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davelj
ParticipantPerry Chase, et al…
I agree that downtown is a work in progress. However, it becomes a more attractive place to work and live each year. And I would argue that SD, in general (not just downtown, but including downtown), has become a much more desirable place for people to want to live over the last 15 years. Longtime residents may disagree (and perhaps with good reason), but the population growth and image of the city as a “glamour city” (to use Robert Shiller’s words) speak for themselves. SD is not the sleepy beach town with no downtown that it was in the early-90s. For this reason, I think there’s a floor underneath prices (which is well below current prices but above where the uber-bears think it is) that didn’t exist in the last down cycle. I hope I’m wrong – I want values to plummet. But I just don’t see a peak-to-trough decline of 50%+ in absolute terms.
A few anecdotes. There are twelve units on my floor of the building where I live. It’s the top floor and the units are a bit nicer (with 18-ft. ceilings, etc.) so perhaps these aren’t entirely representative of the rest of the building. Nevertheless, of the 12 units, four are owned by absentee owners who don’t even bother to rent them out. One couple lives in Phoenix, one in SF, one in El Paso and the other in Rancho Santa Fe (they wanted a place to go before and after ball games). These are not flippers – they use the units one or two weekends a month and have no intention of selling. The three out-of-towners just wanted to have places in downtown SD. Fifteen years ago these buyers didn’t exist for SD. I know several other people who live in north SD County (and in other parts of the country) who want to buy downtown just to have a place here, but they’re waiting for prices to come down a bit. Now these are not average people from an income standpoint. They have the dough to blow and these buyers can’t support the kind of inventory that’s building up right now. But my point is that there are lots of buyers for downtown (and other parts of SD – La Jolla, RSF, etc.) that weren’t around 15 years ago.
The four most expensive words in investing are “This time it’s different.” But sometimes you do have to re-evaluate and say “This time it’s a little bit different.”
Lots of people sold stocks back in the late-50s when for the first time the dividend yield on the DOW went below the yield on 10-year treasuries. Those that didn’t change their thinking never bought back in…
Again, I think there’s still a long downward spiral for downtown ahead of us. At least I hope so. But SD and downtown have changed since the last downtown – we pull from a much larger group of buyers these days. I think these buyers will emerge before prices get so attractive that even boneheads can make the math work from an investment standpoint. But I hope to be proven wrong.
Participant…or what President Bush refers to as “strategery.”
Back on topic, though… the single biggest problem is that the Realtor, Mortgage and other professional advocacy groups are supported by dues from their members. I don’t see potential home buyers and sellers paying dues to some amorphous group claiming to be looking out for their interests solely during the time they’re interested in a transaction.
Participant…or what President Bush refers to as “strategery.”
Back on topic, though… the single biggest problem is that the Realtor, Mortgage and other professional advocacy groups are supported by dues from their members. I don’t see potential home buyers and sellers paying dues to some amorphous group claiming to be looking out for their interests solely during the time they’re interested in a transaction.
Participantcapeman, I hope you’re right, but I doubt things will get that bad. Here’s the problem. It’s extremely difficult to find a 2bed/2bath, 1000 sqft. downtown renting for less than $2,000/month, and most of them are in the $2,200 – $2,500 range. Yeah, you MIGHT be able to find the occasional desperate owner with a crappy unit willing to rent it out for $1,800. (While rents might go down in the coming recession, they probably aren’t going to go down by more than 3%-5% if the 90s are any guide.) So, assuming a price of $250/sqft. you get a price of $250K for a 1000 sqft. unit. Using traditional financing (20% down, 7% 30 yr fixed) you’ll get a total monthly payment (excluding principal) of about $1,800/month including taxes, HOAs, etc. In other words, at $250K most of these units will actually cash flow pretty well. While always possible (isn’t anything?), that’s a highly unlikely scenario. As was discussed in a previous thread a few months back, it’s completely logical for a would-be homeowner to pay a premium to what they would otherwise pay to rent the same unit, although debatable as to what that premium should be (I argued 20%-40% – others argued higher). My point is that if you’re waiting for $250/sqft. downtown, you’ll probably never buy downtown. $300/sqft. is possible, but also fairly unlikely. Nevertheless, I support you in your pessimism.
Participantcapeman, I hope you’re right, but I doubt things will get that bad. Here’s the problem. It’s extremely difficult to find a 2bed/2bath, 1000 sqft. downtown renting for less than $2,000/month, and most of them are in the $2,200 – $2,500 range. Yeah, you MIGHT be able to find the occasional desperate owner with a crappy unit willing to rent it out for $1,800. (While rents might go down in the coming recession, they probably aren’t going to go down by more than 3%-5% if the 90s are any guide.) So, assuming a price of $250/sqft. you get a price of $250K for a 1000 sqft. unit. Using traditional financing (20% down, 7% 30 yr fixed) you’ll get a total monthly payment (excluding principal) of about $1,800/month including taxes, HOAs, etc. In other words, at $250K most of these units will actually cash flow pretty well. While always possible (isn’t anything?), that’s a highly unlikely scenario. As was discussed in a previous thread a few months back, it’s completely logical for a would-be homeowner to pay a premium to what they would otherwise pay to rent the same unit, although debatable as to what that premium should be (I argued 20%-40% – others argued higher). My point is that if you’re waiting for $250/sqft. downtown, you’ll probably never buy downtown. $300/sqft. is possible, but also fairly unlikely. Nevertheless, I support you in your pessimism.
