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powayseller
ParticipantWhy do people like Bill Fleckenstein insist the Fed is done, or wants to be done? I really think they want to curb inflation, cool the economy. Or do they only want to give the impression they will curb inflation? As Ben B has said, managing inflation expecations is important to prevent inflation from taking hold.
ParticipantWhen I was looking for a rental in January 06, I called some of the places that advertised “no dogs” and some were negotiable, because although they prefer no dog, they were not getting any renters. Thus, they didn’t change their ad but were becoming open minded as they got more desperate.
With record vacancies, I think landlords will get more open minded.
Participantzk, I am ahead $1,500 every month in renting.
I lost the mortgage deduction and property taxes, so those cancel out.
I earn 5% interest on the equity, instead of losing 10% per year (so far). I am debt free. I paid off my credit cards and car. I won’t count these savings in my $1500.
I save $150/month in property insurance, as renters insurance is less expensive (and I have earthquake coverage also).
I pay $2200/month rent instead of $3000/month mortgage. I save $300/month on repairs/maintenance, and $500/month on home improvements. We are the type to keep pouring money into landscaping, patio covers, fencing, and various other remodeling costs. I won’t count the $500 as savings for this example.
I live closer in town, and get gas every 6 days instead every 3 days, saving $250/month in gas.
zk, housing cannot be saved because SD lacks lucrative jobs and the prices are too high, causing 44,000 people to leave San Diego annually. This figure may be even higher this year. People just cannot afford to live here. This exodus is putting homes on the market, increasing rental/homeowner vacancies, and decreasing demand. As long as demand is down, inventory will keep rising, lowering prices.
This can only turn around when the state which caused high prices returns: a population influx. What can bring this about? What will make people want to move here at the rate of 44K/year? Jobs? What kind of jobs? Most of SD jobs are in tourism, retail, military. We have some in technology, but do you see this improving with a recession on the horizon? Short-term, I don’t. In the next 2 years, I don’t see a labor market change. Neither does Cheryl Mason, of the SD Labor Market. The only hope we had was more Homeland Security funding. I know that’s pitiful. Our expected job growth comes from government handouts. We’ve got to do something about this. But with 20% of CAs not even finishing high school, where are all our talented employees to turn this state around?
The SD civilian labor market of 1.281 million, as measured by the payroll survey, is 17% government, 15% retail, 11% leisure and hospitality, 8% construction, and 10% education and healthcare.
Add in a couple 100K people for independent contractors and illegals in construction, realty, barbershops.
Professional and Business Services is only 16%. Telecom and publications is only 3%. Manufacturing is only 8%.
Which sector shows promise for these high wage jobs you’re counting on to save housing? Regardless of inflation, how likely is it that 15% of our employees who are in retail will see their wages go to $ 150 K/year to afford the $500K median home?
zk, I think you get the picture. We just don’t have the type of jobs in SD that can support the home prices we’ve got. That is the main problem.
In Oakland, the median income is $20K higher, so their houses cost more. SD doesn’t have the wages to support these high prices. We don’t have the type of industry to allow half of our population to make $80K/year.
A drop in interest rates can revive housing. But that will be offset by tightening lending. Lenders are tightening standards. If they ever require more than 0% down, this market will go south in a hurry.
A tax change can save housing. More tax writeoffs to save housing. Can the government afford to reduce taxes, at a time of record budget deficits? If they reduce, it will be to encourage alternative energy, not housing.
ParticipantI had lunch with my friend Bob Casagrand today, and he told me he’s had many instances of sellers bringing money to closing.
He only works with buyers. To him, listings waste too much time. That said, his buyer’s seller paid $540K for a house that’s selling for $480K, so they have to bring $60K + commission to closing.
Condo sellers are offering him 3.5% – 4% commission.
He gets all these buyers by having a website. He has so many buyers now, he refers some to other realtors. His business is booming.
Bob understands how to use the internet to leverage his business. Too many realtors out there are still doing business the old way: pounding the pavement, putting ads in papers, printing flyers, holding Open Houses, and putting listings on realtor.com.
Like I wrote a few months back, listings used to guarantee a commission, but no more! You’re dealing with sellers who overprice their homes, and you end up spending thousands of dollars marketing the home which doesn’t sell because they won’t take your advice on lowering the price.
Enter the buyer’s agent. You deal only with buyers. You make sure the buyer doesn’t get attached to one home. Homes are not like spouses: don’t think there is one soulemate. Find 4-5 homes, give a 24hr offer period on each and make it a firm and final offer that is below market price, and if they counter, move on to the next one.
