[livinincali]

[quote=The-Shoveler]I don’t think we will see another crash in the housing market unless there is another economic catastrophe (not caused by housing this time).

Which actually I think there is a fair chance of occurring, but the fed will do “EVERYTHING IN ITS POWER TO PREVENT” such a thing from occurring in the near future (Because it “the Gov” cannot afford another one right now).

Interesting times, the game is afoot (just look at Japan).[/quote]

I think there’s way too much faith in the fed. When has the fed ever been successful at stopping the decline once the bubble popped. The fed creates the bubble but they can’t seem to do anything useful once it blows up. Their solution is create another bubble as soon as possible.

This time the bubble isn’t in housing per say but when the bubble pops it will bring housing down with it. That’s why you’ll probably see strength in the housing market for a bit of time after the bubble pops. People will initially feel smart for hiding out in real estate. It will be 6-12 months down the road after the bubble that we’ll see a liquidation phase in housing and I don’t know how bad it will be. I suppose it could be somewhat muted depending on the availability of financing and how leveraged people are. The low end will probably suffer the most in that scenario.

[livinincali]

It probably depends on what segment of the market your old place is in. If it’s in the lower half, I’d look at 2 things. Is it cheaper to buy than to rent using FHA financing. Is the cap rate on the property greater than 5%. If either of those conditions are true than it might be better to hold off. If those conditions aren’t true than I would sell now as the current frenzy is likely overpaying.

[livinincali]

[quote=moneymaker]Perhaps Apple itself is selling stock to invest in production of new iphone5s. Don’t know, but a PE below 9 for Apple screams under valued to me.[/quote]

Apple would have to file a secondary offering if they want to sell new stock. Plus they have plenty of cash on hand to invest in new products. AAPL was an over owned growth stock. It’s going to take some time and a discounted share price to make the switch from growth based investors to value based investors. What’s happening right now is fairly typical as a company moves from growth to value.

[livinincali]

Student loans will likely be a factor in the housing market moving forward. Right now isn’t that time but sometime in the future when the investors dry up the lower end/entry level will likely be affected. Maybe not dropping prices but certainly stagnant pricing.

[livinincali]

[quote=moneymaker]As long as there are rich people around to over spend on laptops, tablets, phones, then Apple will continue to sell their stuff. That’s where my faith lies. I will buy more if I can in the near future. Today just reinforces my disbelief in Apple having a beta of .666[/quote]

Nobody is saying they won’t, just might not be that good for the stock price moving forward. People still bought plenty on MSFT stuff in the 2000’s but the stock was a dog. Plenty on people bought Coke products after 1998 and that stock was a dog too. History says AAPL will survive but buying and holding the stock isn’t likely to be a good investment other than the dividend. You aren’t likely to see 20+% appreciation annually ever again.

[livinincali]

[quote=masayako]I bought a bit more at $404 today, wish me luck[/quote]

Good luck but I personally would have waited. Nothing really suggests that breaking $420 support on higher than average volume is going to produce an immediate bounce. Dead cat bounce, yeah sure, maybe tomorrow. Long term bottom, highly unlikely but anything can happen as they say. I think $360-370 is probably in the cards now. That’s the next area of potential support.

[livinincali]

It sliced through $420 today, let’s see how low it actual gets before bouncing.

[livinincali]

The bill referenced is 933 not 993.

H.R.933 — Department of Defense, Military Construction and Veterans Affairs, and Full-Year Continuing Appropriations Act, 2013 (Public Print – PP)

[livinincali]

[quote=bearishgurl] I could understand why the Kansas City market has to cater to “high-leverage” borrowers in most areas there, but I don’t understand why CA coastal markets do. Why do “very desirable” markets with a “captive audience” (such as SD Co) need to cater to “high-leverage” borrowers? Before 2000?, FHA loans only represented <5% of overall purchases in SD County. Back then, the local FHA ceiling was set in line with the likes of SFR pricing in Spring Valley, Lemon Grove (just barely) and other similarly-situated communities in the county .... as it should be.

I don't understand why the ceiling EVER rose beyond $300K in SD County. Certainly, with the recent run-up in local home prices everywhere (2013), $400K should be the current max FHA mortgage available in SD County ... the absolute max. $400K is a HUGE mortgage for a moderate-income buyer.

In a nutshell, why is the FHA attempting to serve households with more than the "average income" in a particular county? It doesn't make sense. That is the sole purpose of fannie, freddie, portfolio lenders and the VA (for eligible vets only, regardless of income). It was never and is not today the FHA's role to provide this level of leverage.[/quote]

The entire bubble was built on increasing the available leverage. Back before 2000 you could save money at a bank by getting 5, 6, 7% CD rates that beat the 3-4% inflation and save your way to a down payment. Real household income was still increasing relative to inflation. Banks kept loans on their own books and actually had to price risk. It was when the banks figured out that they could move the risk onto investors and lie about the credit quality of the borrowers that 0 down came about.

