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powayseller
ParticipantThanks, professor. This is my favorite website, and you’ve got a wealth of information. Thanks for the detailed explanation.
ParticipantKeep renting until prices stop going down. I checked for rentals online, through the San Diego Union Tribune (you can search by area), craigslist.org, backpage.com, and then the MLS. For the MLS, you need to ask a realtor to get you a link, and then everytime the MLS updates, you get an automatic e-mail update. The MLS shows you the time on market, but for the others you will notice how long you see the same ad. Always ask for a lower price, and if they charge more than $1/sq ft, they are overpriced and no one will want it until they reduce the price. Some novice investors ask for high rent prices to cover the mortgage, but seasoned investors expect to be cash flow negative, so they price theirs at market rate. You have good karma to have lost the house in November. Keep an eye on the house, and keep us posted – my guess is it will sit on market until the flip flopper lowers it to $450K. Prices are declining, not rising, and homes priced too high just sit until the prices are lowered.
Participantcowboy – I know some asking rent prices are up, but what are actual rent contracts? I noticed the same listings for many weeks, even over 100 days, because the owner was asking too much. I see a lot of high rental ads, but they are still listed, those same ones. Presumably they are trying to cover their mortgage and/or equity line, but then the place just sits vacant. In Poway and Rancho Bernardo, houses go for about $1/sq ft., and I negotiated on several places and was able to bring down the price on three of them.
ParticipantJim – please share your sordid details. I found the same thing – I could negotiate on every rental, and some owners are definitely cash flow negative.
ParticipantWould the dollar lose value if the Fed lowers the interest rates? I thought gold could be the next bubble, and could buy some of that.
I read on calculatedrisk.org:
“As the economy slows, this will reduce the trade deficit and also lower the amount of foreign dollars willing to invest in the US – the start of a possible vicious cycle.” With less foreign investment, the Fed will have to raise interest rates, which would further depress housing prices and home equity withdrawals, lowering imports and the trade deficit, leading to less foreign investment and so on in a vicious cycle.Wouldn’t this lead to higher long-term rates, which are required to induce foreign central banks to buy long-term treasuries, and also a global recession, as demand is reduced for foreign goods?
ParticipantRents are lower now. It seems that anyone with a pulse has qualified to purchase a home, and rentals are staying on the market a long time, driving the prices down.
I am speaking of my experience over the last 45 days looking for a rental home in Poway and Rancho Bernardo.This week I read a study going back over 30 years in SD, and the rents were usually $1.15/sq ft in North Cty Inland. Currently, these are $1/sq ft, sometimes a little more if the lot is really big or it’s an exclusive neighborhood. Some owners are asking more, but their rentals are still vacant. We will be paying $1/sq ft for a 2000 sq ft nice duplex built in 2003. During my search I witnessed reductions on rental prices, and find that a 2900 sq ft brand new house is still vacant after 105 days on market (MLS listing for rent), despite coming down from $3200/month to $2600/month. We almost took it, but decided to cut our costs a little while renting.
I get a kick out of asking the owners why they are renting and not selling. They are all speculating that prices will go up.ParticipantA 30% drop would bring us back to the trough ratio of 9, which we had in 1985 and 1998. However, a 50% drop would bring us back to where we should be if home prices had risen with inflation, as they typically do. At 5% inflation, home prices should have continued on from their 1997 value of $200K to be about $320K today. I think we could have a larger than 30% correction via the median house price/per capita income ratio, because this time we have so many other factors: most new jobs tied to real estate, easy credit, equity already spent (housing ATM), and the deficit and falling dollar which could cause their own recession. In January, we’ll see a glut of inventory, and then just watch it go down from there.
