[patientrenter]

cyphire,

I too am betting on prices going down in the next few years in Southern California. But a lot of my reasoning is gut instinct. What makes you think the hard evidence is so overwhelming? Couldn’t the Fed lower short-term rates, and Congress, through FNMA etc, support easy loans, and in a few months prices would be increasing again? Or couldn’t a place like La Jolla see an influx of wealth from abroad, driving prices for good locations to currently unimaginable levels like what’s happened in London?

Patient renter in OC

[patientrenter]

cyphire,

I too am betting on prices going down in the next few years in Southern California. But a lot of my reasoning is gut instinct. What makes you think the hard evidence is so overwhelming? Couldn’t the Fed lower short-term rates, and Congress, through FNMA etc, support easy loans, and in a few months prices would be increasing again? Or couldn’t a place like La Jolla see an influx of wealth from abroad, driving prices for good locations to currently unimaginable levels like what’s happened in London?

Patient renter in OC

[patientrenter]

KIBU,

The general investing question you pose belongs in a different forum, but as it happens I am considering investing in foreign currencies for the specific real estate purpose of preserving the real value of the savings I am building for a home purchase, so I’ll comment on that.

I’m looking at far Asian currencies that trade at a discount to their purchasing power: Japan (surprisingly), China, Philippines, Malaysia, Singapore. I am not sure how to do it efficiently. US banks that offer foreign currency accounts pay lousy rates, and some of the currencies are not available. I may buy futures in Chicago.

Patient renter in OC

[patientrenter]

KIBU,

The general investing question you pose belongs in a different forum, but as it happens I am considering investing in foreign currencies for the specific real estate purpose of preserving the real value of the savings I am building for a home purchase, so I’ll comment on that.

I’m looking at far Asian currencies that trade at a discount to their purchasing power: Japan (surprisingly), China, Philippines, Malaysia, Singapore. I am not sure how to do it efficiently. US banks that offer foreign currency accounts pay lousy rates, and some of the currencies are not available. I may buy futures in Chicago.

Patient renter in OC

[patientrenter]

KIBU,

For me there is no cut-off even though I am a poster child for tax deduction opportunity. Let’s take the best possible case for buying now using borrowed funds and I’ll tell you why it doesn’t work for me.

My marginal tax rate is… I’m not sure exactly, but probably the maximum, 45% or so. So if I can borrow at 6%, and property taxes are another 1% minimum, and maintenance expenses are 1% minimum and I assume they are fully deductible, then I need to see annual returns of at least 4.4% after tax on the property to justify buying more than I can afford with just 100% cash. I don’t believe that 4.4% gross is a good bet in today’s local property market. I wouldn’t even feel very comfortable betting on 0% gross today.

Patient renter in OC

[patientrenter]

KIBU,

For me there is no cut-off even though I am a poster child for tax deduction opportunity. Let’s take the best possible case for buying now using borrowed funds and I’ll tell you why it doesn’t work for me.

My marginal tax rate is… I’m not sure exactly, but probably the maximum, 45% or so. So if I can borrow at 6%, and property taxes are another 1% minimum, and maintenance expenses are 1% minimum and I assume they are fully deductible, then I need to see annual returns of at least 4.4% after tax on the property to justify buying more than I can afford with just 100% cash. I don’t believe that 4.4% gross is a good bet in today’s local property market. I wouldn’t even feel very comfortable betting on 0% gross today.

Patient renter in OC

[patientrenter]

When I first saw this topic, I thought it was asking for information that was too private to share, especially if I ever meet others in person through Piggington. But I am benefiting from seeing how others came to the prevailing real estate outlook here on Piggington from very different ages, living situations, and income and asset amounts, so I’ll contribute mine.

I’m 46, and live in a $1425 2+1+garage Orange County rental apartment on my own with no family obligations, and make $250-500K per year, mostly from a traditional full-time job. I limit my spending to equity investment income, currently about $45-50K after tax, and intend to buy ultimately using cash.

I was tempted to buy in 1996, but the places I could afford for cash were unpleasant, so I (foolishly, as it turned out) didn’t buy then. I didn’t invest much in equities either until very recently, so my housing budget now is very limited. Eventually, I will either move out of state (even though I love it here) or buy when my cash savings exceeds the price of a 2+1+garage condo or better here in Southern CA. That’ll be at least a year from now, and more likely 2-4 years down the road. I’m just trying to lock in my cost of living, so I may buy pretty quickly after the crossover occurs, unless the neighborhood I’m targeting is dropping really badly.

Patient renter in OC

[patientrenter]

When I first saw this topic, I thought it was asking for information that was too private to share, especially if I ever meet others in person through Piggington. But I am benefiting from seeing how others came to the prevailing real estate outlook here on Piggington from very different ages, living situations, and income and asset amounts, so I’ll contribute mine.

I’m 46, and live in a $1425 2+1+garage Orange County rental apartment on my own with no family obligations, and make $250-500K per year, mostly from a traditional full-time job. I limit my spending to equity investment income, currently about $45-50K after tax, and intend to buy ultimately using cash.

