[DaCounselor]

Downtown was the epicenter of non-owner occupied flipper speculation, driving up not only prices but new starts. It will suffer the appropriate fate now that the speculators have retreated and the units sit empty.
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“Unlike single family houses, apartment/condo* buildings don’t age very well. They’ll look old and tired in a decade or two. Then no one will want to live in them anymore.”

This blanket statement is flat-out untrue, not to mention irrelevant. Several of the prestige buildings downtown are older yet remain an elite address (see Harbor Club and the Meridian, for example). There is nothing “old and tired” about these addresses. And a sfr can certainly look more than “old and tired in a decade or two”.

Regardless, the simple fact is that “old and tired” properties have been selling like hotcakes in SD for years. How many “old and tired” houses in Clairemont or North Park were snapped up over the past 7 years?

While the more weathered properties are likely to languish in a buyers’ market (unless priced extremely well), in a market leaning slightly to largely in favor of the sellers there certainly will be many who will bid on and indeed live in these types of properties. To suggest otherwise shows ignorance of the very market we have just transitioned out of.

[DaCounselor]

“My question to you is; if you feel prices are going to drop so much in the short term, why not sell now, earn some interest on your cash and buy on the next up upswing? Do you really like the properties, or are you just not interested in the headache involved in getting them off the market?”
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I won’t sell for a variety of reasons, including tax implications, fantastic and ever-increasing rental income (which may be equated to “interest” on my investments), the necessity of maintaining a diversified investment portfolio of stocks and real estate, and a continuing belief that SoCal coastal real estate is among the premier real estate nationwide and will in the long run be priced accordingly.
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“However, we are definitely *both* better off than those folks whom have over-extended themselves during the run-up”
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Indeed we are.

[DaCounselor]

“People will let their houses go before they cut back on their steak dinners and ice cream.”
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I couldn’t disagree more. I believe the overwhelming majority of homeowners have in the past and will again if necessary forego the extras, blow off credit card payments and student loans, etc etc just in order to save their house from the bank.

[DaCounselor]

My original input into this thread was merely to weigh in on whether to “rub it in” to current property owners as to the cooling real estate market. My point made was that there is nothing to “rub in” to the folks like me who are hundreds of thousands of dollars on the plus side and have locked in the lowest interest rate seen in our lifetime. Again, I would not trade my position with someone who is sitting on the sidelines cheering for a disasterous crash and who in fact needs a disasterous crash to occur to allow them to get in the game. That’s it.

As for my thoughts on the future of San Diego real estate, I believe prices will continue to pull back throughout 2007 and possibly into 2008. It’s impossible for me to generalize by what percentage as SD is made up of far too many micro-markets. I do know the 3 areas where I own property (Mission Beach, Pacific Beach and Bay Ho) and I believe in the end I will see comps down about 15-20%. Just a guess. I don’t pretend to have some magical superhuman insight.

At this time, several of the major factors that can really impact real estate seem to be lined up against major-crash theorists. Builders are out in front of this thing and have dramatically scaled back or ceased production. Interest rates remain extremely low. Unemployment remains low. The stock market has performed extremely well (particularly since some folks proudly announced they were going to cash last summer). None of this helps the crash theory.

Over the long haul, I am very bullish on SD. I lived through the tough times of the early/mid 90’s and still recall many discussions with real estate investors then, who all opined that SD was eventually going to end up like San Francisco with respect to real estate valuation. I agreed with them then and still do. While SD real estate prices have run up too far too fast and will indeed pull back, over the long haul I believe the values are going up and we will maintain pricing that is among the highest in the nation.

[DaCounselor]

My situation is quite simple – I have bought and held onto 3 coastal properties and have amassed a large net worth as a result (and also due to buying and holding onto my stock purchases). It has worked for me. Period.

Powayseller, why do you insist on antagonizing me and jabbering that I will be “sorely disappointed” with my investment strategy, which over a 24 year span has worked tremendously for me? I’m not looking for an “answer to riches” because my strategy has achieved that goal.

Your prognostications, be they your own or merely cut-and-pasted from others’ opinions, are nothing more than outright guesses as to the nature and extent of future market movements. Your recent “guess” that there would be no Fall rally in the stock market, which put you in cash, was terribly off. You really do need to be right on these types of calls if you want your crystal ball opinions to be taken seriously.

[DaCounselor]

“DaCounselor, I am always amazed when the old timers like you (and others previously on this board) forget about the cyclical nature of real estate. You guys who made money in real estate are so stuck on it, like super glue, and think just because you made a boat load of money once or twice, you will continue doing so. A lover that was once so sweet surely won’t poison you, will she (hehehehehe). When you keep your money in real estate, isn’t that called “throwing good money after bad”? And isn’t it denial when you dismiss the cyclical nature of real estate?”
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Where in my prior post do I “dismiss the cyclical nature of real estate”? You have quite a knack for creative interpretation, that much is certain.

The value of my real estate holdings has gone up and down over the years. By getting into the game and staying in the game I have acquired a ridiculous amount of net worth for a pretty regular guy. I’ve bought at the top of the market, the bottom of the market and the middle of the market without having any idea (or pretending to have any idea) of where the market was going in the near term.

You are simply confusing a buy-and-hold real estate philosophy with ignorance of real estate cycles. How you make that leap is beyond me. In fact, it is recognition of the very unpredictable nature of market cycles that drives folks like me to buy and go long on quality real estate.

