[Bugs]

I would anticipate that these computerized valuation models are going to be a little more wonky than average for a while. This is because the pricing trends are very volatile right now and they will continue to be unstable for the foreseeable future.

These programs work better when the value trends are more uniform and when they have lots of data showing the same trends. That’s not what we’re looking at right now.

As long as you don’t think of them outside of the entertainment value it’s all good. If you really need to get an idea of where you’re at, the realty agent who normally farms your neighborhood is probably your best bet.

[Bugs]

I would anticipate that these computerized valuation models are going to be a little more wonky than average for a while. This is because the pricing trends are very volatile right now and they will continue to be unstable for the foreseeable future.

These programs work better when the value trends are more uniform and when they have lots of data showing the same trends. That’s not what we’re looking at right now.

As long as you don’t think of them outside of the entertainment value it’s all good. If you really need to get an idea of where you’re at, the realty agent who normally farms your neighborhood is probably your best bet.

[Bugs]

I would anticipate that these computerized valuation models are going to be a little more wonky than average for a while. This is because the pricing trends are very volatile right now and they will continue to be unstable for the foreseeable future.

These programs work better when the value trends are more uniform and when they have lots of data showing the same trends. That’s not what we’re looking at right now.

As long as you don’t think of them outside of the entertainment value it’s all good. If you really need to get an idea of where you’re at, the realty agent who normally farms your neighborhood is probably your best bet.

[Bugs]

I would anticipate that these computerized valuation models are going to be a little more wonky than average for a while. This is because the pricing trends are very volatile right now and they will continue to be unstable for the foreseeable future.

These programs work better when the value trends are more uniform and when they have lots of data showing the same trends. That’s not what we’re looking at right now.

As long as you don’t think of them outside of the entertainment value it’s all good. If you really need to get an idea of where you’re at, the realty agent who normally farms your neighborhood is probably your best bet.

[Bugs]

I would anticipate that these computerized valuation models are going to be a little more wonky than average for a while. This is because the pricing trends are very volatile right now and they will continue to be unstable for the foreseeable future.

These programs work better when the value trends are more uniform and when they have lots of data showing the same trends. That’s not what we’re looking at right now.

As long as you don’t think of them outside of the entertainment value it’s all good. If you really need to get an idea of where you’re at, the realty agent who normally farms your neighborhood is probably your best bet.

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[Author]

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