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powayseller
ParticipantFormerSanDiegan, an excellent analysis. I obviously did not consider any of this, since I have no landlord or 1031 experience. Wise advice. Also, check with a CPA about the capital gains and other costs.
murray: I laughed at Thornberg’s report. I attended the May 2006 conference, and put a 3 part rebuttal on this site. You can find it in the archives. Thornberg has the right data, but his conclusions are flawed. The most important point, is so important, that I will write it again.
Thornberg said that historically, home prices have dropped only in recessions. Recessions occur when you have major job loss in 2 sectors, typically manufacturing and one more. There is no indicator for recession, and voila, no job loss and thus home prices cannot decline.
The weakness in the Thornberg analyis is that he does NOT ever mention, not ONCE, the exotic financing. Not one simple mention of 60% of recent purchases made at 100% financing with adjustable rate mortgages.
Thornberg needs to broaden his understanding of what drives home price declines. It is not limited to job loss.
Home prices decline when large groups of people are unable to make their mortgage payments and must sell, regardless of whether that inability to pay is due to job loss or their ARM adjusting. Thornberg omitted the impact of ARMs, which is the same as that of a job loss of recession.
There will be job loss of recesison magnitude; more on that below.
There will be 50,000 – 100,000 San Diegans who will need to sell in the next few years as their mortgage payment jumps 30-80%. The national figure is $2 trillion in ARM loans adjusting over the next 18 months, and I extrapolated to CA which has the highest amount of these loans. We sell 30,000 homes per year, and these homes set the price for the other 1 million homes. These ARM adjustments will be a home value killer.
Thornberg admits the loss in construction jobs, but is too conservative. As he said, the majority of hiring lately has been in real estate industries: construction, lending, and realtors. I got up and asked a question at the conference,and I led it with, “San Diegans have built an economy based on buying and selling homes to each other, financed with money from China”. Thornberg chuckled, and said, “You’ve just summarized our entire presentation”.
Where Thornberg fell short, and this is his 2nd weakness, is in stating the effect of MEW: 70% of GDP is consumer spending, and with flat wages, consumers got their money from MEW and HELOCs. Once housing prices stay FLAT, let alone drop, the gig is up. Rising home prices allowed consumer to go on a spending spree, increasing employment in car dealerships, home improvement stores, restaurants, all retail, travel agencies, nail salons, florists, etc. When the housing ATM is dried up, those employment figures will reverse. I made a thread a few weeks ago about the specific employment losses. Conclusion: with the projected outflow of 40K people/year, and the tens of thousands of job losses, our unemployment will be over 6%. But most of the people losing jobs will seek cheaper and greener pastures elsewhere.
So we will have a recession, because our 2 main sectors that are going to have MAJOR job losses are: construction and retail. Add to that realtors, title officers, appraiser, interior designers, retailers, restaurants, travel agencies, tourism (less travel), and I wonder who will even have a job left?
I got my employment data from Cheryl Mason at the Labor Department, but the conclusions are mine, not hers. I have the Excel file of the labor data, and have studied it for several days. There is no magic bullet for new jobs here. Even Ms. Mason told me the only promise was some hiring for homeland security, but we ended up not getting the grant money. My hope is after housing prices drop and we have huge population exodus, our governor will make a hospitable business climate, and we can grow our businesses again.
ParticipantVery interesting. But, all other categories of funding were down: pay-option, purchasing, refinancing. Why the increase in HELOCs?
ParticipantRich made some comments along this topic on the main page today. He explained that the Case Shiller index is a better indicator of price movement. For his own analysis, he used the OFHEO data, which tracks the sale of THE SAME home over time. This cannot be used for new homes, and the OFHEO data lags by many months, bec. the gov’t seems to take forever in compiling their data.
If you want to know how prices are changing, use Case Shiller index or OFHEO index. Forget the median.
ParticipantI think Bugs is talking about the people listing below their mortgage price.
I wanted to add one more thing to Bugs’ Jumping out the window comment. The suicide and alcoholism rates will surely jump. Bankruptcy and foreclosure bring people to the ends of their emotional and spiritual rope, and they will either increase church attendance, or drown in the bottle/suicide. Some will just pull themselves together and go on. We’re talking about 50,000 – 100,000 San Diegans who will face foreclosure and bankruptcy in the next 5 years. Millions nationwide. Many will be people who bought their homes in the 1970’s or 1980s, and refinanced to take out cash, thinking it was a new era, and they could keep doing this indefinitely.
Participantcnn.com is full of retailer-woe stories. The slowdown is here. I was reminded that retailer ups and downs this time of year mean nothing. Most of their business, I think about 75% of it (???), is done between September and December, the Christmas selling season. This is the time that housing will really tank, and psychology will change. At that time, the lower MEW rate of January wlll have fed through, and new MEW will be harder to get as interest rates are higher and homes are no longer rising in value. So you’ll have a new psychology of worries about the wealth effect, less borrowing, and the retailers will have a very bad year.
