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I think in the 80s or early 90s, the UK got rid of their version of the mortgage interest deduction. Had no impact on property prices, in fact, prices probably appreciated even faster than when it was in effect.

Many owners overestimate the value of the deduction.

One indirect impact, there may be less charitable giving when you can’t itemize. One would need to setup something like a donor advised fund when income is high and perhaps not donate every year. Most people won’t think of that.

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About a month ago, I allocated 11% to cash.

Not reinvesting dividends for now.

Fresh money is going to projects like painting houses, bought a new car and paid it off in a few months.

I do add $500/month to one fund.

Shifted a few accounts like 529’s to a higher intermediate term bond/short term allocation.

I’m not frightened but I know it’s not a straight line up. When a portfolio is up 15-20K/month every month for over a year, it’s just prudent to be a little cautious, but I’m still about 65-70% equities.

Side effect, the higher stocks rise, the less likely I am to sell real estate as it seems to be the better relative value.

2/3 of assets in real estate now. I did think that we are coming up on the 10 year anniversary of the financial crisis starting. Still not seeing the signs that things will turn dramatically soon. Perhaps if the tax cut takes effect then Trump might learn what Clinton did about the the bond market.

Still really hard to see the bond market vigilantes taking over soon. But for anyone not familiar with the concept, not bad real about.

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Flyer

But there’s a point where even higher rents don’t make sense for a landlord.

If tenants are stressed, or can’t make the payments or are less careful with the property. I don’t know of any landlord who actually raises the rent by 7-8% on a good tenant.

There will always be some natural turnover which allows for the occasional catch up if the market has gone up.

Call me a softie but I’d rather have 2-3 tenants in 10 years, than 7-8 tenants in 10 years. Makes a world of difference.

Given, when a tenant doesn’t communicate well, then that’s another issue.

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My sister is an attorney in Texas. When she bought a home, she had the seller pay her the 3% commission as she represented herself.

The other agent and seller agreed.

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Thing goes into some more detail on Houston.

https://www.bloomberg.com/news/features/2017-08-31/a-hard-rain-and-a-hard-lesson-for-houston

And as far as global warming which I all think we need to take action on, here is some real analysis regarding Harvey:

http://cliffmass.blogspot.com

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There are some very specific areas of Houston which can make for excellent investments. Rentals near the medical center/Rice University (my alma mater). But I wouldn’t buy anything over 20 years old due to mold issues which sometimes creep in.

I’ve considered apartment complexes from time to time in Houston.
Might not be a bad time to look as rents will certainly go higher as some abandon homeownership and just rent while trying to sort things out.

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Went to grad school in Houston in the early 90s. My grandfather was City Manager there in the 1960s-1970s.

Many of the flooded areas shown in the news are known flood zones. Especially some of the highway shots.

Some of the new subdivisions should have never been built as the drainage infrastructure put in place wasn’t adequate.

These were known issues during Rita (2005).

My sister’s house flooded then, she went out of her way to buy a house in a non flood zone this time. (no damage) in spite of being in Spring Texas where some new homes are up to the 2nd floor with water.

It is very tragic what has taken place. I’m not really sure most will recover, this will drag down property prices in flooded areas, increase insurance costs, taxes will likely also go up to pay for better infrastructure. A dirty little secret about Texas is the property taxes (+2%/year is not uncommon. They basically combine what we pay in income tax+property tax into one item.

This may bring about the end of 70M dollar football stadiums as communities may realize they just don’t have the funds for necessary infrastructure plus “Friday night cathredals”

On a more positive note, the Texas spirit will come through and neighbors will help each other out. The sense of community is quite strong there. On balance, I’d probably rather have small town Texas neighbors in a cataclysmic event like this.

My aunt will likely go back to work at FEMA for this one too. but eventually when you’ve seen so many disasters, one has to wonder, when will we learn and just not build in certain areas.

Houston has always been known for sprawl but we can’t throw common sense out the window.

Longer term, this may be a foreshadow of what can happen in coastal areas over the next century if the more extreme climate scenarios take place. That at the very least should make anyone living in an area that is less than 20 feet above sea level pay attention to what might happen.

One grandmother lived in Alvin for almost 97 years, her first house was up on cinderblocks (3 1/2 feet above the ground). Back in 1979 it once rained 43 inches in a day in Alvin. Needless to say, her house never flooded. It wasn’t that we even talked about why her house was different.

My great grandmothers house was used to house survivors of the great Galveston hurricane of 1900 when 6,000-12,000 people died.

It was built in Victorian style so the downstairs bedrooms were also raised at least four feet off the ground. It stands to this day.

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gzz

I can’t think of any reason to sell, even if rents flatten out for a few years.

Every year the five properties bring an additional 5-7K in rent. Yes there are some expenses but it comes out fine.

One of mine is probably still $400 below market but the tenant has a son in high school and I’m fine with them staying two more years so he can finish. (long complicated story) but I’ve done well.

In spite of what Greenspan says, rates are low and it looks like they will stay lower for longer. I don’t think the full impact of globalization on non-union manufacturing wages in the US is fully understood in policy circles.

Net effect, the only inflation is in areas like medical services, college.

Anything that can be downloaded or bought in a store/online has minimal inflation so rates can’t go higher.

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Last night I drove a couple from Boston to the airport.

They called 11 hotels and none had rooms. So they decided to camp of the floor of the airport for the night.

