[RightSide]

Thanks for the info SDR…one thing really jumped out at me, they said…

“In 2005, the median price of a house was nine times higher than the median income in San Diego.”

This is a big discrepency compared to Rich’s data here…where is this data coming from?

[RightSide]

Thanks for all the comments and perspectives…I’m going to be checking out some places over Mothers day weekend, so it will be fun to see the SD real estate world on the ground after all the reading about it I have done on this website.

I’ll let you know if I buy a house and then you can all give me rasberries for ringing the bell at the top of the market. 🙂

[RightSide]

I think the TICs are a great evolvement of our capital markets in that they allow smaller individuals to participate in deals that were traditonally the exclusive ground of institutions or ultra high net investors.

Personally, I think the commercial segment in many areas has become overvalued, but if I had a choice between owning a single investment property worth $2 Million in San Diego or a ten seperate $200K peices of TIC’s spread out across many geographic markets and real estate sectors, industrial, office, multi-family, etc., then I would definately take the latter. I think investing in commercial real estate may prove to be a relative poor performer compared to other choices, but I do think if you stick to A class properties, it will deliver a return above infation over most 10 year periods, especially when you take into consideration the tax benefits.

Like EVERY market, there are shady dealers and bad deals, and there are also good dealers and great deals. The TIC market is no different.

[RightSide]

Actually the TIC you are talking about is really an entirely new investment vehicle (and industry) that was created a few years ago when the IRS ruled that this structure was eligible to be used as a 1031 exchange.

If you have an appreciated california investment property, I think they are especially attractive choice…you get passive income, ability to diversify across many commerical classes and geographic locations and all the beneifts of RE ownership (such as being able to offsset depreciation against income and deference of capital gains).

Here is a good source for info on them…
http://www.ticassoc.org/

The TIC market has gone from zero in 2000 to multi-billions in just 5 short years…amazing.

[RightSide]

Poway,

I heartily support your decision to start a single forum to confine your posts too…please don’t take this the wrong way, but you spend way, way too much time posting on this website and its detioriating the overall quality of the forums at large.

I’m sure other’s would appreciate it if you could reign it in or keep it in your own forum. I also respectfully ask that you no longer respond to any of my posts. I will do the same for you.

Thanks.

[RightSide]

Well I can agree with you on this, Rich has done an oustanding job and I think he should raise his rates and close off the forums to only premium subscribers…my only other request is that we limit powayseller to only 1 post a day…

[RightSide]

Hi SdRealtor,

First off, I’m deeply sorry to hear that there may be any bad news about your son. I have two youngsters and there could be nothing worse. Please keep us informed.

Second of all, I’m coming to your defense big time here. Anybody who thinks a realtor should be responsible for the housing bubble is a total ignoramous. I know powayseller is just a little obssessed about the housing bubble, but its clear by comments she has made, that she is herself quite an ignorant investor and has little knowledge of how our capital markets acutally function. She sounds deeply distraught that she sold her house that she built for the sole purpose of financial gain and I think if the housing market doesn’t crash like she thinks it does, she is going to feel deeply foolish for having done that. She is going to be really upset if inflation takes off and the housing crash is brought back down to its median with no actual nominal price decline. That would be a realy humdinger. Sorry Poway, I like you , I just think your motivations here are more then a little strange.

I happen to be a sophisticated investor and even though I think there is a high probablity of a signficant housing crash, there is also a good chance I will buy a million dollar plus home in San Diego in the near future.

Why?

Because I have a young family and I want to own the house I raise them in. I’m wealthy and I can afford to lose all of my investment. I do so with full knowledge of what I’m spending my money on. If there is a housing crash, I will buy another couple houses when it gets ugly and average down my exposure to the SFR market in San Diego, or use the new futures market to hedge my investment if that emerges as a viable platform.

If I were single, sure I’d just rent a home, but with a family, there is simply no comparison between ownership and renting. When I buy, I’m certianly not going to blame my realtor for any loss I may or many not sustain.

I think a quality real estate agent like SDrealtor is a facilitator of market transactions. They do NOT make a market, they do not drive a market and they are in no way shape or form responsbible for what happens to the prices of housing.

