[(former)FormerSanDiegan]

Sunset Cove is in a decent area shouldering Bay Park/Clairemont. I think they knocked down a bowling alley to build these units. My guess is that whomever sold the property to the builder is doing pretty well.
But I have to agree. Their main problem is that single family homes in the area are already priced in the 600s range (towards the south/west) and in the 500s range to the north/east. The SFRs don’t have HOA fees so it might be roughly equivalent to buy an older SFR in Bay Park than these units. For me, that’s not a tough sell. It’s an impossible sale.

[(former)FormerSanDiegan]

This happened a lot in the mid-90’s.

However, some jurisdictions attempted to move the tax basis back up to the original prices, plus 2% per year once the market recovered. There was a lawsuit in Orange County in which the plaintiff claimed that prop 13 limits it to 2% increase each year after any reassessment as well. They lost.

So when things recover, the county can (and likely will) bump your taxes back up to the original basis, plus 2% per year. You can save lots of dough in the mean time, though. Happened in the OC and I also read something about it in SD, but don;t know if they focused on commercial properties only or also Joe Homeowner.

JJ- Did they bump your cost basis back up?

On a side note : This could be a proxy for market turnaround. When the U-T consistently has articles and letters in the financial section regarding lowering your property tax basis, it will be time to consider the RE market again.

[(former)FormerSanDiegan]

I think the market will definitely pick up in the Spring ….
The only question is:

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What year ?

[(former)FormerSanDiegan]

Why should we trust the savings rate number without digging further ?
I’ve heard too many arguments against the government’s reported GDP numbers, the CPI, and other numbers. Why not a thorough examination of the “savings rate” ?

There must be some flaws. Any ideas ???

[(former)FormerSanDiegan]

The Institute for Supply Management said its manufacturing index registered 49.3 last month, down from a December reading of 51.4. A reading below 50 indicates that manufacturing activity is contracting rather than expanding.

This is generally flat. According to the ISM, the turning point for the economy has historically been when the manufacturing index drops below 45. At 49.3 the reading shows a slight contraction. Also, manufacturing represents less than 1/3 of the economy. Recently the service sector has more than made up for this contraction. There needs to be weakness across both sectors before a recession occurs. This has been slow to develop, thus far.

[(former)FormerSanDiegan]

Yes there there is a recession coming.
But, the billion-dollar question is when ?

The inverted yield curve has predicted 7 of the last 3 recessions.

… that’s right 7 of the last 3. It often is premature or wrong. These indicators all point to a slowing economy, but they really cannot predict the depths of the slow-down and how far down for how long they will last and whether it reaches recession status.

[(former)FormerSanDiegan]

I don’t think the lenders will agree to this, which is why this is usually done outside of escrow and is considered fraud. I had a seller give me credit in the past on home purchase, but the lender’s guidelines limited it to something like 3% of the sales price.
There have been too many recent defaults, where the buyer overpaid and received cash back, only yo walk away from the loan. The lenders, DAs and assorted lawyers are on to this scheme, so I would avoid it. Even if you are trying to do it the right way.

[(former)FormerSanDiegan]

I mostly agree with bob007. In the grand scheme of home prices, prop 13 is a bit player.

However, I believe that it does suppress both the overall supply of homes and the pool of potential buyers by incentivizing people to stay in their low-cost-basis house rather than moving. This reduces the overall numbers on both the supply and demand side. This impacts the overall potential volume of sales, which is correlated with price.
But other factors are more important.

[(former)FormerSanDiegan]

If a beer is substantial, then yes, someody did base something substantial on the number reported.

So, you think the GDP number is cooked ? Can you elaborate ?

[(former)FormerSanDiegan]

GDP came in at 3.5%. Drink up qcomer.

(I’m celebrating with a Guiness that I bought myself, since I foolishly was not in on the bet)

[(former)FormerSanDiegan]

There’s another factor: although you may not pay a penalty for first-time buyer withdrawals from certain retirement accounts, you do pay taxes. If you have a good income this is 30% or more off the bat. Figure out how long you have to save/invest or what return you need to make back that 30%.
Assuming 6% interest, it takes over 6 years just to get back to even, assuming you pay 30% in taxes. In many cases it’s much worse (e.g. CA state marginal tax rate at 9.3%)

My guess is that tilts the spread much more than the 0.75% you figured.

My advice: Do not raid your retirement funds to pay down a house, unless it is in a year that you have little or no income so that you can minimize the taxes. When you buy, pay your house down as an ongoing living expense, just like you do with your rent today.

If you want to hedge your bets, raid your retirement for an amount that makes your mortgage roughly equal to rent after taxes. At the bottom this will likely be 20% down (as opposed to 50% today).

[(former)FormerSanDiegan]

n_s_r makes several important points.

Deduction of interest is limited to acquisition debt plus 100K for primary residence up to $1 million. It is also limited to acquisition debt on investment property.

If your rate is higher, it become fairly expensive.

If I were you I’d pencil it out assuming a fixed-rate second. If you take a fixed rate loan, What it’s costing you is the 2% or so between what you earn in short-term investments and the loan rate (assuming you can deduct the loan, if not you have to consider after tax on the interest, which makes it more expensive).

Consider this an option at the price of 2k per 100K borrowed per year, to guard against increasing rates or lower property values. If you hold the cash for 2 years and things are exactly like they are today, or rates drop you will have paid about 28K for this option. It might be worth it as a hedge. Nothing is free. But, If rates are higher in a couple years you (and cash) will be king. If rates stay the same and prices drop, you have more cash at your disposal than you would have if you didn’t take the funds today. It seems like a reasonably conservative and inexpensive hedge to me, as long as you exercise discipline and don’t dip into the funds prematurely or for other speculation.

Again, consider the points n_s_r makes regarding deductibility, any increase in rate with respect to you current debt, etc.

[(former)FormerSanDiegan]

I was more worried about the today part of my question than the 80% LTV.

Taking cash out of your property today using a fixed rate loan with the possibility of buying something cheap in a couple years is a reasonable proposition. Buying something now with it is dicey.

[(former)FormerSanDiegan]

surveyor – Really ? Are you recommending taking maximum cash out of properties today and leveraging at 80% LTV on new property ?

[(former)FormerSanDiegan]

Make ready the tap.

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