[cyphire]

Good for you beanmaestro… DON’T make the mistake of sinking all your green and your potential green into a house at the top of a falling market. We still are close to the top in my opinion, and I’m sure that someone with your academic credentials can do a little trend analysis with imperfect data!

[cyphire]

My pleasure – buyorhold. Any neighborhood which has been built in the last 5 years, or is still being built (units available) is going to get creamed. The reason is that there is no underlying stability because everyone just bought. That is where you will find investors, folks who didn’t realize the commute was gonna be tough, folks who didn’t realize that they were too much out of pocket, etc.

The builders control these areas – they will keep offering incentives which will kill the resale market – and since as I wrote above there will be more and more resales. There are also no fixer ups, no tear downs, no remodels so there is only new houses. This also creates an EASY comparison model, makes it too easy for future buyers to compare properties. This doesn’t work in the sellers favor in the future because the comps are too close.

Good luck and make your own decision. I don’t want to steer you wrong – but I think you will be very happy for the next 2+ years if you don’t buy.

By the way, as it is a new area – there will be LOTS of rentals. They don’t always come on quickly but I think that there will be more and more of them for people who need to recover some of their out of pocket but don’t want to sell figuring prices will go back up.

I would bet (I am betting with my own situation) that prices will not go up.

Good luck!

[cyphire]

My pleasure – buyorhold. Any neighborhood which has been built in the last 5 years, or is still being built (units available) is going to get creamed. The reason is that there is no underlying stability because everyone just bought. That is where you will find investors, folks who didn’t realize the commute was gonna be tough, folks who didn’t realize that they were too much out of pocket, etc.

The builders control these areas – they will keep offering incentives which will kill the resale market – and since as I wrote above there will be more and more resales. There are also no fixer ups, no tear downs, no remodels so there is only new houses. This also creates an EASY comparison model, makes it too easy for future buyers to compare properties. This doesn’t work in the sellers favor in the future because the comps are too close.

Good luck and make your own decision. I don’t want to steer you wrong – but I think you will be very happy for the next 2+ years if you don’t buy.

By the way, as it is a new area – there will be LOTS of rentals. They don’t always come on quickly but I think that there will be more and more of them for people who need to recover some of their out of pocket but don’t want to sell figuring prices will go back up.

I would bet (I am betting with my own situation) that prices will not go up.

Good luck!

[cyphire]

I agree with the I/O points – it was immaterial to me whether prices went up down or sideways when I got my loan. The problem with home ownership is that it is so equity illiquid as well as monthly cost consuming. I liked the I/O because it improved cash flow which is sometimes useful. I am in the process of starting a new business – and every entrepreneur knows one of the secrets of starting a business is keeping monthly expenses low. A higher monthly payment means even more money tied up in a house (to pay it down), and unless the plan is to keep it for a good portion of the mortgage period, it sometimes makes sense.

The best use of money is not to tie it up in paying off your house – the best use of money is to have it working for you. If you use standard investment risk/reward (5%, 6%, 8%?) I would agree that you might as well pay down the house (if you are going to stay there for 10 years or longer). And I would also agree that for many if not most people they should not go interest only. But if you are self employed, and want to grow your business you should not tie ANY extra money in paying off a house, you should invest it where it will create the most return.

If you have a stable job working for the man… then have the regular mortgage based on the number of years you expect to stay in the home.

For my last house – I put down 25% (500K) and financed 75% (1.5M). Interest only and I had the choice of further investing in one of my companies or selling it. We chose selling it which made the cash situation moot. The main business could always reverse and need extra cash – I hate to commit to locking up money to pay off a house.

[cyphire]

I agree with the I/O points – it was immaterial to me whether prices went up down or sideways when I got my loan. The problem with home ownership is that it is so equity illiquid as well as monthly cost consuming. I liked the I/O because it improved cash flow which is sometimes useful. I am in the process of starting a new business – and every entrepreneur knows one of the secrets of starting a business is keeping monthly expenses low. A higher monthly payment means even more money tied up in a house (to pay it down), and unless the plan is to keep it for a good portion of the mortgage period, it sometimes makes sense.