The fed helping to drive investors into higher yielding riskier assets through suppression of rates helped as well. In essence they didn't want you to save, they wanted you to spend to "boast" the economy. It did boast the economy in the short term but now the long term impacts are being felt. People that didn't get into the system before the easy money policy of 2000's have had a hard time building the savings it would take to go back to the old system. Now that we're use to near 0 down it's hard to go back since building savings in ZIRP sucks.

So the people buying the hot markets right now with cash or decent down payments likely are older and enjoyed the benefits of the 1990's or happen to be in the top 20% of income. It will probably stay that way in certain areas of north county coastal for while as a wealthy retirement destination, but I don't expect it to apply to most of San Diego.

[livinincali]

[quote=bearishgurl]
The FHA has absolutely no business whatsoever “guaranteeing” a mortgage for this type of purchase, IMO. That’s not what the FHA was put in place for. The FHA was formed to serve moderate income purchasers shopping for a roof over their heads, the vast majority being FTB’s buying starter homes and/or in underserved areas.

The current FHA loan “ceiling” of $697,500 for a one-family SFR in SD County is turning out to be a bad joke … as predicted by a few of us here over the years. The joke is on ALL taxpayers, all over the country.[/quote]

FHA default rates are up around 10% right now. FHA MIP has been skyrocketing as that default rate has increased and FHA reserves have gone negative. The reason FHA got so popular is it was the only high leverage game in town when the bubble popped. The saving rate in the nation is a record lows. At some point you need the underlying economy and wages to push housing up. You can game it high with increasing amounts of leverage and lower rates but that only lasts so long.

That’s why I’m of the belief that right now or in the next year might be a really good time to sell. Almost every market condition in terms of rates, leverage, constrained inventory, etc. is in the sellers advantage right now. You’re looking for an improving wage and employment situation without any impact in rates to really push it higher on fundamentals.

[livinincali]

[quote=SD Realtor]Those are good questions Scarlett. I don’t really have many answers for you. Agreed that we have seen strong price recovery, especially over the past 6 months. Yes there are still alot of people underwater but nowhere near as many as there were in 2009. Furthermore that number is being whittled down daily. No the banks are not holding onto foreclosures as well. The supposed tsunami believers who I always said were grasping at straws are totally empty handed. I didn’t quite get your last 3 lines. The low inventory is bad, as bad as it has ever been. Even in the bubble days we didn’t have inventory like this. It becomes challenging for everyone. It makes the decision making process border on irrational for some. Buying becomes fed by fear rather then logic. Appraisals become much harder becaue prices gap up rather then appreciate normally. It is just a situation that most buyers should not participate in unless they are adequately prepared.[/quote]

I don’t think the banks that made loans back in 2005 and 2006 have much to foreclose on anymore. The only private loan I can think of during the bubble years that might not have defaulted yet is the 10 year Option ARM that Wachovia was offering (now it’s Wells). Most of the private sector bubble year loans were 5-7 option ARMs.

Most of the sales in the past 3-4 years are all cash investors (30-40%), FHA/VA (30-40)%, and then traditional 20% down loans (maybe 20ish%). Most of the recent defaults are FHA loans so if your going to see new foreclosure inventory that’s where it’s going to come from. I found this link which indicates 7K FHA loans in San Diego County that have been foreclosed already or are in some stage of foreclosure. Looks like around 300 so far in April.

FHA Foreclosure San Diego

[livinincali]

[quote=SK in CV]
BX is a primarily an PE firm. “Hedge” doesn’t apply to everything it does. That’s kind of what I was talking about. “Hedge fund” is now too often used to refer to all private equity. “hedge fund” and “private equity” are not synonymous. It’s current debt to equity is about .5 (which is NOT highly leveraged). But more importantly, BX doesn’t own the RE. It manages funds that own the real estate. If it owned the RE, it would show up on its balance sheet. It doesn’t. As far as I know, all the specific financial info for their RE funds is private (hence “private” equity).[/quote]

Private equity often employs leverage. The concept of leveraged buyout was invented by private equity. Of course this thread is about North County Coastal so I probably shouldn’t have brought PE into the thread at all.

North County Coastal is a special sub market that is far more likely to be effected by the Sorrento Valley economic center of high paying jobs than anything else. QCOM’s health is probably much more important than what private equity is doing if anything.