What I like about Bob is that his is upfront with all his customers. He tells them not to expect appreciation, not to refinance, to get a mortgage they can live with a long time.
Bob’s business experience is amazing. Guys like him always figure out how to improve on things, find an edge. He’s a family man, very smart, very nice. I am fortunate that he considers me a friend.
Bob said that the outflow of people is amazing. On a recent weekend he took his buyer to see 5 homes, and each seller was leaving SD upon sale. We’ve got 15K families/year leaving SD, meaning 15K/year vacant homes. It’s the slower sales that’s increasing the inventory.
Don’t rely on pendings to forecast next months’ sales. Pendings often fall out of escrow, as lenders are starting to tighten up on first time buyers.
He said the market topped in August 05 for high end, in August 04 for low-end homes. This market has been decline since August 2004, and I didn’t even know about it!! Again, don’t ever count on the media or your realtor to tell you the truth about housing. They are just as cluelss as the average joe on the street.
When I am ready to buy, Bob is my guy to go to. He understands the market better than any realtor I have ever come across. A true buyers’ agent.
ParticipantWhat does that mean? Lipstick on a pig? Sorry to be so clueless.
Participantzk, on another thread, is saying that wages could rise enough that the ratio of income/house price can normalize without prices dropping. Have you ever heard of an asset bubble popping without nominal prices declining by a LOT?
Participantzk, I didn’t mean to insult you at all. I just meant to point out that the “RE only goes up” mantra is so ingrained in all of us, that even a well-read person like you is doubting that it CAN go down. Your decision to sell and rent was brilliant. Why are you having second thoughts?
I pat myself on the back everyday for selling. Each article about the falling market is confirmation that I did the right thing. So far, nothing has happened to question my move. All signs point to “good decision”. The more I learn about the global liquidity bubble and dollar problems, the more I believe I did the right move.
ParticipantThey made the same lame argument as Thornberg: we need a recession and major job losses to see price declines. The guy is an absolute idiot – prices are already down! The article said the median went down from $518K to $503K. So he just ignores that?
What about this joker Krueger? What “strong economic growth” is he talking about? Our only growth is construction and real estate selling and lending.
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Despite the lack of affordability, G.U. Krueger, a housing economist in Irvine, said sound economic fundamentals will prevent the region’s home prices from dropping steeply.“It is really hard for me to believe that home prices will drop dramatically when economic growth is still relatively good in San Diego,” Krueger said.
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Participantzk, do you own any real estate? If so, what are your reasons for holding on?
deadzone and carlsbadliving, I completely agree. This was the easiest money I’ve ever made. I felt guilty for selling my house to the young couple who bought it. My husband and I doubled the money we’d scrimped and saved at $500/month for 20 years, in one fell swoop. We earned a half lifetime of scrimping and saving in that one deal.
And for those who are saving $2k/month, you don’t have kids yet. Just their activities are $900 – $1200/month. I am thrilled to blow my money on those little darlings though. You should have heard my son play his sax at that SD Youth Wind Ensemble downtown last week, and my daugther sing and dance. My 9 year old plays Chopin. Add tutoring, rec sports, instrument rental, music lessons, preschool…And clothes, additional airline tickets, more driving, toys/books/games… All worth it, I say.
So if you don’t have any kids yet, keep saving, because it gets harder once you’ve got kids and activities and a wife who stays home. All you men out there, please see the value in a woman who keeps a house humming and sees after you and the children. Don’t ask your wife to work outside the home. A woman with children should spend most of her time looking after her family, or else, why bother having kids? She should clean her own house, not hire a maid to do so. Housekeeping and child rearing are jobs that shouldn’t be outsourced. Off-topic, but I couldn’t resist making a pitch for babies who can fall asleep nursing in their mommy’s arms.
ParticipantHere’s a great comment I got:
I can not believe that these people are supposed to be economists. If prices can’t fall unless there is a recession, why did they rise after 9/11 when the economy was in a recession.
The rise and fall of house prices is simple, supply and demand. Whatever the reason, and there are many, when there is excess supply, prices fall and when there is a shortage, prices rise.
ParticipantHere’s a great comment I got:
I can not believe that these people wre supposed to be economists. If
prices can’t fall unless there is a recession, why did they rise after
9/11 when the economy was in a recession. The rise and fall of house
prices is simple, supply and demand. Whatever the reason, and there are
many, when there is excess supply prices fall and when there is a
shortage prices rise.ParticipantIt seems that commodity prices are more a reflection of speculators trading futures, than real demand. Copper went up 100% in a few days this year, because hedge funds were covering their shorts. I read that on the Big Picture. Another example of how you can get short squeezed.
