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Chris Scoreboard Johnston
ParticipantChris Johnston
Counselor, just move on. This is the kind of attack that ruins this blog from time to time, and why I left it for a few months. You are in a very good position, so do not bother trying to justify things to this other person. You have handled things very well, congrats on being in a position that appears to be the source of jealousy to someone in a lessor position.
ParticipantChris Johnston
Ironically, I am moving down from OC to San Diego county because of how much cheaper it is than OC. Only Rancho Santa Fae is anywhere along the lines of the prices in prime OC areas. Even Encinitas is very cheap compared to what you get for the same type of thing up here. The place I am buying down there would literally be 3 times the price up here. Most places obviously do not carry that multiple, but it is without question cheaper down in SD.
The reality is that even with a sharp correction, if you do not make well into six figures, you are never going to be able to comfortably live in Southern California, except in outlying areas. This is sad but true. Even Poway, which in the old days seemed like it was Green Acres, has seven figure tract homes.
I even considered leaving, before I went into escrow recently, and I can comfortably afford to live in most places. It does seem that the values are ridiculous compared to other places, and it makes you wonder on some level, if it is worth it.
ParticipantChris Johnston
Perry I have to tell you that I have other business interests aside from my trading that are somewhat indirectly related to commercial real estate. That equity deal and deals like it are baffling to me. The cap rates that buyers are getting in commercial RE are so low, that I cannot for the life of me figure out why people are paying up like this.
There are assumptions that raising rents over time can move the cap rates up to 7% or so, but today at 5.5% why not have your money in risk free cd’s? Some of my friends who are commercial RE brokers tell me that it is a dreaded “new paradigm.” Whenever I hear that I start thinking the opposite.
My conversations with my mortgage broker about the property I am buying right now have been very enlightening. I only had to show one account balance from one of my trading accounts to borrow up to 1.5M! Even though the balances are substantial, alot more should be required than this. In the old days 7 or 8 years ago, a foot high stack of things were required. I was also of course scolded for having too much cash and no debt, what a terrible position to be in. I told her I could run out and get a quick Walmart credit card if I needed some revolving accounts!
She has been in the business for close to 30 years and she said she is commonly seeing people fudge people’s incomes by 5 or 6k per month to get approvals. Fortunately, she is wealthy, and cherry picks her loans because risking the type of crack back that could occur if you are caught is not worth another 10-15k more of income. She did make one comment which I think is telling of all of this, she commented on the dramatic change on behalf of the lenders that she has seen evolve over the years. It is not a new paradigm, it is almost now a different asset class than it was (housing). This is also the conclusion that I have come to, which is why I am of the mindset that there is going to be a floor under this ponzi scheme at a higher level than I had thought 6 months ago.
I do think that floor is at a lower level than where we are now without question. My property will lose value in the next few years, but I will just live in it, what a novel concept!
ParticipantChris Johnston
I for one am not scared, and I am paying very close attention to the RE market. Why would that scare anyone? We have a down cycle at hand, prices are going down, which should provide opportunity. Decisions made out of fear are typically the ones people live to regret.
Any bailout will just be in the form of friendly monetary policy, which we are seeing right now. Remove emotion from investment decisions, and if you consider a home an investment ( I do not ) then remove it from that decision as well.
One of the main adages I go by is that the market is always right, and it is my job to be in sync with it or I am the one that is wrong. Just because I think a certain outcome will take place, does not mean it will. If I am wrong, then I need to adjust my thinking to what is at hand. I think too many people in here are too rigid in their thinking about this armageddon that is in front of us. It may happen, but what is your plan if it does not? The times in my career when my thinking has been the most rigid, have always been the times my investing results have been the worst.
I am sure I will be killed for these comments, so go ahead, start shooting.
February 8, 2007 at 4:51 PM in reply to: Considering Buying in Temecula – Can’t afford OC – ??? #44987ParticipantChris Johnston
I am referring to liquidity, that is what is keeping the market from tanking. The Fed will crank up the liguidity even more as the slowing continues, trying to moderate it. Don’t get me wrong, I am in the bearish camp, just not to the degree that some people in here are. I would not live in Temecula even if prices fell 70% there. I prefer to be closer to the coast.