Interesting point about the people who claim they don’t need the equity from the sale of their house:) I’ve heard so many homeowners tell me they hope housing values drop, they hope I’m right in selling, they don’t care if values go down. Are they all nuts?? They are in denial. Admitting they cared means they must do something about it, and homeowners are too emotionally invested in their homes to sell, are too worried about the stigma of being a renter, and are too used to hearing that you must own a house to build equity and reduce taxes. It’s a new mindset for folks. If they really don’t need the money from the sale, ask them if they would be willing to donate it to charity.ParticipantkingKong, do you think I’m part of a large trend, i.e. people selling their homes, not having spent ANY of the equity, and then saving it waiting for a correction? I thought most people had spent their equity, and when they do have to sell, have nothing left to save. Also, I think I’m in the minority in anticipating the correction. I would like to hear which group of people has cash, because I’ve been reading, from the government even, about the housing ATM. Real cash comes from saving, not debt. I also think we’ll see a 50% decline in housing over 3 – 5 years, based on needing to get back to a trough baseline of per capita income/median house price needing of 9. Now the ratio is 14.5, and if you track SD history back to 1976, you’ll see that each correction brought us back to a ratio of 9. KingKong, I would love to hear any counter points you may make. Thank you.
ParticipantI ask myself this same question. Any action which slows the housing bubble, such as raising interest rates and providing guidance on lending standards (i.e. this week’s OCC guidance to reduce risky lending), will bring the housing market to a screeching halt. This is because ARM holders can’t meet the higher payments and new borrowers can’t qualify for the loans needed to get into the houses they wish to buy. The OCC guidance doesn’t even carry any weight – it’s only a guidance. Even as the OCC issues guidance, at least one lender did just the opposite this week (see http://www.f*ckedborrower.com), and dropped their lending standards further, in the spirit of competition; they don’t want their customer to go to another lender with lower standards. One day out of bankruptcy is now good enough, the lowest of 3 FICO scores instead of just the average. The looser the standards, the more risky borrowers get loans, the worse the results when it collapses.
What can the fed really do? Any action reducing home prices:
1) reduces people’s retirement nest egg that is in home equity,
2) shuts down the housing ATM that is propping up the economy (with 1/3 of GDP a result of consumption) and
3) eliminates the source of most of the new jobs: the real estate related service and goods. Mortgage companies, home improvement stores, furniture retailers, remodeling and contracting businesses, realtors, escrow and title companies, are all at risk.What would you do if you were Ben Bernanke? Wait and see what happens this spring? Print more money? I’d love to hear what others think.
ParticipantI suggest you wait a few years, until prices drop by 50%. If you can afford to lose equity, wait less time, but in the spring we will see a significant drop as inventory rises, ARM holders cannot afford higher rates and must sell, lending standards tighten later in the year as foreclosures rise. Be patient, it will be worth the wait. We are in escrow now – we are selling a home we just finished building in September 2005. I am selling my dream home because it is so obvious that this market will correct, and we are at the peak. I am waiting to buy a foreclosure in about 4 or 5 years, but it may be sooner than that. Keep reading this website and the links, and you’ll stay updated on the market. My realtor just sold his $729K listing in Walden (near Carmel Mtn); the buyers offered only $649K and the sellers took it because they needed to sell. His comment to me was the other homeowners in Walden would be mad at him for bringing down everyone’s values. The price reductions are really getting going now. Many people are waiting for January to either list or RElist, and the flood of inventory will further depress prices, and there will be a snowball effect. Patience is your friend.
December 20, 2005 at 12:58 AM in reply to: Differences Between The Tech Bubble and the Real Estate Bubble #23278ParticipantGreat perspective! I’m selling my house for around $800K, we’re in escrow, and the buyers are getting a 5/1 ARM w/ 100% financing! With 80% of loans in CA reported as I/O, and some combination of no doc, neg am, and no down, these people will have to sell in 2006 – 2008 when rates go up. They won’t want to, but will have to.
Another interesting point: baby boomers are holding on to their homes as a retirement nest egg. I’m not sure how prevalent this is, but a few of my friends have told me they are doing this. Now we’ll have another round of boomers who are loosing their retirement nest egg.
