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I believe a long post will be skimmed or skipped if it doesn’t grab the reader initially. Some of the topics on this forum are complicated and need a detailed and precise explanation, which often can be lengthy.

I sincerely enjoy the oftentimes long but highly informative posts of several of this forum’s participants. These are complex times and in depth disucssions are the catalyst that keeps this forum moving.

Remember, we always have the choice to read or ignore a post. If we skip a great post because it is too long, then it is our loss. Some folks write like Hemingway, others like Michener. Both hold my attention because their content is what matters.

[docteur]

Your observations are correct and just to expand a bit on them: a developer will build a price point that sells (obviously, the lower price points are selling better now and will probably be selling better in the future).

Building (as are most businesses) is all about sales velocity, internal rate of return (IRR) and minimizing risk. Pardee may make more on a larger house (in absolute dollars) but if it’s taking too long to sell, it erodes their IRR and increases their risk (their investment capital is out longer).

So, when a market starts to stall, builders come up with ways to cut costs and increase sales velocity, thereby increasing their IRRs back to the levels they need to make their financials looks good.

It’s all a balancing act and because of the long lead times, the fastest way to increase sales is decrease prices (build at a lower price point in this case or simply cut prices, usually with incentives so the actual sticker price doesn’t show a cut, if partway through a slow buildout) or if the market is roaring, build a bigger house with more profit.

Pardee shrunk the size of their homes because it would increase sales velocity, decrease the time to deliver those homes to the market, increase IRR (but not necessarily absolute dollar profit) and reduce their risk. All prudent business adjustments in a rapidly changing market.

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I’d be delighted to have you as a neighbor. And if your husband surfs, there are some great beach breaks just minutes from our community…

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I think the kids are a reflection of their parents values. Sure, with a “wealthy” school like Torrey Pines you are going to have the typical “rich kids” but my experience of my child’s friends are that they are responsible, hard working, young adults with parents that care deeply about their futures.

Like Asianautica said, you can find evidence for all types of children in just about any school. Again, it’s the values the parents impart to their children that matters.

I could easily afford to live in RSF (I have developed lots of land there) but I like the values of the parents in Carmel Valley better (that’s why we live here).

Most folks here earn great incomes but are not super high net worth individuals with big egos to match. They are solid hardworking people with high levels of intelligence and strong family values. Lots of doctors, business owners and PhDs on my street and all of them maintain conservative values.

Again, I agree with Asianautica, the values of the parents are manifested in the behavior of the children. And by the way, I have never heard of a drug problem at Torrey Pines High School, at least not with any of the kids my child associates with and as far as promiscuity goes, its on the increase at all schools.

Again, I must state how impressed I am with all the kids I have met from Torrey Pines, most of them through the swim team (my child is a varsity swimmer). Two sisters in particular came here from England with their parents, who heard this was a great place to raise kids. And so far, all their parents can do is praise the area and never miss a chance to tell me how happy they are living here.

I think the key to the essence of a place is to spend some time there and get a feel for how you are treated. Go to the grocery store (a great place to get a “feel” for a community), hit a few restaurants, go to a movie. Observe the people and how they relate to one another as well as to “outsiders.” It will tell you volumes of the mindset in that community…

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I live in Carmel Valley. I love the view into the Canyon and open spaces off the back of my house north into Cielo, Rancho Pacifica, Santa Luz, Fairbanks Ranch and Carmel Mtn. Ranch in the distance.

In the last few years two beautiful new high schools have been built – Cathedral (replaces University High School) and Academy. They are stunning schools.

Carmel Valley is safe, clean, has great schools, highly intelligent residents and fantastic weather.

My neighbors are wonderful and we watch out for one another (not that it’s necessary).

Where I live, an 8,000 SF lot with a 3600 SF home (with a pool and nicely landscaped) goes for $ 1.7 to $ 2.0 million, depending on the view.

Yes, illegals live in our canyons as well as most canyons in San Diego. It has been estimated that as many at 10,000 illegals live in the canyons of north San Diego county – this came to me from an unnamed source working in the Immigration Department).

Drive through Carlsbad, Encinitas, San Marcos or Vista (or Del Mar or Rancho Santa Fe) some day and you will see them standing by the side of the road, hoping to find work.

Late in the evenings you sometimes see them returning from shopping, walking or riding their bikes back to their makeshift homes. I have never seen or heard them in the canyons but one day on a walk, my neighbor discovered an entire community under some thick bushes, about a half mile northwest of my home.

It was basically several homes outdoors – furniture and all. He called the Immigration Department and they did nothing. Then he realized the land was open space owned by Pardee, who came out and cleaned out the encampment.

Are illegals dangerous? Not to the residents but maybe to each other (I know of one murder several years ago that was committed in the canyon). Does their presence impact home prices in this area? Not one bit as it doesn’t impact prices anywhere else.

But believe me, illegals are everywhere in San Diego. No community is immune from their presence. Anywhere there is a canyon, you will find them living there. And San Diego has hundreds and hundreds of canyons.

I am fortunate in that I can live anywhere in the world (and have traveled extensively) but choose San Diego and Carmel Valley specifically because it is convenient, clean, organized, not stuffy and has great schools (I still have a teenager at home who attends Torrey Pines).