I offered to take them to North county but they didn’t go for it.

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As far as normal, usually if everything else is in balance, real estate prices should track increases in personal income.

As there have been so many extraordinary factors in the SD market in the past 20 years, there has been excessive volatility which has created both massive wealth destruction and creation.

So when I say normal, which SD will likely never be completely, its more like what would it take for the market to be driven entirely be fundamentals such as incomes/rental values and not speculation or a reaction to short term rates.

If speculation and low rates play a lesser role, then things are more normal.

Some markets go through long periods of stagnation after long periods of increases.

I spent years in Germany in the early 90s and recall how prices were increasing greatly there only to stop in the late 90s and not move for over a decade.

Prices in Berlin got really cheap at 5 times annual rent around 2004-05.

Now, they’ve almost doubled again. That was partly driven by capital flows out of Germany to other parts of the EU prior to the financial crisis.

The closest comparison I can think of in the US would be for investors to realize the cash on cash return (non appreciation) is so much higher in other parts of the US that the market in places like SD becomes more focused on the owner occupied rather than investor crowd.

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OC,

Thanks, pretty sure I’ll do it.

Did you use to run a blog called housing inventory or something like that?

It shut down like 5 years ago but was pretty useful, used to read all the time.

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Go to Balboa some evening, must be 50 Asian restaurants in the area,
Korean BBQ, Japanese BBQ, great stuff but often $25/plate for starters

Many Asian kids from UCSD go there to celebrate/relax on weekends.

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I would love to see a very comprehensive “bear case” for housing based on data.

Specifically for SoCal and San Diego.

Imagine there is a recession, what would be the key factors which would impact housing:

1. how high would unemployment go?
2. would there be another lending/banking crisis?
3. what would vacancy rates be?
4. how much would prices decline?
5. how much would incomes drop?
6. how many businesses would close up/ never to return?
7. what would trigger a recession

In my personal view, many recessions were directly related to energy prices in the 1970s/early 1980s. Even the 1990-01 recession was partly related to Gulf War 1.

In my opinion, the 2002 recession was a combination of 9/11 and the tech bubble bursting. If it had only been one of those two, then perhaps it would have been more regional. Much like Texas in 1986-87 oil industry or Michigan in 1981-82 (auto industry).

I lived through both of those and while it seemed dramatic at the time, within a few years Texas had recovered. Michigan took longer but that was partly due to the complex and unproductive relationships between automakers and unions at the time. I think it is different now.

I can see the tech “bubble” deflating some, but the profits of the Googles today are much more stable than back in 2000 with the dot com bust.

With fracking and OPEC capacity, I don’t see energy being a problem in the next 3 years, beyond that perhaps prices will rise but EVs may then play a greater role.

Perhaps if Putin/ISIS/Assad/Iran/Hezbollah all decide to live together in peace than we may see another “peace dividend” for those who remember that phase from the 90s, that would impact defense spending and thus San Diego. But again doesn’t seem likely in the next few years, in fact, after the DT was in Saudi, it made me think about getting back into that business.

Alas, a slightly weaker dollar is helping the manufacturing company I work for with our international exports, nice to see foreign customers paying a touch faster when the currency works in their favor. A strengthening dollar would be a headwind but likely not enough to cause a recession. Yes, SoCal still has manufacturing believe it or not.

If the DT admin gets it’s way, perhaps some of the govt biotech spending will go down, but there seems to be pretty strong resistance to that, so give this a low probability for now.

In my sober assessment, I still think there is too much demand pent up to see excess supply being a problem. More likely, blue color labor wages won’t rise fast enough to keep housing affordable (not saying anything new here).

So for now, I see the cycle just kind of sputtering out as people get bored and realize there is more to life than how much the house appreciated last month/this year. It will be a healthy thing if we all kind of move on and let real estate be boring for a while. Just black and white numbers on a spreadsheet with reasonable down payments.

For my friends who think of buying, my concluding is basically, be sure when you buy that you will actually make/save money in a non-speculative way. I.e. assume perhaps 2-3% appreciation. If things go down, be prepared to ride it out.

The ones who lost the most in the last downturn were those with funny mortgages and those who took money out.

Thanks for indulging me.

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Anyone who paid off Mello Roos have regrets?

Thoughts on doing this for a rental property?

Anyone do this CFD 6 in 4S Ranch?

Anyone do CFD 4 in 92078?

Thanks

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Even for those of us who had good stable jobs, the crisis was scary as hell.

Stock market down 54% in less than 17 months.

Even with regular cash flow, I stopped buying stocks.

Yes the recovery has been strong but it wasn’t clear it would happen.

A correction in home prices as necessary but the crisis went well beyond that.
Back in ’03-’06, I thought perhaps prices would pull back 10-15%, even 20% would seem extreme. But I didn’t think we would get to below replacement cost (i.e. free land) and for a while it was almost like that.

Even years later, there were bargains in real estate, but each of those caused real pain for the families who lost their homes even if they bore a significant portion of the blame by being over leveraged.

In the mean time, don’t go down the road of USA makes nothing as we prove that wrong every day. There is so much industry in SD County, do some research in the companies like GKN Aerospace, General Atomics, Dexcom, Northrop.

The list is long and very amazing and great people do things here everyday.
My company exports to 40+ countries and yes it’s not easy but that’s life.

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