February 8, 2007 at 7:03 AM in reply to: Considering Buying in Temecula – Can’t afford OC – ??? #44948ParticipantChris Johnston
I am not nearly as bearish as most people in here, but I still feel you should wait. IE will get hit harder than coastal areas, nicer areas historically have always held value better than the lessor areas. That drive is going to be very difficult and a quality of life issue. Wait until the end of 07, if we have not seen a steeper drop begin by then, I don’t think one will happen. This year will tell us alot. If the insiders can keep this thing afloat during this first year of resets, I think we will be able to conclude that a major drop is not going to happen. If they can’t, all bets are off.
ParticipantChris Johnston
It is impossible to draw a broad based conclusion on such a short amount of time’s activity. The making of this over-inflation occurred over several years, it cannot be resolved in a year.
I think the average person should just wait until the cost parameters fit his or her own, instead of being so tied up in timing the low. We won’t know until after the fact, when the low has occurred. It is possible it will not be the result of panic selling, and will develop over several years of declining prices. I would not be shocked if sales rise over last year or itleast stay close, it was an over 30% drop, so it is a pretty low benchmark. This does not mean that I expect prices to rise, I don’t. Think about most businesses, and how they would be doing if they had a year where sales dropped 30%. I think alot of people underestimate, what a tough year for RE people last year was.
I am surprised that prices have not dropped more than they have.
ParticipantChris Johnston
Here are my observations from the properties I have looked at in OC and San Diego. The activity level has picked up some anecdotally. My Zip realty searches are returning alot of new listings each day up here that fit my criteria, not too many that fit it down in San Diego. This is activity, but not bullish activity.
There are still ridiculous asking prices on most of the homes I have seen, and I do not believe there is any chance of the majority of them selling for these prices. There have been alot of people walking through some of the homes that I have viewed, unlike 6 months ago when it was dead. I am working with SD Realtor on one place specifically and may wind up buying it, but my offer was well below the asking price, so it may not get any play.
I do think that prices will continue downward, although at a slow rate. I expect any property that I buy to devalue by itleast 10% or more over the next few years. I have never believed that buying a home is an investment. Unless you pay cash, the amount you wind up paying even on an after tax basis, is a multiple of the original price by a large enough amount, that you have to have a run like we have had, just to get ahead at all on the outlay.
However, due to my unique need for equestrian, etc.. I do have a somewhat limited offering of available stuff, and most of it is crap. Things have softened enough for me to start seriously trying to find something. If it initially drops 200k or so in the first few years, it does not matter to me. My plan will be to use a precipitous drop to buy a second home on the sand somewhere. It could very well be awhile before I actually buy because I am not going to chase anything, but if I find what I want I will try to make the best deal I can on it and move ahead. If I do not, I will stay on the sidelines. I do think by the end of the year this, we will be looking at a bad year in Southern California Real Estate. However, I think the chances of a 50% decline off the top are zero, I am in the 20% – 25% camp, with 10% already in the books.
BTW – a dead cat bounce is a term that is being used alot by people scouring the net. A dead cat bounce is a term from the trading world for a weak upward bounce on “declining volume.” I do not see how RE prices could rise on declining volume, so I do not think this can happen in RE. The median could do it due to how it is calculated, but a true broad market rise cannot happen, on declining sales volume in the housing market( just my opinion ).
ParticipantChris Johnston
It was and still is an absurd prediction. Let’s let it be and move on. Alarmist and extremist predictions are rarely accurate, but they do get people’s attention through the fear factor. I would hope that nobody in here took that seriously at the time it was prognosticated.