I was tempted to buy in 1996, but the places I could afford for cash were unpleasant, so I (foolishly, as it turned out) didn’t buy then. I didn’t invest much in equities either until very recently, so my housing budget now is very limited. Eventually, I will either move out of state (even though I love it here) or buy when my cash savings exceeds the price of a 2+1+garage condo or better here in Southern CA. That’ll be at least a year from now, and more likely 2-4 years down the road. I’m just trying to lock in my cost of living, so I may buy pretty quickly after the crossover occurs, unless the neighborhood I’m targeting is dropping really badly.

Patient renter in OC

[patientrenter]

Bugs, you are right. Median prices for a few selected zip codes are not a reliable indicator of a trend.

To understand where the high end market in OC, or any other market, is going, I prefer to look at prices per sq ft and aggregate across all the relevant zip codes. Specifically, calculate the % change in price per square foot separately for each zip code, and then average across all the zip codes relevant to the market you’re looking at, weighting each zip code by the number of sales in that area.

I did a version of this for OC. I arranged all of OC’s zip codes by the April 2007 price per square foot, in increasing order. I divided them into 10 groups so that each group had about 10% of total April 2007 sales. For each zip code I calculated the % change in the price per sq ft from 2006 to April 2007. Within each of the 10 groups, I then averaged the resulting %’s, weighting each % by the number of April 2007 sales. Here are the results:

Price/sqft #Sales %PriceChange
Total 1,650 -2.3%

0-357 184 -11.0%
358-371 177 -4.6%
372-389 147 -12.2%
390-404 175 -1.0%
405-418 209 -0.3%
419-444 157 0.6%
445-460 159 1.4%
461-513 122 3.3%
514-552 140 0.3%
553+ 180 2.2%

There’s one obvious defect with this calculation. I didn’t have the price per sq ft for April 2006, so I had to use the price per sq ft for all of 2006. But the data seem to say that that the lower half of the OC market is doing worse than the top half.

Patient renter in OC

[patientrenter]

Bugs, you are right. Median prices for a few selected zip codes are not a reliable indicator of a trend.

To understand where the high end market in OC, or any other market, is going, I prefer to look at prices per sq ft and aggregate across all the relevant zip codes. Specifically, calculate the % change in price per square foot separately for each zip code, and then average across all the zip codes relevant to the market you’re looking at, weighting each zip code by the number of sales in that area.

I did a version of this for OC. I arranged all of OC’s zip codes by the April 2007 price per square foot, in increasing order. I divided them into 10 groups so that each group had about 10% of total April 2007 sales. For each zip code I calculated the % change in the price per sq ft from 2006 to April 2007. Within each of the 10 groups, I then averaged the resulting %’s, weighting each % by the number of April 2007 sales. Here are the results:

Price/sqft #Sales %PriceChange
Total 1,650 -2.3%

0-357 184 -11.0%
358-371 177 -4.6%
372-389 147 -12.2%
390-404 175 -1.0%
405-418 209 -0.3%
419-444 157 0.6%
445-460 159 1.4%
461-513 122 3.3%
514-552 140 0.3%
553+ 180 2.2%

There’s one obvious defect with this calculation. I didn’t have the price per sq ft for April 2006, so I had to use the price per sq ft for all of 2006. But the data seem to say that that the lower half of the OC market is doing worse than the top half.

Patient renter in OC

[patientrenter]

perrychase, you can find the table of data for the LA Times article on dataquick, under monthly data, LA Times. I was curious about latesummer08’s implication that there’s a big drop in high-end OC prices, but I didn’t find clear evidence of it yet. There’s a big drop in median prices for selected zip codes, but some other big and expensive zip codes are up (92660 in Newport Beach is up 12%). Also, a closer look at some of the zips with decreases in the median price show that the price per square foot, a more refined indicator, may not be down. For example, 92625 in Corona del Mar had a 24% decrease in median price, but the price per square foot in April 2007 was $1,206, up 7% from the $1,125 per sq ft price for the whole of 2006. (I don’t know what the price per square foot was in just April 2006. If anyone knows how I can get the April 2006 data, let me know.)

Patient renter in OC

[patientrenter]

perrychase, you can find the table of data for the LA Times article on dataquick, under monthly data, LA Times. I was curious about latesummer08’s implication that there’s a big drop in high-end OC prices, but I didn’t find clear evidence of it yet. There’s a big drop in median prices for selected zip codes, but some other big and expensive zip codes are up (92660 in Newport Beach is up 12%). Also, a closer look at some of the zips with decreases in the median price show that the price per square foot, a more refined indicator, may not be down. For example, 92625 in Corona del Mar had a 24% decrease in median price, but the price per square foot in April 2007 was $1,206, up 7% from the $1,125 per sq ft price for the whole of 2006. (I don’t know what the price per square foot was in just April 2006. If anyone knows how I can get the April 2006 data, let me know.)

Patient renter in OC

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