Whew – we are getting out just in time. I believe we’ll have a 50% correction over the next 3 – 4 years. January will show a big drop in prices. NAR figures lag by a month – talk to any realtor – the MLS is full of price reductions, and many people are pulling their homes off the market because they can’t get their asking price. When they relist in January, things will be only worse. A lot of people are waiting for January to relist.
ParticipantI told my realtor about the 14% increase in prices, and she said, “Where??”. I told her in North County, and she was amazed. She said when you look at the MLS, it’s full of price reductions, and that every house has them. She owns a house plus a rental property, so she does not believe in a long-term decline as I do. She told me my house was unusual in getting 3 showings per week, because of its uniqueness (acreage). Their other listings get 1 showing per week.
ParticipantI was wondering if the higher ARM rates would make it harder to sell my home. We had an offer around $800K, the buyers are getting a 30 yr ARM, w/ Countrywide (one of the most lenient lenders). It’s a 5-x-x-x-1 I think it starts at a lower interest rate and adjusts annually. So the way they borrowers get around it is by getting lower teaser rates, or negative amortization loans. The real impact will be in 2006 and 2007, when something like $300Billion and $1.6 trillion, respectively, of ARMs reset. Then there is no introductory rate left and the borrowers have to pay up.
I’m wondering how many lenders are still giving these teaser loans. I would like to see a response to the poster’s question from someone in the mortgage or real estate industry.ParticipantI see glaring problems:
1. The data in the first table is reported a little different thaan what I’m used to seeing on this site, because they report income as per capita income times the number of people in the household. They do state it’s an unfavorable number. I checked the data from the U.S. Census Bureau, and the CA Association of Realtors. The median home price/ per capita income ratio is usually around 9, but is running close to 15! In this graph, with a figures reported differently, the ratio in SD is over double the national average, but this table fails to show the trend line, and point out that we are almost 2 times the trend line.
2. They cite net migration of -12,000. People are leaving because housing costs too much. So that further proves that desirability of SD is not leading to higher costs. People are leaving, yet costs rise.
3. The do not explain the source of the “strong trends in job gains”. SD had over half its job growth last year in real estate related jobs: realtors, lenders, construction, probably construction stores.
4. They attribute the strong gains in house prices to the “catch-up effect” of low price gains in the ’90s. They forgot to mention that period of lower price increases was a response to the overpriced housing prices of the ’80s, with the pendulum swinging back the other way.
5. While they cite a slightly higher morgage servicing cost, they ignore the fact that today’s option-ARMs and negative-amortization loans cannot be compared to the stable 15 and 30-year fixed rate mortgages to which they are comparing today’s payments. Today’s new mortgagor faces substancial price increases when interest rates adjust and many are actually increasing their loan balance by paying only part of the interest. A more intelligent measure would use NOT today’s artificially low payment, but the final payment these borrowers will pay in 2 years when rates adjust up to 6 or 7 %. Then we would see the true scope of the problem, with mortgages being many times what they used to be.
6. I don’t get the impact of baby boomers buying 2nd homes in SD. A second home is usually a vacation home (at least my parents bought theirs in a ski town and the beach), but why would you buy a 2nd home in San Diego? I think these 2nd homes must be investor purchases.
7. I was surprised that only 3% of loans are over 90% LTV. Why do we have so many 103% financings then? What is the actual figure?
8. They again quote the desirability, due to weather. Did you know that Phoenix and Las Vegas, two of the hottest and by weater standards, least desirable cities, have the highest overvaluations according to the PMI report? So much for rising costs due to nice weather.
9. They say we could see price declines only if interest rates rise of huge job losses occur. Hey, I’m selling my house and watching other sellers, and prices have already declined. I’m not sure we’re at 5% yet, because my area is hard to comp, and my friend finally took her house off the market because she couldn’t get the price they wanted (after lowering it twice).
That’s enough writing – and I’m only halfway through the report. -
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