The best use of money is not to tie it up in paying off your house – the best use of money is to have it working for you. If you use standard investment risk/reward (5%, 6%, 8%?) I would agree that you might as well pay down the house (if you are going to stay there for 10 years or longer). And I would also agree that for many if not most people they should not go interest only. But if you are self employed, and want to grow your business you should not tie ANY extra money in paying off a house, you should invest it where it will create the most return.

If you have a stable job working for the man… then have the regular mortgage based on the number of years you expect to stay in the home.

For my last house – I put down 25% (500K) and financed 75% (1.5M). Interest only and I had the choice of further investing in one of my companies or selling it. We chose selling it which made the cash situation moot. The main business could always reverse and need extra cash – I hate to commit to locking up money to pay off a house.

[cyphire]

By the way – London is also unstable – but it’s in Europe. Close to where the money is being minted in Russia, Middle east, etc. It is very space limited so they truly have a supply demand issue. They don’t allow huge amounts of suburban sprawl.. But that being said – the vast majority of people feel that prices are so disconnected from fundamentals that it will implode. It’s not the big money which really matters – the gap between rich and everyone else is getting more and more dramatic. It’s looking at 1 Million + for 1 bedroom apartments. They are all tulip buyers.

[cyphire]

By the way – London is also unstable – but it’s in Europe. Close to where the money is being minted in Russia, Middle east, etc. It is very space limited so they truly have a supply demand issue. They don’t allow huge amounts of suburban sprawl.. But that being said – the vast majority of people feel that prices are so disconnected from fundamentals that it will implode. It’s not the big money which really matters – the gap between rich and everyone else is getting more and more dramatic. It’s looking at 1 Million + for 1 bedroom apartments. They are all tulip buyers.

[cyphire]

Gut instinct for me as well. I could be wrong – but i’m betting on it. Everything moves in cycles and at some point all cycles correct themselves. When fundamentals are skewed all the people who profit from them explain how ‘the new fundamentals are the new paradigm’.

Some examples – I had a web consulting company during the crazy years. 25 year old ‘executives’ of web firms were telling me how the new way of business is market share – profits don’t matter – no suits – p/e’s don’t matter (no profits so no ratio!, etc. They got destroyed and guess what – business got back to usual.

This ties in to Realtors explaining how prices are still going to go up despite only 5% of buyers being able to afford. (Will it go to only 1 of 25 affording? 1 of 30 affording!). They keep pounding the lie to the public then sheepishly admit they were wrong after the market plummets (it really hasn’t plummeted yet – it will keep correcting to the base line of affordability – it always eventually does.

I think that cycles correct because most buying decisions were outsourced to mob mentality. Everyone lives in the world where prices always go up. Now the smart money isn’t buying – they are actually giving incentives to buy houses (both new and resale) – this puts further pressure on prices – more buyers get scared as trend lines are established (we were only at the top about a year ago – or a little more) – the vast public hears about price declinations but havent seen the aftermath.

Debt. It is now at an overwhelming level both personally for people as well as our government paying for a war it can’t afford. Debt always needs some self correcting. This is happening now. The pressure from credit cards being given like candy and now the bush administration passes bankruptcy reform to protect the same people who gave anyone with a pulse a loan (same with mortgages).

Interest rates! (The big one) Prices have to rise and fall with interest rate costs. The bank of England has promised 2 more rate hikes. Our stock market got hit because the street got news that they cannot expect falling rates. Our debt actually has to increase rates because with falling dollar value – the interest rates have to go up to compensate or other currencies will be more attractive. This is the big killer.

What does this add up to? The consumer spending machine getting wacked. Along with a slump in housing construction the economy gets tanked for the next 5-10 years. So it goes…

Just a gut feeling.

By the way – there are more rich people now then ever especially along the coast in OC, in San Diego, La Jolla, ect. Of course their exposure is greater to – their money is made from the economy – and while executives protect their earnings on the backs of working people – as the economy gets weaker people lose good paying jobs and everyone suffers. So is La Jolla ready to tumble? (as an example). It will follow the rest of the market and the economy.

Anyway – I think that risk management is key. So many people I know are on the sidelines with their cash. Who has all the money in the market? Institutions, 401Ks (not well managed – mine is in as well I just ignore it), and Hedge funds. They would rather risk the investments for good returns than worry about a crash. They get paid on getting good returns, crashes affect everyone. They can’t afford to be ultra-conservative so when the crash comes – boom.

