[San Diego]

We’ll see. In good times, the builders needed about 40% of the building under contract with hard money deposits before the bank would fund the construction loan. On this project, that would equate to 272 of the 679 planned units.

The email states, “With almost 300 sales to date, we are quickly approaching our sales target. To achieve our goal immediately, Point of View is offering to the next 20 purchasers 5% off on selected units.

Their “sales target” is 679 units, not 300. I would bet that they have about 250 reservations and need the remaining 20 to get to their 40%.

[San Diego]

All this means is that the project won’t get built right now. They dug a big hole but haven’t done anything else to the site for a few months now.

They will give back the buyer’s deposits and put the project on the shelf. There are at least 5 that I know of right now that have been delayed indefinitely.

I would be surprised if you saw a new high-rise break ground in downtown San Diego for a while. High construction costs and flat to declining revenues have effectively put the market in check for the near future.

Some of those buyers were not “flippers” and may actually want to live downtown. They may have to look at other projects already built. This should take up some of the excess supply in the current market.

[San Diego]

How do you buy a condo project out of bankruptcy? By definition, a condo project is owned by several owners. Are you assuming that every owner will go bankrupt at the same time?

Also, 95% of these projects are just pretty pictures in a sales brochure. Very few will get built in the next 3-5 years. The fact that the lenders require at least 40% of the building to be pre-sold with actual “hard money” deposits will prevent most (if not all) of the buildings to break ground anytime soon.

[San Diego]

This thread was written in regards to new, FOR SALE, HIGHRISE Type 1 projects, not 40 year old, wood structure apartments.

“In the mid 90’s many apartment buildings in City Hts sold for under $15,000 per unit. Apartment buildings sold for less than 1/2 the cost of building the fees and permits to reproduce them!!!”

Please show me one comp that proves this. Lets look at the math:

Purchase Price $15,000 per unit
Down Payment: $1,500 per unit
Interest Rate: 10% ($1,350 interest per year)
Taxes @2%: $300 per year per unit

If the property was rentable (not condemned, burned down, flooded, etc.), an astute investor would only need to gross $152.50 per month per unit to get a 10% return on their investment, not including any depreciation. I didn’t factor vacancy or repairs but I know that rents were higher than $152.50 per month throughout the 1990’s.

As far as your current 20 unit apartment, your $800,000 “premium” disappeard because the condo conversion market is flooded. Assuming that the property is in rentable shape, I would imagine that any investor looking at your property would value it based on its current rents. Replacement costs have nothing to do with your unrealized “premium”.

[San Diego]

I agree. Market timing is great when you have 20/20 hindsight.

[San Diego]

“The median loss was $23,500 on a house sold for $203,000, originally purchased for $226,500.”

Good article. It shows that home prices pulled back approximatley 10%. I see predictions on this site of a 50% decline. I think it could pull back 20%. The same thing will happen, people won’t be able to “move-up”.

This chart has different info. It appears that the MEDIAN homebuyers experienced a 10% decline from 1991 to 1995. You would have been underwater until 1998.

http://www.laalmanac.com/economy/ec37.htm

As far as the reference to GOLD is concerned, it shows that it is a very innefective hedge against inflation. Even if you lived through a few housing peaks and troughs in the last 22 years, you still would have done better owning a home rather than gold.

[San Diego]

“It’s funny to see the same arguments recycled twenty-five years later. “Money waiting on the sidelines” and “rich foreigners will always pay a premium” were permabull touchstones decades before this website was even a glimmer in the prof’s eye. We can never accuse the NAR of inconsistency.”

I agree that we are overpriced today, but this article has no relevance. Are you saying that housing was overpriced in the early 1980’s? I don’t have any fancy color charts to prove this point but I am fairly certain that if you were fortunate to “overpay” for a house in 1983 in a reasonable neighborhood anywhere in San Diego, it would be worth substantially more today (even inflation adjusted). You certainly would have refinanced the original mortgage a few times since then. You might have pulled out equity to send your kids to college.

