[murray]

The reason most people don’t pay attention to doom and gloomers is because they’ve heard it all before and the D&Gs have always been proven wrong. The demise of the US economic system has been predicted before and it never happened. Losers like Ruff, Batra, Precter(sp?) make a good living selling D&G senarios that never happen. Oh they produce very convincing data and charts to convince you but they are just guessing. Nobody knows anything.

[murray]

Supply and demand determine rent values. It is irrelevant what the landlord’s financial situation is.

[murray]

It’s the weather stupid.
There are only a few places in the world where you can experience a “mediterranean” climate like socal / San Diego:
– european mediterranean of course and
– “Gold Coast” of Australia.

Move ANYWHERE else and the weather is a step down from San Diego. This is assuming weather is a big factor in your living decision – which begs the question > why are on earth would anyone choose to live in SD with crazy house prices, mediocre job / wage market if it wasn’t for the weather?

[murray]

Maybe.
Also consider that investors / flippers are not buying more properties and renting them out. IMO this is the main reason why there are fewer properties available.

[murray]

This issue was covered extensively in the Rents Are Up post on this website.
To summarize: I own 3 SFRs (in Tierrasanta) and on the supply side I have never seen so few available rental properties since I began landlording in 1989. Lower inventory drives up rent prices.
The rental demand side has increased due to people “purposefully” renting rather than buying even if they can afford to buy because they are expecting housing prices to decline from their current peak.

[murray]

Mini refinancing boom?

“They get another two- or three-year hybrid with a low introductory rate to keep payments down,” said Frank E. Nothaft, a vice president and chief economist at Freddie Mac, the mortgage buyer. “They’re trying to put it off forever, which is O.K. as long as interest rates are low. But when they start to spike, then it’s going to be more problematic.”

For now, this mini-refinancing boom is assuaging fears that rising interest rates and higher monthly payments would drive some borrowers into foreclosure or force them to scale back sharply on other spending. As a result, consumer spending may hold up better than some economists had thought.

But the refinancing also represents a doubling-down on a bet that housing prices will continue to rise on the West and East Coasts and in other hot markets. If the value of the home falls closer to the amount of the loan, that could curb the ability to refinance, and may prompt the homeowner to either invest more in the home or to sell it.

Still, borrowers like Mr. Perry say the loans make sense because in a few years they plan to move to another home, earn more or refinance again, often using the same assumptions they made when they took out their earlier loans”.

http://www.nytimes.com/2006/07/23/business/23mortgage.html?ex=1154232000&en=0ef98251bc0b7f71&ei=5065&partner=MYWAY

[murray]

Let’s review why people rent rather than buy:

1. don’t have house purchase down payment (or can’t service IO loan debt)
2. can’t service a higher mortgage debt
3. living situation is temporary
4. don’t consider property a good investment at the time
5. future consumer confidence / psychology is weak / unknown

Overwhelmingly #3 has been the main reason to rent but in the last 2 years #4 has been the main reason (in my experience landlording 3 sfrs since 1989 – I’m sure apartments are different)

Currently rents are ~ 50% or less than it would cost to own. What is the formula whereby people conclude they should buy (assuming they can afford to) vs rent?

(btw where was that rental open house where 20 people showed up?)

[murray]

Rents are indeed up!
“Two-bedroom units surveyed by the county association rose only about 4 percent over the year, Pinnegar said yesterday. In contrast, single-family-home rents rose by nearly 16 percent, he added. Studios rose by about 13 percent and one-bedroom units increased by 5.8 percent”.

I have a 2000 sq ft sfr turning over Sept 1. I’ll keep you informed on the outcome.
What’s the prediction for the future?

[murray]

No question it was unemployment that drove r/e down in the 90’s. California’s economic downturn was second only to the great depression. While driving to work during the early to mid 90s I recall loaded-up uhauls driving north out of SD because people were leaving due to no jobs. Unemployment was ~ 7.5%. Freeway traffic congestion did not increase during this time. The construction trades moved to Las Vegas.