Just my 2+ cents. I am only going with these gut feelings. I think the tide has turned on interest rates and they will only go up from here. But I’m a computer dude and look at broad views – hope i’m right and hope i’m not right!

[cyphire]

Gut instinct for me as well. I could be wrong – but i’m betting on it. Everything moves in cycles and at some point all cycles correct themselves. When fundamentals are skewed all the people who profit from them explain how ‘the new fundamentals are the new paradigm’.

Some examples – I had a web consulting company during the crazy years. 25 year old ‘executives’ of web firms were telling me how the new way of business is market share – profits don’t matter – no suits – p/e’s don’t matter (no profits so no ratio!, etc. They got destroyed and guess what – business got back to usual.

This ties in to Realtors explaining how prices are still going to go up despite only 5% of buyers being able to afford. (Will it go to only 1 of 25 affording? 1 of 30 affording!). They keep pounding the lie to the public then sheepishly admit they were wrong after the market plummets (it really hasn’t plummeted yet – it will keep correcting to the base line of affordability – it always eventually does.

I think that cycles correct because most buying decisions were outsourced to mob mentality. Everyone lives in the world where prices always go up. Now the smart money isn’t buying – they are actually giving incentives to buy houses (both new and resale) – this puts further pressure on prices – more buyers get scared as trend lines are established (we were only at the top about a year ago – or a little more) – the vast public hears about price declinations but havent seen the aftermath.

Debt. It is now at an overwhelming level both personally for people as well as our government paying for a war it can’t afford. Debt always needs some self correcting. This is happening now. The pressure from credit cards being given like candy and now the bush administration passes bankruptcy reform to protect the same people who gave anyone with a pulse a loan (same with mortgages).

Interest rates! (The big one) Prices have to rise and fall with interest rate costs. The bank of England has promised 2 more rate hikes. Our stock market got hit because the street got news that they cannot expect falling rates. Our debt actually has to increase rates because with falling dollar value – the interest rates have to go up to compensate or other currencies will be more attractive. This is the big killer.

What does this add up to? The consumer spending machine getting wacked. Along with a slump in housing construction the economy gets tanked for the next 5-10 years. So it goes…

Just a gut feeling.

By the way – there are more rich people now then ever especially along the coast in OC, in San Diego, La Jolla, ect. Of course their exposure is greater to – their money is made from the economy – and while executives protect their earnings on the backs of working people – as the economy gets weaker people lose good paying jobs and everyone suffers. So is La Jolla ready to tumble? (as an example). It will follow the rest of the market and the economy.

Anyway – I think that risk management is key. So many people I know are on the sidelines with their cash. Who has all the money in the market? Institutions, 401Ks (not well managed – mine is in as well I just ignore it), and Hedge funds. They would rather risk the investments for good returns than worry about a crash. They get paid on getting good returns, crashes affect everyone. They can’t afford to be ultra-conservative so when the crash comes – boom.

Just my 2+ cents. I am only going with these gut feelings. I think the tide has turned on interest rates and they will only go up from here. But I’m a computer dude and look at broad views – hope i’m right and hope i’m not right!

[cyphire]

Hey Muggle! You sound like me! We live here but looked around recently to leave. We took a trip to Seattle and think its great – but decided that missing the sun is too much to bear. I heard that the best way to describe Seattle is like having a beautiful girlfriend who is always sick! I also lived in NYC until 2000 and have been here in California for 7.5 years. Lived in Carmel valley, move to Olivenhain, and then to La Jolla where we are renting. Also have the wanderlust – can’t imagine staying in the same house for more than 5 years. Kids are learning the gypsy lifestyle. It’s very hard to give up the sunshine (even though I am a bit of an indoor person!)

To hit the point of this post – I sold my house in North County and broke about even (after 2 years and real estate commisions) in December. SO GLAD TO BE OUT OF THIS MARKET! Pocketed 350K after leaving Carmel Valley before that. Renting in La Jolla right now at about 40% of what owning here would cost. 1 kid in very expensive private school, and the other will probably go there in 2 years.