Maybe you were smarter than almost everyone else and decided not to put a $20,000 down payment on the house (with an $80,000 mortgage). You decided to live in a garden style apartment for the past 22 years. You knew that Microsoft or Wal*Mart was a great value and bought $20,000 worth of stock. If you didn’t pay any income taxes on the stock, MSFT (which went public in 1986) would be worth $600,000 today @ $30 per share. WMT was $.75 (price adjusted)in February 1983. Your 26,666 shares would be worth $1,200,000 today which would buy you a nice tract home in Carlsbad or Carmel Valley.

Gold was $500 an ounce in February 1983, today it is $550.

[San Diego]

I am keeping my comments focused on HIGHRISE buildings in San Diego. In the case of HIGHRISE (Type I, steel and concrete)developments in the Marina District and near PetCo Park, there are sophisticated investment groups (with longer investment horizons) who are very aware of the replacement costs of steel and concrete buildings. They will recognize when the market for these units is at or near replacement costs and will be in a position to take advantage. Right now (February 2006), the replacement costs of these HIGHRISE buildings is somewhere between $550 and $650 psf). Construction costs continue to rise and the best sites are already either under construction or under the control of deep pocket developers who will wait to develop the sites so that range may continue to rise. These huge rises in construction costs will doom many of the planned HIGHRISE developments in the inferior locations and they will not be built this cycle thereby effectively controlling the supply.

The wood framed junk that is being slopped up is much more at risk. It could easily retrench back to the original proforma prices (high $200,00’s) that the developers imagined when they were first marketed to the public. That would represent about a 25% retrenchment (from high $300,000’s back to high $200,000’s).

[San Diego]

I believe that if you are just entering the SFR market in a master planned community anywhere from Oceanside to Chula Vista, market you are probably the “greater fool”.

Builders are much more in tune with the markets these days and you might actually see some of the later phases of some masterplans be held up until the resale market stabilizes. Regional builders (and equity players and lenders) will allocate their capital to other markets for the time being.

I am NOT a proponent of Condo Conversions. Anyone who thinks that a 40 year old apartment/converted condo is a substitute for new construction will have trouble finding a buyer when they decide to sell. I see these properties falling in price until investors can make them pencil as rental units again. You will see many of the “condos” re-entereing the market as rentals in the near future.

I believe that the extreme rise in construction costs has flushed out all of the speculative building in the downtown market and Mission Valley. You may actually see some of the residential projects be re-entitled for commercial/office.

I KNOW that if we get a correction of more than 15%-20%, there are huge amounts of capital waiting on the sidelines who will be lining up to buy SFR land. They will take positions because they know that long term, it is a good investment. Also, they will need to prop up the value of their current investments. The SFA attached projects have a little further to fall.

If we get corrections of 50% (as some have openly hoped for on this site), I would classify that as Economic Armegeddon. The ripple effects would touch everyone.

Finally, REALTORS are a big part of the problem with their pump and dump tactics. We can all only hope that they are the first to go away.

[San Diego]

The last bust happened when Interest Rates were in double digits and their were huge jobs losses because of a decrease in military spending.

What is your definition of a “reasonable entry point”? If someone bought a SFR in Carmel Valley for $500,000 in 1998 and recently had it on the market for $1.3 million but ends up selling it for $990,000, is that a “reasonable entry point”?

[San Diego]

I want to differentiate between HIGHRISE and typical 3-4 story, wood and stucco projects. If I could offer $300,000 condos in a downtown HIGHRISE, I am fairly certain that I could sell every one of them in a very short amount of time. The reality is that I would need to sell them for about $650 psf ($650,000 for a 1,000 sf unit)to make a profit right now. It is true that the DEBT and EQUITY markets are not convinced that the pool of buyers at these levels is very deep and therefore, they have curbed some of their lending and investment.

In a HIGHRISE, the land component is an expensive but minor factor. Currently, a 240 unit, 30 story tower on 60,000 sf in downtown San Diego would cost nearly $200 million including financing costs, design, permits, etc. The land accounts for 10% to 15% of the cost of the project.

In a single family detached home, land costs are approaching 55% of the finished cost of the house.

[San Diego]

Foreclosures trump any leases.

The lease would survive a sale of the property.

Make sure that your Security Deposit is safe.

[Author]

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