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4Sbuyer2002,

>> … “standing buy” and not going anywhere …

I didn’t said that you overpaid for your house in 2002 or that you’ll have to sell at a loss.

I was merely disputing your view that it takes “a nuclear strike on San Diego, a massive earthquake, a melt down at San Onofre” for a 3000 sq ft SFH in 4S to drop to ~$500k.

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4Sbuyer2002,

Back in 2005, if you were to ask people what it would take for a 3000 sq/ft SFH in 4S to go down to $750k, many would say:

– Massive earthquake, nuclear strike …

Here we are in 2007, no earthquake, no nuclear strike. The job market is good. And the foreclosure activities are just starting to pick up.

Stay tuned. You haven’t seen anything yet.

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When the builder says “SOLD OUT”, it means:

– The buyers have put up some “good faith money” & signed the contracts.

Whether or not the buyers will be able to “follow through” with the purchase is a different matter. In 4S ranch, there were many homes that were “sold” & then became “unsold” when the buyers changed their mind or could not come up with the financing.

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23109VC,

Maybe you should change your handle to “KnifeCatcher” b/c that’s what you have been tempted to do 🙂

“catch the falling knife”

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avidsaver,

Good post. Especially this:

“I think that when the right time to buy does come, it will be obvious — like it was in 1996”

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Ash Housewares,

>> … we see them making bucks faster than most of us ever will …

Any experienced/seasoned realtor will tell you that, under normal circumstances, it’s very difficult to make decent money as a realtor. What’s going on in the last few years was an anomaly. This is why, currently, many realtors are leaving the profession.

There is an old saying: “only when the winter comes, can you tell the grasshoppers from the ants.”

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Cashman,

You paid $1.4M for your house in 1994. Someone else paid $1.1M for a comparable house in 1995. That’s a 21% reduction in 1 year.

In a correction, price reduction decelerates near the “bottom”. 1994 is near the “bottom” of the last correction. I don’t think prices (in the LA area) went down 21% in 1 year during that time. I think you paid too much for that house in 1994.

Bear one thing in mind. The median price in southern CA bottomed out in 1996. But the “real bottom” was in 94/95. Here’s why:

At the “bottom”, prices were so low that one can buy a home as an investment (i.e. to rent) and have “possitive cash flow”. As a result many “cash flow investors” jumped in the market and they bought entry level homes (b/c these homes are easier to rent).

Since the median price is the mid-point of the real estate transactions, the activities of the “cash flow investors” dragged the median price down. Even though, in 1996, demand for entry level homes was already up, sowing the seeds for appreciation in the move-up market (mid-range & luxury homes).

I remember this because, in 1996, I lived in SoCal. At that time, I was saving for a down payment. In 1996, I read in the newspapers that the job market was picking up & the number of RE transactions was going up. At that time, I didn’t have enough money for a down payment, I remembered thinking to myself: “If prices pick up soon, I may miss this train …”

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Cashman bought that house in 1994 (near the bottom of the last cycle). And in 2005 (near the top of the current cycle), it only appreciated 42% ?

Perhaps he sold it for less than the market price in 2005 ?
Or, he paid too much for in in 1994 ?
Or, perhaps b/c it is in the most expensive neighborhood of a “not-so-expensive” city (Diamond Bar) ?

Bugs, does this seem strange to you ?

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Bugs made a good point:

>> … how sincere your landlord is about actually selling at the $350k.

Currently, $350k is significantly below the market price for that house. Even during a downturn, there are buyers, so there are people who would jump at buying that house at $350k.

The landlord can sell that house to someone else, why would he insist on selling it to his tenant ? To avoid paying broker’s commision ?

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I agree with PerryChase 100%

There is so much speculation in Temecula, it’s going to be very ugly/nasty.

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The chances of that house falling to “only 380-400k” is 0% because that’s its current market price.

Temecula is going to be hit hard. IMO, there is a 80% chance that it’ll be under 300k in a few years. I think Bugs & PerryChase would agree with me on this.

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An identical house sold for $430k 6 months ago. Since then, prices have gone down. Currently, the most it can sell for would be ~$400k.

If you buy for $325k, you’re getting a $75k discount (at most). The effects of tightening lending stardards are just starting to kick in. I think this “$75k cushion” would last for 18 months in this downturn. By late 2008, you’ll start losing money. Will you be OK with that ?

It’s very likely that this correction will continue until 2010 (and possibly beyond).

Also, the fact that you have more than one kid tells me that you’ll like need a bigger house within 5 years.

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Here’s an idea:

Why not rent a house (similar the house you want to buy) in Mira Mesa. That way, you can be close to your mother-in-law & live in a nice house.

If you think renting is expensive (giving $ to landlord every month & forgo the tax deduction), buying is even more expensive (huge loss of equity).

Here’s the math (rough estimate):

500k house = 70k down payment + 430k loan

430k loan = $2500 payment (30-year fixed mortgage)
Property tax = $500
Insurance = $50

Before tax cost: ~$3000/month
After tax cost: ~$2400/month

Rent cost: ~$2500/month

Bear in mind, if you spend $2500/month on rent in MM, you’ll probably get a better house than the house on 11902 Thomas Hayes Lane. Where as, if you spend $500k on a house, you’ll get a worse house than 11902 Thomas Hayes Lane.

On top of that, you’ll own a depreciating asset.

In an earlier post, someone said:

“back then I said I had only 50k and now it’s well over 100k.. I had been gaining while the market has been dropping. It definitely was a win win for me.”

Right on! I’m in a similar situation (renting & waiting). Definitely win win !

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Jimmy,

Price per square foot can be tricky to interpret as well.

Let’s suppose that, in a certain neighborhood you have houses ranging from 2000 – 3000 sq feet. The price of the 3000 sq ft homes are not 50% higher than the 2000 sq ft homes.

So, the price/sq ft of the larger homes will be lower, even though it’s in the same neighborhood.

One of the best ways to gauge the direction of prices is to look at what the builders are doing. Builders are very savvy & adjust their prices to the market’s realities.

>> We were tempted to put in an offer of $530K …
>> It was really difficult not to pull the trigger …

Most people “operate on recent memories”. Using recent memory, that house may seem like a bargain. When put into perspective, that house is way overpriced.

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Jimmy,

The median price is the mid-point of all sales transactions for a particular month. The median price reflects what people spend.

Take your scenario, when home prices drop, you still plan to spend the same amount of money (getting a bigger house). You did not plan to spend less. Your behavior is very typical of middle class folks.

This is why the median price does not reflect the market price. This is why it can go up while the “real home price” is going down.

I agree with deadzone about waiting until end of 2008.

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