[temeculaguy]

Excellent point HLS, most people think that a fed funds rate has a direct relationship to mortgage rates. A 25 or 50 point bp drop in the fed funds rate may actually have no effect on long term mortgage rates. No matter what the fed does, rates and qualification for anything outside of conforming, fully doc’d buyers will not return to 2005. It is not the overnight rate that is funding 30 year mortgages, it is investors and they have soured on anything but old fasioned mortgages.

I visited two developments that were having advertised promotions today, they both had 5 3/8 5%down buydown programs in addition to 15%-20% price markdowns and all closing costs paid. I visited about noon Sunday, day three of the sale, not one house sold at either development. 50bp drop on tuesday is like giving a whale a tic-tac.

[temeculaguy]

I can explain the rent multiplier of 160 in one word, “incorrect.”

Depending on the formula, 144 or 150 is the highest rent multipler you should use. 144 is 12x annual rent which many use as a high number for California, 10x for the rest of the country and 8x for low tooth count states. 160x rent is probably from a lender sponsored website rent vs buy calculator. 125 to 150 is the desired range.

If I’m an investor and I can buy a place that rents for 1,000 and sells for 150k (150 x rent) or a place that rents for 2,000 and sells for 320k (160 x rent) I’m better off buying two of the cheaper ones. As an investor I don’t care that the weather is nicer or the schools are nicer, it’s just numbers, like P/E or dividends for a stock. When investors flee, it drives prices down, when they show up, prices rise. They start showing up at or below 150x. Investors don’t care, they will buy stock in a porn company with good numbers over a bible publisher with bad numbers.

Here’s the rub, as the market rises beyond logic, investors ignore the rule and buy at ratios higher than 150x because of the hype. As the market falls and the hype goes the other way, they ignore the rule again and still don’t show up at 150x or lower, this is called an overcorrection which is the opposite of a bubble. You see prices at lower than last year and think it is a bargain, you buy before everyone else does only to find out they aren’t going to show up for years, so even at 150x you have caught a falling knife. People are idiots, even people with money are idiots. They will buy something overpriced to fundamentals because they watch t.v. and they will ignore a fundamentally sound investment because of that same t.v., your job is to predict the cycle of idiots and stay ahead of them. Max price on 1800 rent unit, 270k, when it falls below that, buy it, especially if it falls much below, lets say 125x rent or 225k. BTW I used your high rent number, at 1600 (especially if the 1800 rent places are giving away 1 month free, etc.) your number should be in the range of 200k and 240k. Think it won’t happen, well I didn’t think the stock of the largest U.S. lenders and builders could fall to 30 cents on the dollar in one year either. Wall street is always ahead of main street by a year.

[temeculaguy]

In the last bust there were plenty of builders who went under and master planned areas that didn’t get completed. Not all of the land was raw, there were various stages of land development, the more devloped, the more likely it was finished. The remaining, partially developed land eventually went to other builders who managed to get by since they picked up the land for significantly less, the pitfall for the buyer was they also cut corners on construction materials as well. Looking at resale homes, anything in the 94-97 vintage is usually crap and suprisingly a 1991 house will look better than a 1995 today, it’s the totality of a bunch of little details. In the future, the 04 and 05’s will look better than the 08 and 09’s, the wine vintage similarities are endless. I have just noticed builders are re-working their models to stay competative, dropping anything and everything from the highly visible (granite and s/s appliances) to the overlooked (fixtures, rounded drywall, cable and phone outlets, ceiling fan wiring, moulding, cat 5, dbl ovens, hose bibs, x-mas light outlets, insulated roll ups, raised panel interior doors, vinyl windows, drywalled garages) look for cuts anywhere and everywhere just to reach a price per sq ft that is appealing. Over the next few years you will start to see fill in, builders pulling a “hermit crab” on failed developments.

[temeculaguy]

If you build one house it costs about 30-50% more per sq ft than if you build a phase of houses. Each trade has increased costs, waste and lost labor time. If you have 5 hours of electrical to do at a single custom home, the whole 8 hour day is shot. At a tract, they just spend the remaining three hours at the house next door. The bid time, learning curve, purchasing the materials, travel time, etc. for a single job takes the same time and effort as it does for building a phase of houses. If a contractor builds twelve custom homes all over the county or twelve adjacent tract homes at the same time, how many fewr trips to his supplier will he need to make, how much less time studying the plans, how much less time on the road between jobs. Apples and Oranges.

[temeculaguy]

For everyone with kids, this is unrealistic. I rarely drove in college but then again I lived hand to mouth. Try feeding sports playing teenagers on what you can carry on a bus, they can consume their body weight equivalent in 48 hours. Unless Costco starts a delivery service I’m sure they would eat the pets before the week was out.