ParticipantWhat determined if prices are back to 2004 level, or 50% higher? Those that are 50% higher, are they falling now too or still rising? I’m also wondering if you found out anything about an “API premium” for Poway sales. Is the perception of better schools increasing the prices or shortening DOM?
My guess is the highly desireable coastal areas are higher than the remote areas.
ParticipantSell Now. Market is turning, and you can expect to get about 10% less than last summer’s prices.
Read the 2 articles at the top of the home page.
Rents are pretty good. My friend is renting her Poway house out at $2500/mo, and she has 3 calls/week. But her sign is still up. She moved to Phoenix.
I rent an attached home, 2200 sq ft, for $2200/month. This seems to be on the low end. I think this size house could get $2300.
If you hang on, be prepared to hang on for 15 – 20 years, before it could be that long before we get back to today’s prices. It may take 7-10 years for bottom, which will bring us to 40-50% off today’s prices. Then the prices will go back up.
Sell now, invest the money in 5.5% CDs, and buy back 2 houses for the same money in 2015.
I sold my house in December 2005, and I missed the peak price.
Don’t take my word for it. This is a big decision. Read the stories of homes selling now for 2004 prices, the Bubble Bloggers who discuss the economy, and specific housing sales, and decide for yourself. Then, for more questions, please ask.
ParticipantIt was a mistake in my mind. I checked my calendar yesterday, and it is July 22 at 4pm. Regrets for the error.
Meetup day is July 22 at 4pm.
ParticipantTo hear this kind of talk from Bugs and Privatebanker sends shivers up my spine.
Bugs, I once read a book about what you describe. People almost have different pockets for money. They spend an hour a week clipping coupons, but then think nothing of buying a new car, or going to the dealer for the car vs private party. One of the most interesting investing ideas of recent times is behavioral finance. It explains why the masses can never beat the market.
Privatebanker, I copied your post to my friend who bought a condo downtown. So far, they only broke ground, and I think he can still get out. But he may be like our friend murray, deeply ingrained in his belief that people will pay anything to live in San Diego, in this case downtown San Diego. None of my data I’ve sent him since December 2005 has made an impact on him. He remains ingrained in his real estate bull beliefs. This is a guy who lived here during the 90’s downturn.
Participantmurray, what is your response to the median explanation? Why not cash out now?
I believe murray’s questions are sincere, and he exemplifies the strong denial of the current market. His logic is shared by thousands of people.
murray is a savvy guy, a real estate investor, and yet he is unaware of what is coming down the pike. How much less informed then is Joe Six Pack.
It’s a fascinating revelation once again, of the public’s inability to grasp the facts. Sorry, murray, don’t mean to pick on you, but after spending so much patience yesterday to educate you, and you still don’t get it, I am truly fascinated.
ParticipantIt is Vanguard Prime Money Market, but is not FDIC insured. Historically, money markets have kept their value at $1/share.
When I called Vanguard, they admitted that the money market includes some GSE short term debt. That is why I want to get out of it. Some places many not tell you, but GSE is the most widely held debt. I believe we will have a GSE collapse, and I am not sure if the government can afford a bailout. It is trillions of dollars.
With FDIC insured CD rates at 5.5%, why risk the money market which pays the same or less interest without the guarantee? You can spread out among several banks if you have more than $200K/couple.
Also consider Tbills. They are backed by the government.
This is really cool: Everbank.com is FDIC insured, and you can make FDIC insured deposits into euros and other currencies. A great way to diversify if you believe the dollar will fall (as I do).
doofrat, the stock market is going. We had a sell-off in May, another yesterday, and there will be big correction due to the recession. When earnings go down, you will see a big sell-off. The leading indicators show the economy is turning into a recession. When the leading indicators show the recovery, then get back into stocks.
The only reason that timing stocks doesn’t work for the general public, is because the general public is kind of stupid: they do momentum investing. They pile in when things get really hot, and get scared and sell when the asset is at its lowest. Selling stocks now is selling high. We’ve covered this at length in other threads, and you can find this if you do a search (hopefully).
ParticipantI think any listings you have or will get, will sell, as long as they are priced right. We still have lots of buyers out there. The lower end has to take a much bigger mark=down than the higher end though. You seem to deal more with the higher end homes, so you are okay for now.
Based on the discussions here, the low end if off a lot, and must be priced 30% below last summer. The higher end maybe is priced 10% below last summer. Any comments?
ParticipantJim, a few months ago, I kept reading on this blog that individual home prices were dropping, yet the median was still going up. I remembered my house sold for less than it could have last summer. So I started asking everyone I knew, “How come prices are dropping but the median is still going up?” I was given the answer by Bob C, who got it by analyzing the MLS sales.
The high end was 8.5% of sales last year, but is 10% of sales this year. Not a big difference, but enough to skew the median up.
My house would have sold for the higher price last summer. I explained the reason in another post yesterday.
I’m happy with my price, but not my husband. He wanted to hold out for a better offer.
Participantmurray is a typical investor in denial, because he doesn’t know how to avoid the 1031 tax hit on his sales. I gave him a contact who can help him. Denial over?
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