[(former)FormerSanDiegan]

Asianautica –

RE: “Dead Cat bounce.” Are you calling the period in 1Q 1996 a dead cat bounce ?
This is about a low single-digit % deviation from the bottom. In the SD cycle that has historically dropped 30% over 6+ years before doubling (or tripling) over the following 6+ years, I think we could all survive buying the wrong side of a dead cat bounce like that one.

[(former)FormerSanDiegan]

This is a great idea !

I think this survey will provide anecdotal evidence to support what the ultimate survey is already saying …

The ultimate survey is to ask all SD county property owners if they actually purchased a property in July 2006 and compare it to the number who actually purchased in July 2005. This survey says that 37% fewer people made purchases.

[(former)FormerSanDiegan]

Don’t forget to ask the shoeshine boy and your local X-ray technician.

[(former)FormerSanDiegan]

Oops, just re-read through the post and see you are just outside Culver City, so ignore my school comment. However, the seasonal trends strongly favor the March – July timeframe in So Cal for home sales.

I see lots of price reductions in Culver City and surroundings. We looked in this area in June 2005 and saw nothing in the quality Culver City areas such as Carlson Park, Vet’s Park, Lindbergh Park under about 850K. WHat are the prices today ? about the same.

IMO, you will start seeing Y-O-Y price decreases in this area by this time next year. LA-Westside has been about 1 year behind San Diego in real estate trends for the last 5 years or so that I have been watching it.

[(former)FormerSanDiegan]

I agree with VCJIM

One of the draws for Culver City over other areas is the elementary schools are considered better, relative to LA Unified schools. Culver City has its own school district.

Seasonal trends have always favored the summer months, even in So Cal.

[(former)FormerSanDiegan]

I strongly disagree with the statement “…the general sentiment has not changed about real estate. *Most* people still think it’s a good investment.”

Where are these investor-buyers ?

What are the headline stories in U-T, LA Times, etc regarding real estate ?

My friends, I believe that Main Street sentiment has clearly and obviously changed

[(former)FormerSanDiegan]

PS – Good points.

The hard part is predicting rates.
You just laid out a relatively straightforward ( and IMO) likely case for rising long-term rates. However, the bond market is often not straighforward. Your second paragraph lays out a scenario that is less likely IMO, but plausible.

“And how does all this affect REITS ?”
That’s the simpler question IMO. As an investor, would I rather own an apartment REIT spitting out a NET after expenses 8% or would I rather have intermediate-term bonds paying 5% ?
What about if these same bonds went to 9% (apartment reits are much less attractive), what about if bonds went to 3% (more attractive for 2 reasons, cost of leverage goes down, relative value goes up.)

[(former)FormerSanDiegan]

Independent of soft and hard-landings for RE prices … when mortgage rates go down applications go up, and vice versa.

Rates certainlky are a factor, but a sustained drop or settling of rates would ease the hardness of the landing, but would not fundamentally alter the fact that home ownership to income and rental rates is out of whack.

[(former)FormerSanDiegan]

[(former)FormerSanDiegan]

Just buy Heebner’s fund

CGM realty.

He’s made some pretty good calls in the recent past, such as selling his positions in homebuilders in June 2005.
See link below.

http://money.cnn.com/2005/06/03/markets/heebner_homebuilders/index.htm

[(former)FormerSanDiegan]

If I could predict bond rates I wouldn’t be at my office typing on this board. I’d likely be on my private island somewhere in the Caribbean.

Anyway, if bond rates go higher, REIT payouts lose value relative to other investments. However, the demand is still there, so APT REITS would presumably fare better than commercial REITS, mortgage REITS (ugh!), etc. Remember Ken Heebner is essentially a real-estate money manager. The apartment arena is the safest bet for him.

[(former)FormerSanDiegan]

Or you could just keep the house you already bought for half-price and worry about other stuff.

[(former)FormerSanDiegan]

Where is the cheapest place to live ?

Apartments. Seems that the demand will be there.

Also, IF (a big IF) bond rates go down, the relative value of dividend-paying assets (REITS) goes up.

[(former)FormerSanDiegan]

I ran the numbers …

Assuming 750K purchase, 20% down, 5.5% I/O Loan.

Monthly outlays assumed:
interest = 2750
Taxes = 687/mo
HOA/other (mello roos) = 300
Insurance = 150
Total monthly = 3937

26 months total = 102363

In 35% combined fed/state bracket there is a tax savings of
about 31K over the 26 months.

AFTER Tax outlay ~ 71K.

Grosssale (assume 7% commission and costs) = 0.93*825K = 767,250

Profit from sale = 17,250

After tax outlay minus profit = ~ 54K = 2076 per month for 26 months to live in the home.

Market rental rate ~ 4% of value = 2500 per month.

Monthly savings by owning in this example : about $400

Opportunity cost of tying up downpayment of $150K, assuming 4% average return = $500 per month.

Looks like a net loss to me.

[(former)FormerSanDiegan]

Yes

(but it’s addictive … also can’t stop drinking coffee)

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