred in a few neighborhoods is a pretty big drop. I’m sure there are other people who wouldn’t admit to anything less than 50% as being big. Where in this scale do you define “big”?

I guess what I’m asking is exactly where would the market have to go before you would get quoted as referring to the Soft Landing or plateau scenarios as being unfounded?

[Bugs]

I told you so….

Remember when I said that we should hope that not everyone would come to their senses at the same time and that there wasn’t enough rental stock to accomodate a huge influx of renters? This is an example of that.

[Bugs]

Some of the price increases are construction costs, but much of the increases are in the land costs and profit margins. Typical site “value” at Bressi Ranch is in the $350,000 range right now, whereas it would have been less than $100,000 just a few years ago. The $250,000 increase represents 35% of the current price of a $700,000 unit over there right now, and the primary reason the site costs are so high is because the market would pay it.

[Bugs]

Just thinking out loud….

I realize this puts me on the wrong side of some of the conventional wisdom, but I disagree that the downturn of the ’90s was due primarily to job losses in the defense industries. Sure, that might have been the trigger, but there wouldn’t have been the big losses if not for the gains that preceded it.

Think about it – if the pricing hadn’t spiked 25% above the long term trend in late 1989 those job losses wouldn’t have resulted in the foreclosure rates we saw because there would have been no fluff (or at least, less fluff) to lose. The loss to -15% was, in part, an overcorrection for a distorted market. Even if you assume that prices would have ended up at the same nominal rate the -15% loss below the long term trend wouldn’t have been enough to hurt that many people.

If a person subscribes to the dominance of the trend (I do) then it follows that they also subscribe to the concept that the farther to an extreme a swing goes, the more gravity is brought to bear to correct to the trend.

What I guess I’m meandering to is that the long term trend itself demonstrates that if there is a distortion it follows that there will eventually be a correction. Exactly what it takes to trigger the correction is irrelevant – literally if it isn’t one thing it will be another. The more irrational the reasoning is for the increase the less it takes to upset the trend.

Look at the Dot-Com blowout. The week that it started was remarkable only for the fact that nothing happened. There was no outside event that triggered that correction. The markets were distorted and when it surpassed an arbitrary reference point that had already been identified by a couple of the big players they started selling.

I don’t think that you can reasonably cite the bust of the 90s unless you also address the reason for the spike in the late ’80s. Same thing as now only to a lesser degree. People were buying out of fear that their window of opportunity was limited and we were going to run out of land. So many people were making so much money some of them were quitting their jobs to work in real estate. This spike is more extreme in magnitude in part because of the easy credit and in part because the stock bubble provided a lot of people with a glimpse of the good life without gainful employment.

Here’s a little reality check: the losses that occurred here in this region were preceded by bank failures on a massive scale in other areas of the nation, brought about by real estate market declines in virtually every other metro area. San Diego was the last stop on that nationwide trend. Other areas of the nation were in decline long before the federal government even started slowing down on their defense spending. This region ultimately followed the rest of the nation not specifically because of the jobs but because the markets are all connected on the macro level.

Here’s a question: why are prices already sliding? What event has turned this trend from positive to negative? Answer: no one thing in particular, just a couple of little things. That’s how little it took to reverse this trend.

[Author]

Posts