My child’s friends are Indian, Chinese, Russian, European and Latino. They are highly intelligent and mature young adults, just the kind you want your children to associate with as they grow up. Their parents are highly educated, successful people, interesting and diverse in their customs and occupations.

Carmel Valley is a great place to live and is expensive (relatively speaking) for a reason. Overall, all factors considered, it’s the best place to live in San Diego.

Oh, one more snippet about crime in this area. I have a friend who is a policeman and he said the department sends all the rookies up to Carmel Valley because nothing scary ever happens up here. A few wild teenagers, a cat stuck in a tree, a toilet papered house after a football game is about as exciting as it gets. So my crime meter is the ages of the police men and women who patrol our community. As long as they stay fresh faced and look like college kids, I know our community is safe from major crime.

[docteur]

Speaking of reductions. Did anyone see the article in the Daily Business Report whereby Lennar and Larry Clemens have parted ways as part of a downsizing move?

That’s huge. Clemens is a giant in the homebuilding industry here in San Diego and for Lennar to let him go (or for him to leave) is in my opinion, a look into the future of what’s coming down the road for the entire homebuilding industry. The word on the street is a lot of builders are rethinking future acquisitions and are keeping only the prime deals, letting the others go.

See the article below:

Daily Business Report

April 21, 2006

DOWNTOWN

Larry Clemens, who headed the San Diego urban division of home builder Lennar Corp., has left the company. Clemens’ departure followed an announcement earlier this month that Lennar was consolidating its Southern California divisions. A published report said the Downtown office of Lennar would lose about one third of its staff, which numbered 25.

Bernie Rhinerson, a spokesman for Lennar, said yesterday (April 20) that he did not know how many people are left in the Downtown office. He said John Spelke, a staff member there, is now managing the office.

Rhinerson said the consolidation will have no affect on the projects that Lennar is currently involved with in San Diego. One of those is the seven-acre, $1.4 billion Ballpark Village residential, office and retail complex that it is developing in partnership with John Moores’ JMI Realty in East Village. Lennar also is partnering with Intergulf Development Group on Breeza, a 158-unit condominium development under construction at the northeast corner of Pacific Highway and Ash Street. Unclear is whether Lennar will continue negotiating the purchase of other properties in East Village for future developments. Rhinerson, however, said the company “is still looking for new opportunities.”

Clemens, one of 25 persons profiled by Metropolitan Magazine last December as “Metro Movers to Watch in 06,” supervised the move of Lennar San Diego Urban Development Group from Carlsbad to Downtown. Clemens is on vacation this week

[docteur]

Good one!

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Josh – I agree with you 100%. You have a lot of insight at a relatively young age. And you are right, ignorance is not a viable defense in BK court, I have used it and it didn’t work.

It’s amazing how our lives improve when we stop laying blame (including blaming themselves) and just accept the way our life is and that we were the ones who were always there when it unfolded that way.

Taking responsibility for creating our own particular set of circumstances is a huge step towards personal freedom and allows us to move ahead to a much fuller and rewarding existence.

You have learned the most valuable of life’s lessons at a relatively young age – it took me a lot longer and I experienced the severe consequences of acting irresponsibly, not only with my finances but with my relationships as well.

When I was your age I had a $ 10 Million statement, a wonderful family, a home on the ocean and a very cocky attitude, (ala George Chamberlin). Ninety days later I was broke, alone and living in my car. I had nobody to blame so I picked up the pieces and began a 25 year odyssey back to a meaningful life.

I took some hard hits when I was your age (and for many years thereafter) but I grew to understand that living responsibly is the only way to live with integrity. Blame has no place in a purposeful life.

I am glad to have been given a second chance at life and was humbled by the discovery of what really matters during our short time on earth – true freedom is nothing more than taking personal responsibility for all things in life (good or bad).

You have my deepest respect for taking a path that many never choose (as you said laying blame is fun and I might add a lot easier than taking responsibility).

But believe me, for taking the road less traveled…it will make all the difference.

[docteur]

Bars do well in a recession, as do liquor and tobacco companies…

[docteur]

First off, I don’t think we are talking about blame as much as taking responsibility for one’s actions. Blame implies that someone did something “wrong” and I don’t think the consumer did anything wrong, he/she just didn’t use good judgment.

And I don’t think the institution of home ownership should be questioned per se, but how you perceive it. Is it an investment or a place to raise a family and put down some roots (or both) and maybe get some tax breaks in the process?

I know a lot of younger homeowners in their 30s and 40s, who are highly intelligent, and make a great living. They are also highly leveraged because the glam of bigger and better got the best of them (they knew exactly what they were doing), and now they are stuck with way more house and (soon to be) much larger payments than they need.

My brother and sister-in-law, both high earners in their early 40s, live in a multi-million dollar home, vacation more than they work and go through money like crazy (designer labels and all, for them and their children). And so do all their friends, each one trying to outdo the other. It’s like a Hollywood premier when you go to a get together at their house. I see this everywhere. It’s just so cool to be cool.

