[MH]

Thanks all.. Presumed that some (many / most?) of the NAs were from RAs who either didn’t know or didn’t want to admit the lot size, but often there were other hints (gated community, “common area maintenance” provided w/ HOA dues, etc).

I recall Alisa Viejo having a lot of those when we bought our house in SD – and just hated the “idea” of a condo even if there were no common walls but didn’t know if there were any real distinctions from a traditional home.

[MH]

Huh?  I'm certainly not the be all – end all, but what exactly is your concept other than the word "foreclosure?"

Would be tough, IMHO, to make a lot of money in this market unless you have some specific advantage or angle.  If money is being lost in a foreclosure (and that's the reason it IS a foreclosure, no?) – there's likely not a big margin to be made.  The losing homeowner might be willing to sell, but again you're going to gain much other than a house you can't sell either.  So, the seller is a dead end.  The banks – already losing money they're probably not in a big hurry to add to their loses by hiring extra folks to do any part of the processing – particularly if you don't already posess a JD or RE license or similar "must have" service.

Seems to me the smart money is going to stay away from this mess… maybe keep some capital available and buy up some places if the costs go down enough.  Or, perhaps even buy some distressed places and let the former owners rent 'em – but that's hardly a risk-free opportunity.

 

 

[MH]

I'm a Marine, so this is a bit of a sensitive (and controversal) issue.

The military pays a "Basic Allowance for Housing" which, unlike my early enlisted days, is now pretty well indexed to the real costs of RENTING in the geo-location.  Those who elect to buy (as we did), do so at their own risk – and its not terribly smart if you aren't sure you'll want to keep the house when you move (generally ~3 years) or that the market will be up enough to offset the transaction costs.  As costs have skyrocketed, BAH still does an okay job of paying rent for "appropriate housing" but won't cover most mortages.

As far as requiring charity… Honestly I think there's an awfull lot of personal choice here.  When I was a young private, no one was married or had kids.  Now, as a reasonably senior officer, about half of my first-term Marines are married and/or have kids.  A Marine is paid fine (obviously you could argue he deserves much more), but the pay scales are really designed to support the hardcharger living in the barracks and eating in the chow hall.  For him (or her) to try to support a very young (and consequently marginally employable) wife, generally on their first time away from home, with one or more children and little life experience is a real challenge. 

A former Commandant tried to establish a policy of not allowing marriages or dependents until reaching E-4 but was shot down immediately by Congress (et al).  God love 'em… but from the DoD level there's a big impact on readiness, volume at the hospitals and other family support services, and additional costs/allowances.   

[MH]

Let's not forget the impact of transaction costs as well.  A good rule of thumb – you'll lose roughly 10% between buying and selling.  Obviously that's a very rough figure, but including the commissions and fees and points and the little "fix-ups" before you sell, its not a bad data point.

When you think houses will at least keep up with inflation and when the house is largely affordable, the psychological urge to own is very powerful and rational.  But, I think buyers will be (should be) very hesitant to buy for quite some time. 

Certainly no one, not even NAR, is arguing that housing will go up significantly in the next few years.  But, lets just say we think it'll keep up with inflation (yeah, right). Would you be willing to pay ~ $50k in transaction costs just to keep up with inflation?  Oh, and add in there the costs of carrying the house while you're selling it too.  No thanks.

That realization, I think, will haunt the RE market for decades.  Add in that you are tremendously leveraged in a house – good when the price is going up but what do you do when its deflating and you're now upside down?  Why would a rational person with a short (or uncertain)time-horizon want to tie his financial health to an non-liquid asset that has little chance of beating the return on a MMF?

Seemed like everyone just "KNEW" the "FACT" that RE never went down.  Oops.  Now that sanity has gained a foothold, I think it will be some time before rational investors (the irrational ones won't have any $$$ to buy anymore anyway) will want to jump back into homebuying.

 

[MH]

Just a slightly different spin on what's been said… 

Rent vs Buy is a complicated decision and no simple monthly payment analysis is sufficient.  So, while I'd generally agree this isn't a terribly good time to buy, when I return to SD next year we might just buy another house (we're renting one out right now).  Why?

There are some subtle advantages to buying as well if you expect to stay for some time.  One, the mortgage will generally stay the same (save the small property tax increases).  While THIS year might be cheaper to rent, if you are going to remain in the house then you should generally expect to pay less than renting eventually.

Two, renting is a yearly gamble.  If I don't decide to buy again, then the poor family that's renting from me now is not going to get his lease renewed.  Bummer if he's got kids in school, a job, doesn't feel like packing up all his stuff, etc. 

Three… if you don't keep treating your home like an ATM, eventually it'll be paid off.  Mine will be paid off in 2018; that sure makes retirement that much easier to program.  So, while the renter is paying higher and higher rents, I'm down to property tax (and at 1998 appraisal).

Finally, renting is never your house.  Granted, I wouldn't pay 5k/mo to buy a house I could rent for 1k, but there is certainly some value to being home at night.  Paint it, improve it, get to know your neighbors… I could live in an apartment if I just wanted to keep the family out of the elements; let's not completely discount the advantages of owning ones own home.

[MH]

I'd agree that some here are a bit too CERTAIN the market will tank in the immediate future; I think that there is the distinct possibility that the predictions of 15% growth in equities next year might well come true.  But…

MMFs are paying over 5% and have very limited risk (variability).  Stocks MIGHT make 15%, but they might also go down considerably as well.  Add up the possible outcomes and weighted averages however you'd like, I don't see too much downside to sitting outside of the market for a bit. 

In a year one of us will be right.  If you are, then you've gained something more than my 5%.  If I am, drop me a line and I'll buy you lunch with my earnings.