Great time to be renting – watching the real estate market implode from the sidelines with LOTS O’CASH!!! It’s gonna keep being a dozy!

[cyphire]

Hey Muggle! You sound like me! We live here but looked around recently to leave. We took a trip to Seattle and think its great – but decided that missing the sun is too much to bear. I heard that the best way to describe Seattle is like having a beautiful girlfriend who is always sick! I also lived in NYC until 2000 and have been here in California for 7.5 years. Lived in Carmel valley, move to Olivenhain, and then to La Jolla where we are renting. Also have the wanderlust – can’t imagine staying in the same house for more than 5 years. Kids are learning the gypsy lifestyle. It’s very hard to give up the sunshine (even though I am a bit of an indoor person!)

To hit the point of this post – I sold my house in North County and broke about even (after 2 years and real estate commisions) in December. SO GLAD TO BE OUT OF THIS MARKET! Pocketed 350K after leaving Carmel Valley before that. Renting in La Jolla right now at about 40% of what owning here would cost. 1 kid in very expensive private school, and the other will probably go there in 2 years.

Great time to be renting – watching the real estate market implode from the sidelines with LOTS O’CASH!!! It’s gonna keep being a dozy!

[cyphire]

Dear buyorhold – I don’t know you but I would strongly counsel to try to get your deposit back or just eat it.

I am a business person – and I like to look at risk / reward calculations. If you said you planned on being in the house for 30 years (or 20), I still think you are rushing into this, but at 7-10 I think it is a huge mistake.

There is a reason that the builders are giving away kitchens, etc. – they need to. Getting the equivalent of a 5% bonus for buying at the top of a market is no bargain.

The chance that your neighborhood will go up in value is small, the chance that it could go down is huge. Look at the fundamentals and also look at history. This is EXACTLY what happens at the end of a bubble. The bubble deflates and people still buy on the way down. I don’t think that you need to wait forever – it’s really hard to time a real estate market. But prices are insane. Look at what those houses were selling for (or other comparable areas 7 years ago. Or 10 years ago. You are locking yourself and your future into an asset which will probably decrease and giving yourself little breathing room. If you don’t mind taking a 70K hit on paper minimum – do it. I don’t think you want to.

Another thing – that is quit a bit inland – it’s going to be hit (is getting hit) very hard right now. Wait 1 year – look at the market – you will be jumping for joy you didn’t plunge in. There is a reason all the other people did not finalize their sales. And a final note… The developers are not idiots. They are only putting a small fraction of what is being built on the market. They have already said that they will probably give back the last 3 years of profits over the next couple…. Don’t pay their way out of it with your money just for some upgrades which cost them small amounts…

[cyphire]

Dear buyorhold – I don’t know you but I would strongly counsel to try to get your deposit back or just eat it.

I am a business person – and I like to look at risk / reward calculations. If you said you planned on being in the house for 30 years (or 20), I still think you are rushing into this, but at 7-10 I think it is a huge mistake.

There is a reason that the builders are giving away kitchens, etc. – they need to. Getting the equivalent of a 5% bonus for buying at the top of a market is no bargain.

The chance that your neighborhood will go up in value is small, the chance that it could go down is huge. Look at the fundamentals and also look at history. This is EXACTLY what happens at the end of a bubble. The bubble deflates and people still buy on the way down. I don’t think that you need to wait forever – it’s really hard to time a real estate market. But prices are insane. Look at what those houses were selling for (or other comparable areas 7 years ago. Or 10 years ago. You are locking yourself and your future into an asset which will probably decrease and giving yourself little breathing room. If you don’t mind taking a 70K hit on paper minimum – do it. I don’t think you want to.

Another thing – that is quit a bit inland – it’s going to be hit (is getting hit) very hard right now. Wait 1 year – look at the market – you will be jumping for joy you didn’t plunge in. There is a reason all the other people did not finalize their sales. And a final note… The developers are not idiots. They are only putting a small fraction of what is being built on the market. They have already said that they will probably give back the last 3 years of profits over the next couple…. Don’t pay their way out of it with your money just for some upgrades which cost them small amounts…

[cyphire]

really??? get him back on the line! Hey rustico – I like blogging with u.

[cyphire]

really??? get him back on the line! Hey rustico – I like blogging with u.

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