The moral problem is that the manufacturers who need copper to be productive, to actually build something, are having their costs raised by speculators who do nothing but play market games in raising prices. It’s such a shame what these hedge funds are doing. Same with oil. It’s the speculators trading futures who are causing these prices to go sky high. Without all that, the prices would be a little bit lower.
I believe that the US recession will bring on a global slowdown. When that happens, there is no way that commodities will keep rising at the current rate. As the rate of demand slows, so will the price of commodities.
Any thoughts on that? My brother thinks that commodities will keep rising, and China’s economy will keep getting stronger. As their exports decrease, they will just consumer their own products. They’ll use the dollars they already have to buy up natural resources worldwide, and enrich themselves, without another look at the US consumer.
I still think trade tariffs would have prevented the liquidity bubble and stunted wage growth in the US. I disagree with Rich. If we would slap tariffs on all those cheap Asian imports, we could have maintained our US manufacturing base. The downside is that inflation would be MUCH higher, as wages would have gone up faster.
The only reason that wages are not going up much is that we are competing with people working for $4/day.
This is the most important point that zk and others like him must realize when they think that higher wages, rather than falling median home price, may contribute to a rebalancing of the per capita income/median home price ratio.
As long as we have a willing intelligent educated workforce at $4/day, our wages are staying flat.
ParticipantI wanted to send him this thread, and introduce him to the piggington site. I don’t know if he’s read this blog before. I cannot convince anyone to do anything. Some people here wrote they followed my advice, but what they meant is they researched a bunch of stuff, and then ended up doing the same thing I had recommended. People do what they want to do. I hope I can influence my friend to think of an outcome that is worse than what he has been told by his realtor. He needs to know that prices can go down by 50%, and make his decision based on that possibility. How long can he carry this condo at negative cash flow? If he lost 35%, would this endanger his financial situation? Is it better to cut his losses now? Can he ride out the downturn? We can pretty much agree it will be 12 years to the next market top. That’s a long time to wait. Does he want to wait that long?
Bugs,what factors could make the downtown condo market hot in 2 years? Lower interest rates? A burgeoning downtown work force? In 2 years, we will be coming out of a recession, so perhaps a new economic boom? OTOH, housing cycles in the past in SD went in 12 year cycles, so why would this one be so much shorter? If you say he will be making money on this unit in 2 years, you are saying the condo prices will go back up without ever bottoming out? The bubble collapse is forestalled? The Fed would need to invent a quick liquidity bubble to make that happen.
I am not knowledgeable about the condo market. It seems to me that the prices will keep going down as long as there is new inventory coming online.
Bob Casagrand told me that the number of new listings are the same as last year,but it’s the lower sales that are causing the inventory to rise.
If we had the same number of sales as last year, the inventory would be about half. I think that’s what he told me.
He attributes the lower sales to people leaving San Diego. Whereas we had 50K people per year coming here, driving up demand for new homes, now we have about that same number leaving, depressing demand. Bob’s a great guy.
His sales are up, and business is so good, he’s turning away work and sending clients to other realtors. His website is attracting so many people. I think another realtor on this forum said you don’t need a website, but it sure seems to help.
All those new units coming online are further increasing inventory. With demand lowering, prices will keep falling.
Bugs, have you noticed any change in the number of investors buying property? If investors were really buying 40% of homes in SD, then our sales should be down 40%, assuming the investors stopped buying. But they are down only 25%, and most of that is due to high interest rates. What are the investors doing with all those homes they bought?
ParticipantI am more convinved that selling and renting is a sure thing, than I was in 1999 of the tech stocks collapsing.
The tech stock bubble was my first experience of an asset bubble. I did not participate in it, until the end, when Lucent was $5/share. I couldn’t believe that rational people lost all rationale.
The psychology and thinking of anyone doubting that nominal home prices will collapse is the same as those doubting the tech stocks could go down.
The future cannot be proven. I can’t prove that housing prices will go down. I can only make parallels from the past, tell you why this time is worse, and hope you listen.
As you can see,even someone as well-read on this housing bubble as zk, is not convinced enough to sell his own house. If only high schools would teach economics classes, with a 2 week section on asset bubbles, then this wouldn’t seem like such a remote possibility. zk has been so programmed by the RE industry, that housing prices cannot fall, that even all my logic, data, and charts, cannot change his thinking.
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