Honestly, I don’t think equating age to ignorance regarding risk has a whole lot to do with it. You don’t have to experience a down market to know that it is always part of the equation. Folks in their 30s and 40s are certainly mature enough to understand risk/reward and notice when greed clouds their judgment. (What about all the younger posters on this site? They see what’s going down and are staying out until it blows over or blows up).

I am constantly amazed at the sophistication level of the internet generation (they have so much more information so much faster). But again, humans will be humans and when the action gets fast and furious, people want in for fear of “missing out” which is just soooo uncool.

It’s a national state of mind that has moved us from funny money in the stock market (hard lesson # 1) to easy money in real estate (hard lesson # 2). Everyone wants to get rich quick and after the dotcom bust, real estate was the next best thing (now it looks to me like commodities is the next best thing…)

I know a lot of relatively wealthy people and none of them “got rich quick,” even some of the dotcommers that survived that shakeout. Building real wealth takes time, sacrifice, patience and prudent decision making, (plus a lot of luck). Not a celebrity mentality of I’m hot, I drive a Mercedes and therefore I’m going to be rich.

You watch, as soon as this asset class really starts to tank, the stock market will take off like crazy (unless this mess truly snowballs into a national disaster, drags us into a recession/depression of unimaginable proportions, then all markets will be hurting).

Sometimes, I look at the pictures of the Great Depression, with the long lines of out of work Americans and I shudder to think that it could happen again.

[docteur]

I have to agree with Josh. The ultimate buyer has to take responsibility for his actions. And he will, as prices fall, loans adjust and jobs are lost.

I think a lot of folks got caught up in the runaway YOY double digit increases in housing and fueled the fire, by taking risks they wouldn’t normally take. It was classic mob psychology in action.

No one wanted to miss the party and people became smug at realizing easy gains (not only in profit from home sales but also in lending fees, real estate commissions, construction contracts, etc.) Flipping became a national pastime (heck there was even a TV show about flipping) and folks forgot the real reason we build houses, to live in them.

“Integrity is what you do when no one else is looking.” You play, you stray, you pay.

[docteur]

I had a good laugh at the “Sunshine” comment.

I am by no means smart money but have done pretty well for an old surfer with no formal business education (luck played a big part in that as did dumb persistence).

I am completely out of real estate, after being in it for more than 30 years, except I paid off my $ 2 Million McMansion (because I intend on living there for a long, long time – we love where we live) and am looking for alternative investments to place a lot of cash.

It’s a very difficult “shift” out of something I have always known into an arena with so many choices. I am overwhelmed sometimes by the uncertainty and conflicting views on various investment vehicles. Growing older has taught me to be pretty conservative, yet at the same time that type “A” personality always pushes me into thinking that I should be doing “something” instead of just waiting.

I keep thinking I should stick with what I know (real estate) but I can’t find any opportunity in this market, anywhere (commercial, residential, industrial, etc.) Honestly, nothing looks good because it is all so overvalued (in Southern California anyway).

And all the folks I have worked with over the years aren’t finding any opportunity either. You know things are going south when you get phone calls asking “You finding anything good out there?”

Equity underwriting is changing dramatically and is getting far more conservative, meaning the risk is increasing daily (or the perception of it anyway).

Your smart money friend is absolutely right. Patience will rule the day. The last time this happened (a market compression), I remember meeting a really nice guy from Canada who came down to San Diego to look for opportunity in a failing market (early nineties).

He waited and waited and looked and looked and then jumped on hundreds of finished lots that had gone into foreclosure and made an absolutely screaming deal from the bank.

He sold those lots in a closed bid situation to several builders about five years later (too “early” according to him) for about $ 60 Million in profit. (I figure his investment was less than $ 3 Million).

I remember as a kid my father always telling me that big money was patient and quiet (like a leopard stalking its prey). I guess I should just kick back, wait it out and go sailing for the next few years and then when the behemoths start to move, just follow their lead and go for one more round.

Staying in cash and losing to inflation for a few years while patiently waiting until we bottom out, and then buying again as the market starts to improve is probably a pretty good strategy. The only problem I see is it may take several years for this market to go through its cycle and I’ve got the “jumpies” already. I feel like a third grader waiting for recess…

[docteur]

Thanks to both Chris and Powayseller for the insights. You two are on top of this stuff.

Honestly, I am really impressed by the level of sophistication on this blog. There are some incredibly bright people contributing what I consider to be very reliable information with the sole intention of sharing that information without some ulterior motive. I can’t tell you how much I appreciate that.

So, once again, I extend my sincere thanks to all of you for participating in this blog and especially to Rich for starting this whole thing rolling. I can’t wait to see how this all plays out. These are exciting times we live in and assuming we are correct in our collective analysis, they should get even more exciting…

[docteur]

Apples to apples, I guess. But a little cheaper this time around, eh? Thanks.

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Lot/view premiums can make a huge difference. Maybe that’s at play here? In my north county subdivision (about three years old) view premiums and or lot size/location can account for up to $ 200,000 difference in the resale pricing for basically the same home (upgrades, etc.)

Lot improvement can vary substantially also. I have seen $ 50,000 yards and $ 250,000 yards with the same home in my subdivision.

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