[MH]

I think – based more on assumption than personal research – that many of those sellers are simply UNABLE to lower their price.  If you bought a house for $750k and put 5% (37.5k)down, even if the market stayed flat you'd still owe at least $7,500 to get out from under it (assuming 6% commission).  Now, if you put down < 5%, took out a HELOC, add in the other seller's costs, or have the property drop by a percent or two, pretty soon you've got to come up with a lot of "right now" cash to pay for it.

That, I suspect, is the reason for the inventory build-up.  That's also why I think this will go on for some time… those that can sell (have equity) might go ahead and do so, but think that many others might well end up turning theirs into rentals to avoid bankruptcy.  At least that way they could write it off and wait for better times (don't hold your breath).

What I don't know – is how short-sells will factor in.  IF you short-sell, I assume that shows on your credit rating, no?  Is that significantly different than declaring bankruptcy in terms of final result?

[MH]

We own a home in Oceanside that we’re renting out for $1750 / mo. At least a few months ago, it would have sold for ~ $500k. The rent is a bit lower than we could get, but gives us a lot more prospects to choose from and has eliminated any headaches from bad renters.

[MH]

SDDuuuuude…

Has been a bit since I was an undergrad, but could have sworn that the “efficient market hypothesis” is the one that says all equities are priced fairly as all available information is reflected in the market (discounts the availability of inside info, stock pickers, etc.).

[MH]

Here's a layman's answer – hopefully someone with detailed knowledge will either confirm / deny.

Shorting, IMHO, is an awfully brave move for we mere amateurs.  Unlike buying a stock outright, if you've bet wrong (and the buyer of your shortsell, et al, think you are) your losses are theoretically infinite.  I.e., if you buy a stock (like I did w/ Mooney Aerospace) and they go belly-up, you lose all that investment.  BUT, if you short a stock that eventually triples, you lost 300% of your initial position…  That said, as long as any return from reinvesting the proceeds of the short-sell exceed any gain in the stock you sold, you can still come out ahead.

I haven't short-sold any one stock, but did buy MYY which is an ETF (exchange traded fund) that shortsells midcaps.  That way (I hope) my potential losses are minimzed.

 WRT options – yes, you can still end up ahead on a put as long as the market (stock) declines.  If you look at the option chains, you'll have a lot of choices… Say ABC corp is selling now for $100, you will find options that expire next week, next month, and for the next several months at least.  Each of those dates will have various strike prices – buying the right to make the seller buy ABC at anywhere from (e.g.) $90 to $110. 

It should make sense that the $110 option will cost more since there is already a $10 "in the money" difference; all else being equal it should cost at least $10 to buy that option.  Depending on how low you want to buy, the "out of the money" options can be pretty cheap – a put option for ABC for $25 would be really cheap since no one would expect that much of a drop (again, this is all notional).

 So… I've bought puts on both QQQQ (NASDAQ) and DJX (Dow Jones Industrials) that run through Jan 07 and Dec 06 respectively.  The QQQQ is a longshot (very low strike price) that I got for .20 per share.  For the DJX, I was a little more conservative (higher strike price), but that costs more in "insurance" and I had to pay .80 to buy each of those.

 Finally, to answer your last question directly – you can make money at any point before the option has expired.  So, if investors start thinking the market will drop my options would gain value and I could sell them at any time before they expire.  Or, I could let them expire and, if the price is less than the strike price, I'll get the proceeds.  Of course, if the stock is worth more than the strike price, it becomes worthless – there is no value in "forcing" someone to buy a stock at a lower price; "allowing" them to buy it at a lower price is a call option; a different deal.

[MH]

Agree…  With MMF's paying ~5%, what's the lure of stocks?  Seems to me that even the rosiest bull has got to admit that anything over 8% is unlikely – so why assume the extra risk for the fleeting chance of an extra 3% return?

 I'm not only ENTIRELY out of equities but have bought MYY (short sells mid-caps) and bought a few cheap puts on QQQQ (need pretty big drop to make any $$$) and some more realistic puts on DJX – all with a Dec-Jan expiration.

 

[MH]

What's with all this talk about mis-using the english language. I think most of us "could care less."

Seriously, that's my personal favorite… don't you mean you "couldn't care less?"  Otherwise, you must care to some extent in order to be able to care less.

[MH]

Ah Jeez… now I had to join just to reply.

Okay, what? The Corps needs to move?… the same aircraft that fairly recently (late 90’s) relocated from El Toro and Tustin need to move again? Guess that’s no burden on the taxpayer, right – we just pick up our stuff one afternoon and fly somewhere else? And, to where?

Just ’cause it suits the over-growth in SD county? By the way, ask your friends in the OC how they’re enjoying their new airport at El Toro… the one that was supposed to replace John Wayne when the 3rd MAW relocated less than 10 years ago.

Joint use at Miramar… First, nice that SD wants to state their opinion. Miramar is Federal Gov’t property so its simply not up to you. (Not trying to be confrontational, simply pointing out that a referendum is meaningless). And, just ’cause “you don’t see a problem with it” hardly suffices. Know much about pattern altitudes and airspeeds? Know much about the night carrier pattern? Single piloted aircraft minimums? Separation minimums for large passenger ACs? VFR vice IFR approach proceedures and divert requirements?

Or, move them all to Pendleton? Know the costs associated at CPen to build a new runway and the required infrastructure? Know much about the environmental restrictions on where you can build it? How about flood considerations? Weather and approach challenges? Training requirements for novice pilots in the 3 fleet replacement squadrons at CPen and Miramar?

Terribly sorry if the airport Congress chose for us – and that the DoD has owned since long before any of you owned homes in SD – is no longer convenient for you.

How about just building the new airport on Torrey Pines instead?

[Author]

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