Housing for the marginal buyer is a highly leveraged asset in most cases. As long as carrying costs stay low (interest rates) and leverage available stays high (5% down or less) the housing market will be fine. As soon as one of those things goes away it will have some difficulties.

[livinincali]

[quote=SK in CV]
Historically, the term “hedge fund” has meant an investment group that played with other people’s money. They “hedge” their bets. They buy in a method that gives them most of the profits, but caps their losses.

These kinds of hedge funds haven’t been buying up real estate in droves. Much more traditional private equity funds have been. And they’ve been paying cash. Mostly all cash. And in doing so, they can’t be over-leveraged.

Someone suggested that these funds will eventually leverage their RE holdings. Not unlikely. But as a practical matter, they can’t do it cheaply with secured debt, because they cant get a single loan secured by thousands of properties. They would have to jump through similar hoops that small investors go through, financing each property individually. If it’s unsecured debt, then every penny of their asset value is at risk, and they have leverage, but no “hedge”.

I see no scenario where anything short of a catastrophic change in RE prices where PE investors could add to the catastrophe. They can’t create it. I’d certainly be open to suggestions of how it could happen. I just don’t see it.[/quote]

I don’t know I see articles like this Hedge fund Blackstone buying $100 million per week.

http://news.firedoglake.com/2012/11/15/hedge-fund-blackstone-buying-100-million-in-foreclosed-homes-every-week/

Look at BX balance sheet. 2 billion in cash 20 billion in investments. Looks like about 10 to 1 leverage to me.

Or Farallon group sets 300-400 million hedge fund using 60% leverage to buy real estate.

http://news.yahoo.com/exclusive-farallon-hedge-fund-raising-real-estate-fund-165122356–sector.html

Will it effect North County Coastal San Diego. Probably not. We haven’t seen much activity through the traditional channels. It would only be the case if they did some kind of bulk transaction that didn’t hit the court room steps. Probably the only way to know would be if there’s some kind of prominent management company in the North County Coastal rental market that has a large share of the rentals on the market.

[livinincali]

[quote=The-Shoveler]
The only mass exit I think that could occur would be caused by some economic catastrophe and it would be the leveraged players being forced most likely.
[/quote]

I personally don’t think it would take a catastrophe to end up with some hedge fund players getting overleveraged and blowing up. The past 20 years have seen plenty of examples of this. Fed lowers rates, people borrow at those low rates, and speculate with the money. Since that speculation doesn’t create any real economic growth or a sustainable environment it always ends up blowing up sometime. The fed says we’ll lower rates so businesses can invest but it’s far easier to borrow and speculate than it is to actually build a real business.

[quote=The-Shoveler]
I don’t see interest rates spiking all of a sudden, I think it will be a very gradual affair Accompanied by equal or more inflation.
[/quote]

I tend to think interest rates will stay low for awhile here in the US. Longer than most people think, but when they do move higher I expect it to happen relatively quickly. At least faster than what it took to get to these low levels. I.e. it will be shorter to go from 3.5 to 6 than the roughly 4 years it took to go from 6 to 3.5

[livinincali]

[quote=bearishgurl]
livinincali, I disagree that free-and-clear RE owners are “weaker hands.”

It doesn’t matter that these “investors” were/are seeking yield. If it is not a good time to sell, they don’t have to. If rates go up, they can continue to rent their propertie(s) out in lieu of investing in in something more passive. I just don’t see CD’s, MM’s and bond yields going so high as to rival rental income from an investment property purchased right and with all cash.

“Traditional owner occupiers” didn’t buy to “make the numbers work.” They bought what they liked where they personally wanted to live (within the confines of their qualifications).[/quote]

I honestly doubt most of the investor speculators are actually free and clear. Hedge funds and sophisticated investors tend to use leverage. They showed up with cash when they made the deal but I’d bet in a lot of cases they used those assets as collateral for more borrowing.

There’s some out there that are truly free and clear but I’d guess that it doesn’t represent most and certainly doesn’t prevent them from cash out refinancing at some point. If they end up with a bad experience dealing with tenants do they stay there when other yield investments start being more competitive. Maybe, I don’t know. I just feel like the emotional attachment isn’t there. People have drained retirement accounts to keep an owner occupied home. An investor probably has some kind of risk tolerance where they are prepared to exit even if it means a principal loss.

Just like there’s a flurry to get in right now there’s potentially a flurry to get out at some point down the road. Don’t be in the position of having to compete with them to sell at that point. I suppose you could hope that the bigger players unload in bulk sales that don’t hit the open market. I.e. hey CalPRES please be the bag holder for this short term leveraged investment we made.

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