Here is a question, if the realtors were responsible for this market, how come some of the mid-country real estate markets have not shown any price increases during this big bull market? Was it because the realtors were not good as promtions? Please…

So Sdrealtor if you are still reading this, what are some good neighborhoods to check out that are off the beaten path….Poway looks interesting, but it seems that its very hot there in summer. Which is funny, because who knew there was bad weather in San Diego? The Bressi Ranch looks interesting, I’ll have to check it out…I like the new urban design ideas they have incorporated and seems like a lot of families there. How far along is that one?

[RightSide]

Shorting is very easy and the risks are far overblown…but you do need to be smart and educated to be successfull, but that goes with most things. You are not going to get squeezed out (forced to give you your short postion) in any of the stocks I’ve talked about.

[RightSide]

Here is another stock that is going to ZERO. NYSE:PMI . They sell the insurance that people need to buy when they finance with less then 20% equity (the real at risk group of people). They are insuring BILLIONS of loans, yet guess how much cash on their balance sheet? 700mm.

They will be hosed.

You want a good trade if you believe this market is tanking? Go short PMI.

I’m not short yet, but I’m lining up my trades. Forget about investing in gold. If you want to get rich, then you’ve got to actively participate in the decline. There are numerous opportunities to do so.

Did you know that there is a swap market that allows you to short MBS? The risk of MBS has been spread to many people…will this pose a systematic risk or is this what the new global markets are all about? We shall find out…

[RightSide]

Unfortunately, I do not have data to support my arguments. 🙁

Honestly, I think one of the challenges with analyzing this market is that the data does not exist.

I do have some counterpoints though:

1) Few all cash purchases – Even those who can afford it are going to get a mortage of up to a million dollars because of the tax breaks and low interest rates. It makes it so cheap to borrow that you can beat the cost of the debt with even conservative investment strategies. Therefore the # of cash sales do not tell us anything.

2) How changed are parts of San Diego over the last five years? I can’t speak for San Diego, but I would say that 5 years ago, Oceanside had undergone a prior transformation in the previous 10 years that was not yet priced into the market. Certainly, I think it has overshot a fair price now, but part of the market action in the last five years was also a recognition of the dramatic changes that took place the previous 10 years.

Its also not just caused by the whole real estate appreciaton, but just a fundamental change in who is living there as well and the investments they are making will only continue to drive this demographic change regardless if the bubble bursts.

3) Why have rents not kept pace? I think again this speaks to the demographics. People who buy million dollar houses do not rent (I know, I’m one of them). Rent is not a comparison to owning your own home. Its also speaks to the rationale side people have shown over the last 5 years. Choosing to buy vs. rent has been a much smarter investment. That is a FACT. Now, I know it may be quite the opposite the next five years, but as of right now, that’s where we stand.

Again, I’m firmly on the side that plans to profit from what I believe will be a coming decline, but there is a lot of rationality to what has occured in the San Diego real estate market. Some of the comments from people on this forum sound very emotionally invested in the idea of a market meltdown and their expecation of how its going to play out. I’ve always found that understanding both sides and staying objective is going to give you the best chance to exploit the situation as it unfolds.

The one great thing about this debate, (and markets in general) is that unlike political viewpoints, a real answer to what’s going to happen will soon be forthcoming and we can all see where we were right or wrong…

…by the way…I have some additional bearish arguments to add to the fire as well..I’ve just been holding those off because I don’t think anyone here is going to dispute them. 🙂

[RightSide]

Thanks for posting that!

This is great news that these indicis have been picked up by Standard and Poors. It should make them a much more legitamite.

You can read more about them here
CME Futures Website

[RightSide]

I recommend for you TIPS they are Treasury Inflation Protected Securities and backed by the US Government. They are also a favorite recommendation by Bill Gross, head of PIMCO (the world’s largest bond fund company).

They pay a slightly smaller yield then a regular treasury bill, but the principal repayment is indexed to the inflation rate.

YOU ARE GUARANTEED a REAL RETURN on these T-Bills!

There is not a safer investment in this market environment.

I think Berkshire Hathaway is probably a great investment. He is well hedged against the dollar, has a ton of cash-flow generating assets that will hold their value no matter what the market does.

Go 50% TIPS, 25% Berkshire, and 25% a global world index fund and you should be good to go.

For myself, I like to speculate in numerous markets. I use exotic non-directonal option strategies for income, a market neutral us portfolio for core holdings, and I play with distressed debts and microcaps with about 25% of my portfolio. I also do some angel investing and private equity, but have not had any big winners yet…

I do plan to actively speculate on the housing futures market if it garners enough liquidity to trade. Its supposed to launch next quarter. I also think stocks like LEND will go OUT of business if their is a major housing crash.