I noticed a very subtle shift in r/e demand in the summer of 2004.
What happened? Demand equation changed – investors / flippers backed away from the market at that time. Since then the herd late to the market, trade ups and people that had to buy due to job transfers have bought into the market. You are now seeing rising inventory BECAUSE DEMAND HAS BEEN SATISFIED in this cycle.

Up to now sellers have not blinked hoping to obtain top $$ for their house. It’s been estimated that 60% of sellers are just fishing and don’t need to sell though. (SD Realtor pls comment)

What happens next? Will the 60% sellers allow listings to expire thus lowering the inventory? Will the tighter inventory coax sidelined buyers to purchase?

[murray]

90s r/e downturn was almost entirely due to unemployment resulting from defense industry downsizing from Reagan years. LA r/e indeed was hammered worse b/c of defense industry concentration there. If unemployment stays ok then housing market will experience only moderate declines from here. It’s all about employment.
At this point in the game I think it’s more that SD overshot on the upside than that LA is “lagging”.

Question: Why was SD the leader in the recent r/e runup?
Answers:
– larger businesses moved in and others (ie Qualcomm) finally reached a critical mass in SD (along with its more affluent workforce to bid up homes)
– compared to other major SoCal locales SD prices were lower to begin with so double digit increases were easier to achieve earlier on

[murray]

LA Times / Daily News has had more well researched housing articles (as noted on this site) than SDUT so general populance is aware. Also KNX 1070 Money show always has r/e stories.

LA is built out thus holding up housing prices with weakend demand since flippers recently exited market.

[murray]

Maybe the predicted housing crash is primarily a SD / Sacramento phenomena(?)…
– LA resales increased slightly May to June
– SF Bay area sales still generating multiple offers
– Prospective renters in some LA areas bidding up rents on units (fcol!!!!!!!)
– In Burbank houses still selling above last year prices. Past Sunday open house circuit traffic was decent, 1 was just gathering backup offers for an old 1927 $699k house needing tlc that was overbid with multiple offers…
– LA job growth forecast is highest in 6 years

Question: Why are SD / Sacra localities so different?
Answer: overbuilding

[murray]

It’s as if I wrote this VofSD article myself. http://www.voiceofsandiego.org/articles/2006/07/14/housing/977pricedrop.txt
Similar to what I’ve been writing here (amidst the name calling and gyrations about housing price medians).

“But neither Gin nor Thornberg is overly worried that year-on-year home price changes have crossed into negative territory in San Diego. A 1-percent drop is insignificant at this point, Gin said, and there will have to be larger, more sustained home price drops before he starts predicting doom and gloom for the housing market.

Both Gin and Thornberg described the drop in prices as “statistical noise.”

Woodpack: Craigslist.org is a fantastic free service to find and advertise rental properties. Also check out SDUT online to check rental prices.
Are you trying to landlord this Poway home yourself from Virginia – or are you using a prop mgr? (which I’d recommend due to the distance).
I don’t know the demand for Poway rentals but I would guess its probably strong as ps indicates. SD Apartment Mgr Assoc latest report showed a surprising 10% yoy increase.
Predictions for future r/e prices vary tremendously, from unrealistic NAR ~6% yearly appreciation to doom & gloom -50% scenarios. I predict ~10% decline for MEDIAN SFR prices over 6 years assuming unemployment stays down. Obviously your future plans will determine a sell decision.

[murray]

I’ve investigated TICs and other 1031 relief so I don’t know where ps gets off writing I’m in denial.

Because I predict ~10% r/e decline versus Rich’s 25% or your 50% and dissect housing numbers to reveal less than apocalyptic price declines doesn’t justify namecalling or uncivility on your part. Grow up.

[murray]

Go watch the Simpsons if you don’t have anything worth while to add.

[Author]

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