ParticipantI agree with most of what you said, but there’s an important point to consider with respect to HOA fees. The only money truly “lost” in your HOA payment is the money paid to the property management company to manage the whole process (the “friction”). The other money goes toward maintenance, insurance, etc. These are all things you will have to cover yourself if you own a detached home.
Some people think “condos are horrible because you have to pay an HOA and if I own a home I won’t have to pay it.” That’s technically correct, but economically incorrect. If you own a home you’re going to have to pay for regular maintenance (painting, roof, etc.), insurance, yardwork (unless you do it yourself), etc. There’s no free lunch. The only difference between paying condo HOAs and paying for all the “stuff” related to owning a detached home is that in the latter case you pay as you go (and the payments are “lumpy” over time) and you don’t have a property management company siphoning off 15% of the payment for compensation.
Personally I prefer the HOA, even with the “friction.” It gets directly debited from my checking account each money and I just don’t even have to think about any of it. I’m more than happy to pay for the convenience of not having to bother with it. But that’s just me.
ParticipantI agree with most of what you said, but there’s an important point to consider with respect to HOA fees. The only money truly “lost” in your HOA payment is the money paid to the property management company to manage the whole process (the “friction”). The other money goes toward maintenance, insurance, etc. These are all things you will have to cover yourself if you own a detached home.
Some people think “condos are horrible because you have to pay an HOA and if I own a home I won’t have to pay it.” That’s technically correct, but economically incorrect. If you own a home you’re going to have to pay for regular maintenance (painting, roof, etc.), insurance, yardwork (unless you do it yourself), etc. There’s no free lunch. The only difference between paying condo HOAs and paying for all the “stuff” related to owning a detached home is that in the latter case you pay as you go (and the payments are “lumpy” over time) and you don’t have a property management company siphoning off 15% of the payment for compensation.
Personally I prefer the HOA, even with the “friction.” It gets directly debited from my checking account each money and I just don’t even have to think about any of it. I’m more than happy to pay for the convenience of not having to bother with it. But that’s just me.
ParticipantMy name is Dave, although Davel would be more exotic and mysterious, yes? I follow downtown because I already own here and would like to acquire more units here, but at substantially lower prices. I bought downtown last year in a very odd transaction under which the seller accepted almost all of the downside price risk in the unit through 2010 while, in exchange, I gave up all of the upside potential over the same period. The two main characteristics of the seller that were necessary for the transaction to work were (1) he had a big chunk of equity in the unit (which I expect him to lose in the transaction), and (2) he was a “true believer”; that is, he truly believed that the unit would increase beyond his original purchase price “given more time” (he was already $80K underwater on the unit when he sold it to me). So, while I own downtown, I would like to see prices crater because I’d like to buy a few more units for investment purposes. But, if they don’t, no big deal. I’ll just pay the guy off and that’ll be that.
ParticipantMy name is Dave, although Davel would be more exotic and mysterious, yes? I follow downtown because I already own here and would like to acquire more units here, but at substantially lower prices. I bought downtown last year in a very odd transaction under which the seller accepted almost all of the downside price risk in the unit through 2010 while, in exchange, I gave up all of the upside potential over the same period. The two main characteristics of the seller that were necessary for the transaction to work were (1) he had a big chunk of equity in the unit (which I expect him to lose in the transaction), and (2) he was a “true believer”; that is, he truly believed that the unit would increase beyond his original purchase price “given more time” (he was already $80K underwater on the unit when he sold it to me). So, while I own downtown, I would like to see prices crater because I’d like to buy a few more units for investment purposes. But, if they don’t, no big deal. I’ll just pay the guy off and that’ll be that.
ParticipantEXTRA! EXTRA! READ ALL ABOUT IT!!
WAMU SHUTS BARN DOOR – HORSES LAST SEEN YEARS AGO
ParticipantEXTRA! EXTRA! READ ALL ABOUT IT!!
WAMU SHUTS BARN DOOR – HORSES LAST SEEN YEARS AGO
ParticipantAgreed. Maybe (trader) Chris Johnston can chime in here but I believe in the past that’s been a sign of a market on its last gasps, that is when the breadth is very poor but the indices keep rising on the backs of a handful of a few big, liquid stocks. I know that’s what happened in the blow-off in early-2000. It seemed like most of the stocks were declining but the biggest, most liquid names kept churning upward… until they stopped and ultimately reversed course.
ParticipantAgreed. Maybe (trader) Chris Johnston can chime in here but I believe in the past that’s been a sign of a market on its last gasps, that is when the breadth is very poor but the indices keep rising on the backs of a handful of a few big, liquid stocks. I know that’s what happened in the blow-off in early-2000. It seemed like most of the stocks were declining but the biggest, most liquid names kept churning upward… until they stopped and ultimately reversed course.
ParticipantWell, it appears that those Bear Stearns investors are in for a bad evening – apparently they’ll be getting back exactly $0. Good times. I guess the market will go up tomorrow since now there’s a greater likelihood of a rate decrease from the Fed. It just keeps on going… until it doesn’t.
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