[RightSide]

Poway writes: RightSide, as the Fed is printing money to pay off the debt, and simultaneously raises interest rates to control inflation, what would be the outcome?

I think that is the key question. I just don’t know and I think using past examples of how this plays out is risky, because there are so many things different this time around.

My plan is to keep an open mind to all points of view and not get stuck on any one conclusion. Personally, I have found that most people who lose money investing do so because they become emotionally involved in their decisions and let their egos take over. There is a great book that just came out called “Mean Markets and Lizard Brains” on this subject.

I do believe that evidence points to a “day of reckoning” at some point in our near future and I’m planning to profit from this when it happens. Its starting to feel like a crowded trade and when ever I get that feeling in the stock market, it usually turns out that the crowd is wrong. This may be because I’m spending all my free time reading about the bubble, but honestly, I’ve found not a single person I could have a rationale discussion with that disagrees there is a housing bubble now. I mean even Rich Dad himself, the great real estate proponent who has sold millions of books based on making money in real estate is calling this a full blown bubble and telling everyone to sell their real estate.

I also wonder what are other people’s motivations for following the housing bubble here in San Diego? If houses crashed by 50% are people here planning on stepping in and buying? Is anyone else like me planning on shorting housing futures the first day they trade?

Why are you all here?

PS. What’s Poway like? I’m looking at Carlsbad, Encinitas and Carmel as possible locations, but I haven’t checked out any other areas. I’d like to find a good family friendly neighborhood that has some character. I have a 2 1/2 yo and another one on the way…

[RightSide]

Here are the arguments I’ve gotten against an inflationary wash of the housing bubble:

1. The Fed keeps talking about containing inflation. If they are serious, and not lying, then they will keep raising interest rates to contain it.

RESPONSE: I think its worthwhile reading the mission of the fed, as they state it on their website:
http://www.federalreserve.gov/generalinfo/mission/default.htm

I agree that in general the fed views inflation as a bad thing, but it’s not their only goal. I also think the fact that our government has a lot of bills to pay is going to neccesitate the printing of a lot more money.

It seems to me higher interest rates are also a sign that inflation is on the rise.

2. Bugs raises several good points, many of them about wether or not an inflationary scenario is a good solution.

My Response: I agree with most of what you say, and I don’t view the iflationary scenario as a “good” solution overall, but merely as a one that has a good chance of occuring. As happened in the 70’s, the inflationary envrionment, makes debt’s cheaper and hard assets more valuable. All other things being equal, this would be a net benefit to people who have a high debt to asset ratio.

3. The Fed is the Banks – why would the banks want to deflate their assets to bail out the consumer ?

The bank’s assets aren’t dollars. The bank’s merely need a spread between assets to make money. Inflation is not a necesarily a bad thing for banks at all. Especially considering that most banks have packaged and sold all their mortages.

Overall, I’m not sure what the bank’s view of this is and what the pros/cons are in their view, but faced with a choice of an inflationary evironment or collapsing real estate market, I’d think they would pick the former.

4. Say the bank goes under and recalls its loans and you have to get a new loan but can’t because the interest rates are too high.

30 year fixed loans cannot be recalled unless they are in default. If the bank or entity that is holding the loan goes under they will sell that loan off to the highest bidder of that debt. The debt markets are very liquid and large nowdays.

There is no doubt if we did have an inflationary argument, having a fixed 30 year loan will grow in value.

My conclusion. I need to look into this scenario more and I’d be very curious to here Rich’s take on how this might play out. Overall, I think there are a lot of interests lining up (consumer, govt, etc.) for an inflationary environment and I for one want to be ready to take advantage of that.

I do plan to buy TIPS (Treasury Inflation Protection Securities) these are T-Bills that tie the principal repayment to the CPI. They could be a great bet if inflation does come into play and if it doesn’t the small premium you pay for them is a small and worthwhile price.

[RightSide]

What can you build for $90 a square foot in California? A mobile home? I’ve looked into builiding a house, nothing fancy, but nothing cheap either, and it was going to cost me between $250 to $300 sq foot. Just the permits alone were a ridiculous amount. Thats NOT including land or an architect.

[Author]

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