[powayseller]

He rents an apartment a block from the beach, and he’s an attorney and cannot work as a contractor. The rent is about the same as the mortgage payment + land lease fee, but has the advantage of reducing his taxes. He’s frugal, very frugal, and his rent is around $2K/month, so the purpose of this is to reduce his taxes. He doesn’t like paying so much to Uncle Sam. Anyway, I have been passing all this info on to him, and he has decided to just wait, i.e. hold off on making any purchase right now.

By the way, someone told me today that a 1150 sq ft apartment off Carmel Mountain Road is $1900/month. She said the recent condo conversions have reduced apartment availability, pushing up the price.

[powayseller]

Exactly. Once he itemizes, he can deduct medical and professional expenses.

[powayseller]

He wrote last week that Feb 06 and Feb 05 would have equal sales, based on January’s pendings. I was worried about a spring bounce.

Today he writes that Feb 06 sales are down 25% from Feb 05 (1831 vs 2486, respectively).

What happened to the 600 January pendings?

If he adds those 600 January pendings to February pendings, March 06 sales will be down 20%. So this would be a sustained -20% y-o-y sales change. If the 600 January pendings are just builder gimmicks, then March 06 sales would be 35% y-o-y decline.

This may explain the rise in median price:
“The sales mix in 2006 has 9% fewer homes under $400,000 and 20% more homes over $900,000 versus 2005. This skews the average upwards without indicating that the price of a home has actually increased.”

I e-mailed Mr. Casagrand, and asked him how he explains the rising median price. Here is his response:

“The reason that both the average and median prices have increased during the past year is that the sales distribution has shifted dramatically. The low end of the market has been crushed by the loss of buyers due to the increasing interest rates, especially the ARMs. The net effect is that the mix of homes sold has proportionally more expensive homes than previously. So comparing the average price now to the average price a year ago is like comparing an apple to an orange. Price reductions are real and ongoing and increasing. One neighborhood has not sold a house over $900,000 in the past 5 months where in the spring the over $900,000 sales made up 33% of all sales, and I see this trend all over.
The way to watch the market is to track inventory and unit sales. As long as inventory is in the 6 month (180 days) supply range there will be downward price pressures. The key indicator is the “days supply” this gives you the relationship between homes on the market and buyers. When prices were shooting up we were running about 30 days supply, to give you some perspective. ”

[powayseller]

4plexowner – if the mobile home purchase payment is equal to the rent payment, but the former has a portion which is tax deductible, then you come out ahead.

How much you end up ahead also depends on how much the mobile home depreciates in general, and how this market does. The idea was, with a cheap “home”, it couldn’t lose too much in value.

However, a 15 year payment plan will not have a tax benefit for too long, as the interest payments get small very quickly. I think w/ his income, he will benefit only by paying large interest payments, like $60K/year.

On $200K/year income, you would pay $53K in federal, and about $10K in state taxes, and then of course the $7K FICA. So it’s not quite half, I guess I had misunderstood the actual percentage. But it’s still too much, and makes him not even want to try for those bonuses, because at the highest combined rate of 33%+state income tax, you really start to feel like you’re helping the gov’t more than yourself.

[powayseller]

I checked in w/ my realtor yesterday, to get the scoop on the market, and she told me that they’ve been telling sellers to lower their prices, but sellers don’t want to do so. They know what the last comp was, and believe they can get that too, and are willing to wait. Exceptions are motivated sellers, those who must sell for job move, divorce, whatever.

She said that those homes that sell are either listed for, or getting offers for, about $20K less than they would a few months ago. When I asked her for pricing, I figured out the reduction was about 2 – 5%. The other homes are not selling.

[powayseller]

Mobile homes are financed different from houses w/ a foundation, so the lowest financing rate is 12%. His tax rate is higher than that.

What ought to amaze us is not his choice, but his limited options!

Just curious – do you have any suggestions? You say that tax savings are not a reason to buy RE, but it’s the only way he can reduce his taxable income. With a larger loan amount, the savings would be much bigger.

I do appreciate all the advice, and have been forwarding your responses.

[powayseller]

He earns about $200K/year, is single, and rents. The IRS really takes advantage of people like him. It’s so unfair.

He’s trying to get a tax deduction, more than get into a home, because he believes there’ll be a major correction in housing prices.

[powayseller]

4plexowner – Can you give a response, with the actual scenario I described. First, financing on mobile homes is more like a car, thus at a higher interest rate and shorter term. I was told 15 years max, 12% interest.

It would be a primary residence, so no investor considerations.

My friend says the land is basically rent-controlled, and is $600/month. It can be increased monthly, but in small increments. He figures as the value of land increases, the limits in lease increases make the mobile home even more valuable, as you have the right to live on that land at the old rate. Is the limit of lease increases individual to the park? Does it change at time of sale? I wonder how your friend’s lease went up 4x.

About your calculations: yes, he would pay $12K/year in interest (12%, 15 yr fixed, 25% down on a $125K mobile home), but he pays double that in rent. So how is he down $4550? Besides, once he exceeds the standard deduction, he can deduct medical and professional expenses and charitable contributions.

I’m just trying to help him figure out if this would be worthwhile. He believes housing prices will go down 30% – 50%, and is bearish on the dollar. He’s a real sharp guy, and trying to find a way to keep from paying almost half his money to taxes. The CPA had no ideas for him. It seems buying a house could be the biggest help, but I figure unless he has a $1mil mortgage, with a $60K/yr interest expense, the interest deduction will barely make a dent in the taxes anyway. What to do?

[powayseller]

erparadise – do you have MLS access, or are you using realtor.com or another MLS-sponsored site? Why are ziprealty’s numbers lower?

[powayseller]

Hey, good luck to you, too. Just wondering, did you sneek a last peek back to check for responses? It’s hard to stay away…

[powayseller]

I noticed this too. I saw only 3 Open House signs today. Aren’t realtors supposed to give you the impression that they’re trying hard to sell your home?

Perhaps the realtors have caught on, and realize that as long as the price is too high, an Open House won’t matter much.

Actually, realtors host an Open House as a marketing tool to meet potential buyers.

I guess they realize there aren’t any.

[powayseller]

19K is a landmark. It’s the highest inventory we had, and occurred during the last bust in July 1995, when layoffs and a recession caused thousands of workers to leave San Diego.

Since rising inventory increases DOM and decreases price, the inventory is a leading indicator of a price decline.

I guess the 19K number is a past glass ceiling, and surpassing it implies we are in another bust.

Once we pass 19K, the media headlines will announce this “Inventory at highest level since 1995 signals housing bust”, decreasing consumer confidence. And that will lead to even lower sales. The media reports caused by the 19K figure should depress seller motivation, the a factor which you noted.

I don’t recall if Pigginton mentioned the 19K number. It has been done by others, on RealtyTimes and the Voice of San Diego, and perhaps they can explain why they consider it a metric worth writing about

[powayseller]

We’ve been hearing that the sellers are ready for the spring take-off. The question is, are the buyers ready, too?

[powayseller]

In the dry smoggy congested town of Phoenix, AZ, they even conned themselves into thinking it was different, as home values ran up 50% over 2 years. Now they have an inventory glut.

Arizona Republic

[powayseller]

If the guy stops reading, do I get my money back?

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