January 27, 2007 at 8:58 AM in reply to: USA Today: Lereah calls new bottom, or of course he’s lying, his lips moved #44279ParticipantChris Johnston
I for one am puzzled by this conclusion that is being drawn by people like this guy. We have what in my view is a terrible number released, and this is the signal of a bottom? Why would it not be a signal that the downtrend is in full effect? I bought into one steep decline after another in my early years as a trader. I caught a few lows, but caught quite a few more daggers. I would be more than shocked to see this report signal a key low point in RE. Normally when fighting a trend, you want to at the very least, wait for it to lose its max momentum before entering. This appears to indicate an acceleration of the trend downward to me.
I believe I read that this was the steepest year over year decline since 1982. Yet, they see it as a signal that things are improving? This guy is one of the most pathetic public figures I can ever remember, politicians excluded. If things turn out poorly for housing in the next few years, I hope someone takes this guy to task on some of his comments.
ParticipantChris Johnston
I find this whole mention of inflation adjusted dollars a little odd. It is a valid economic discussion, but not of much use on real life applications. I live my life in dollars today. I cannot to burger king and offer them $3.50 for a whopper because the $4.50 price is nominal dollars and I want to pay in real dollars. I think that whole school of thought was brought to the forefront by economists who never made any money off of their predictions, but needed to sound smart.
There are people in here, 4plex to name one of the top of my head, that seem to have a very good handle on the inflationary nature of this economic cycle. However, for the average person, I do not feel any real dollar decline in RE would mean anything, they need nominal declines to afford housing. Of course if we got spiraling wage inflation, it might make sense, but we are far from that.
It is almost impossible to set up assets in a perfect way to take into account the effect of inflation on the dollars value. Real estate is in nominal dollars. It will not help anyone one bit if the real value of RE drops, and there wages stay flat, which is generally what is happening now. The afforadability issue will still be the same.
One further thought on this. The studies that I have done comparing real rates to housing historically, would suggest that housing prices will not drop based on their current relationship to real rates, they actually would rise if they do what they have historically done. It is almost impossible for me to believe that could happen, but it is what my research has told me. Of course that is based on the CPI, which seems to be a joke as far as what it tells us inflation is currently.
ParticipantChris Johnston
My input would be not to view a home as an investment. The mustard has gotten completely off the hotdog in this aspect of home buying, during this unprecedented run we have had. Home prices have barely outpaced inflation historically, so that should be the expectation moving forward. If you work within this view, you will never get yourself into a bad situation where you cannot afford where you live.
It is my view that any home bought, should be done as a place to live happily and be within ones affordability parameters. Any appreciation you get is gravy. Second homes can be where the speculation can be done, and where timing should be employed. For this post, I had assumed you were referring to your primary residence.
I think the RE problem is nationwide, but more extreme in some areas than others. One of my relatives just emailed me last night, and he has bought properties in so many places I cannot even remember them all. He is pushing it to try and retire by 50. As a trader, I have heard and seen these types of things too many times, and the ending is always the same. People tend to become convinced in masses right at the worst possible time, that a new paradigm exists, and the key to riches is right in front of them for the taking. Unfortunately, it usually winds up being the Charlie Brown and Lucie field goal kicking scenario. She pulls that ball away right at the worst possible time, and he goes flying!
Buy where you can comfortably afford to, and also where you like the area and can be happy there. Do not buy just because you think values will rise more on a relative basis, they may not regardless of what any expert tells you.
ParticipantChris Johnston
sdr – I saw that cloud also, I was looking at the one property I have mentioned at 2 pm. It was very strange looking, like a funnel straight up. Having read now what it was, I do not ever remember seeing a fire that looked like that.
ParticipantChris Johnston
Good words sdr, I am trying to do that now. It seems so cheap compared to up here, it would be an absolute steal where I live, so I have to cleanse my mind of that baggage. I think no matter how well something is bought right now, it will decline in value over the next few years. That is ok by me as long as I do not overpay at the time of the decision. All I can ever do is make the best decision that I can weighing all the facts at the time of the decision. I do not mind missing by 100k, but I do not want to miss by 500k on a purchase.
Some properties just do not exist in abundance, so even in a huge slump, they may not be for sale even at a lower price. Thanks again to all, this type of exchange is what makes this blog great. I will let everyone know if I do anything, which I may not.
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