[DaCounselor]

If the values of the condo and the townhome I purchased in the early 90’s (both of which i now own outright)revert to zero then you will be correct. My bet is that will not happen.

As for the home I purchased four years ago and live in now, I guess we’ll see what happens. I can’t predict the real estate market or any other market for that matter. What I can say is that I would rather own these properties and have a mountain of equity than not own them and be on the sidelines rooting for a disaster as my only savior.

Now, I do believe prices will pull back, but how much and for how long I do not know. It will take a helluva pull-back to erase the equity gains of the past 5-6 years, that’s for sure.

The enlightened ones who predict future events with such specificity and certainty always provide amusement for old guys like me.

[DaCounselor]

The value of someone’s home and its corresponding impact on that person’s financial picture (as well as its evidence of that person’s investment acumen) is of course a highly emotionally-charged issue.

Emotion played a huge role in the insane run-up of real estate prices. One cannot cite the impact of emotion in support of the run-up and ignore its impact on the correction that is underway, however. Emotion may keep asking prices high, may keep homes off the market and may lead to an extension of exotic lending to avoid a forced sale. We may see a battle between emotion and the cooling market/adjusting loans. Can emotion fend off these realities and ease the market into a less-than-catastrophic landing?

As for “not rubbing it in” to existing homeowners, for most there is simply nothing to rub in – at least not yet. Only the small percentage of folks who bought in the past year or so are presently experiencing or in danger of valuations below their purchase price. Hard to imagine rubbing it in to long-standing owners who are already up hundreds of thousands of dollars. I’m in the latter category and would find an “i told you so” attitude quite amusing.

[DaCounselor]

In 24 years of investing I have learned one great truth: I cannot pick the bottom or top of any particular investment device. I’ve gotten pretty close a few times, but been way off to my detriment as well. A missed call here or there can become very costly. I have to admit that I do chuckle at those who believe that they can consistently time markets. I just don’t know anybody who has done it effectively over great spans of time. If some “system” exists that can achieve such a great feat, make no mistake we would know about it. Moves do need to be made over time, but the more moves one makes the greater the odds of stepping on a landmine and, as they say, “blowing yourself up”.

Very few professional investors beat the market year after year. It just doesn’t happen. The stats are what they are.

[DaCounselor]

I too am a bit surprised at the spike in NOD’s so soon – thought we wouldn’t see a run-up until next year as the ARM re-sets really get underway. Perhaps this spike is in some way related to the substantial number of homes recently purchased as speculative flips – someone who does not need the home as shelter and is more apt to simply walk away from a bad investment that they can’t sell? And walk away quickly due to getting killed on monthly carrying costs?

I would like to see a chart that takes into account the number of total mortgages in existence during the ’93 and ’96 peak NOD’s as well as the number of total mortgages today so as to provide a frame of reference for the raw NOD figures. If the number of homeowners/mortgages in ’06 is substantially higher than in ’93 and ’96, the NOD figures must also rise to achieve the same NOD percentage. The raw figures are great but NOD percentage figures would be better. Wish I had the time to research it.

[DaCounselor]

I purchased my first property in South Mission Beach in 1991. The cost of ownership was substantially more than what I was renting for. Now I own the property free and clear. It was, along with some other property purchases, one of the best financial decisions I have ever made. The argument that “If cost of ownership is more then rent, then rent and invest the difference. You’ll have much more money in the end than if you bought at inflated prices.” is merely conclusory in nature and is just plain bad advice. I’m not advising all renters to run out and buy property tomorrow, but I am saying be careful who’s advice you listen to.

[DaCounselor]

“But the economy will be bad for many years”

This type of crystal ball fear-mongering is indicative of many of posts on this board that are far over the top in touting the doomsday scenario. “They’ll probably not be okay”….is another good one. Wow.

I’m in the camp that believes housing prices are coming down 20-30%, but this over the top “the economy will be bad for years” and “they’ll probably not be okay” stuff is a bit much.

[DaCounselor]

I think that lowering interest rates will probably be the extent of it. The rest will be up to the lending institutions and debtors themselves. Assuming that the collapse will be initiated largely by ARM resets, lower LIBOR = smaller increases in payments after resets. This would probably reduce the the size of the collapse. Lenders, of course, can attempt to save themselves and individual property owners from the inmpending foreclosure/distress sale process by simply re-negotiating ARM terms prior to or at the time of reset, but I wouldn’t hold my breath.

[DaCounselor]

I have no intention of leaving San Diego. I have lived in several parts of the Northeast, Mid-Atlantic and South, and visited most other parts of the country. There are alot of really great places to visit, but as far as year-round living there is no place like San Diego as far as I’m concerned. I moved away from here once and all I could think about was getting back. I sure don’t miss the ice storms, oppressive humidity, flocks of bugs, weeks of rain, allergies, etc etc that I have had to endure in the past. As my good buddy Johnny once said – “If it’s really expensive to live someplace, there is usually a good reason for it. And if it’s really inexpensive to live someplace, there’s usually a good reason for it.”

[DaCounselor]

You mean to tell me this poor guy has only built about $500K in equity in two years? What a terrible predicament to be in.

Always remember – Chicken Little was just a youngster without much experience and a wide-lens perspective. If you talk to an Old Rooster like me you will learn that the sky is not actually falling. Some bodies are likely going to be coming down fast, but the sky is not falling.

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