[temeculaguy]

Here’s my theory on primo areas and distressed areas, the percentage will be exact, the timing will not. If desirable areas of the county would have suffered lower percentage losses in the last 4 or 5 bust/boom cycles, then the disparity would increase with each cycle, but it has not. Don’t ridicule the “things will be different this time” theory and then subscribe to it with regards to carmel valley or some other desirable area. The NOD/NOT analysis is just an indicator of when it will hit the fan. If 4-S falls 50% from peak, within a year, the areas without high NODS/NOTS will fall the same percentage. The knife will be the same size, it will just show up later. It’s a market force. You may dislike 4-S but the majority of the buyers will not pay double for Carmel Valley, so in order to sell in CV it will have to follow suit within a year, don’t think everyone can hold forever just because they can survive longer, someone will get a divorce, job transfer or layoff despite being upper class. The buyers won’t pay when they don’t have to give much up in the way of schools, climate, etc. and can get a significantly better deal not that far away. It’s Bugs’ butterfly effect and it is very real. This virus will spread, just because it hasn’t spread yet doesn’t mean it won’t and it will have the same effect in every area. If it is Del Mar you seek, you will have a much smaller window and will have to pay attention but don’t think that window won’t be there.

SD, don’t bet on the patsy’s this week, I don’t think they cover the spread and I doubt they win. They have the talent but the cheating controversy is a huge distraction and Belichick is a huge history buff, he’s not making his usual preparations this week, he’s stressing about his legacy and facing a suspension, not to mention LT has been thinking about this game for months, if the pats win with all this, then we can crown them.

[temeculaguy]

I read this article yesterday on a yahoo news link posted on some bulder stock quotes and it made me think of one thing. What a bunch of geniuses we are on this site. Look at the numbers, they get progressively worse and the past few months they are dropping like a rock. Anyone looking to invest can read dozens of stories like this every day and see how obvious the decline is and how it is picking up downward steam. Looking back to earlier in the year, the numbers were pretty flat and they weren’t obvious, yet if you had read the threads here in March, there was absolute certainty from the majority that this is where things were headed. I like the authors style but he has the benefit of looking into a rear view mirror, I would have been more impressed if he had written this in March, because Roubini and Shiller were writing and saying exactly this. On those two, have you noticed the increased respect when doing interviews they now get, no longer are they regarded as crackpots and few even dare challenge them.

[temeculaguy]

golf, that is almost creepy, we even used the same examples, if this were a test in school we would be in the principals office being interrogated. I’m going to check my birth certificate again just to make sure i wasn’t separated at birth from my twin, if so you get to be Devito, I’m Arnie.

[temeculaguy]

I think buying into an area that has held up thus far is far worse than one which is playing out. Ultimately it will trickle up but as it holds the disparity increases and creates a greater loss potential. If zip code A is traditionally worth double zip code B but zip code A is holding even and zip code B falls 25%, the worst investment today is zip code A. Despite the desirablility the multoples are getting out of whack and will eventually come in line.

BTW and off topic, now that the patriots have been caught cheating in the first game and are awaiting sanctions, who has last years playoff game still on tivo and will we find the mystery video guy/assistant coach decoding charger defensive calls on that tape. It’s going to be the “grassy knoll” of our time. I want every scrap of film analyzed from the past seasons, I want asterisks in the record books, I want rings taken back. How will this affect Sunday when the Chargers play the Cheaters. LT is going to go off Sunday and after the game he is going to mention to a reporter on the sideline that the Cheaters, cheated him out of his shot at the superbowl last year. My prediction, Brady gets a season ending “theisman like” injury at the hands of the Shawns and Belechick is arrested in a nightclub/stripclub scuffle/gunplay incident. They f&*#%@ with Karma and she f*&$#%’s back.

[temeculaguy]

Venom from realtors right now is understandable. Their world is crumbling, they have essentially been fired from their job yet they still have to go to work, but now without pay or hope of a payday. What is worse, many drank from the punchbowl themselves and are unable to pay their high priced car lease and are having their own arm reset. It’s Randolph and Mortimer screaming “turn the machines back on.” You piggy’s with your rent to price ratio fundamentals are the cause of all their pain, you are ruining everything. I’d be pissed at you too. As an industry they went to the payday advance check cashing place on the corner. They earned three years pay in one year, pissed it away and now they realize they actually should have banked the big money from 2003 to 2005 because that was it, no soup for you. What makes it worse is they actually got used to it and convinced themselves that they deserved the income they earned in the boom, so having the beemer repo’d and taking that job at home depot would have been easier if they had never had a taste of the good life in the first place. The easiest way to be poor is to have always been poor.

[temeculaguy]

That one is precious, 1300 sq ft, 4 bedrooms and you can make it a 5 bedroom. Why the hell not, the garage is already a bedroom, I bet people already live in the kitchen and the livingroom (if there still is one), so make it a 5br with the free lowes gift card. Or better yet, buy garden sheds for the back and call them guest houses.

[temeculaguy]

bsharma, it is a big county, it is not common knowledge that houses are selling for $100 a square because it is not common or reality. There are examples in certain areas but that is far from the rule. Palm springs, palm dessert, indian wells, la quinta, rancho mirage, you aren’t going to find 100 a square very easily. Hemet, Perris, yes you will find it. The city of Temecula is still $150 to $300 a square, 15 miles North, you may find some $100 examples but they are usually the larger square footage homes in undesirable locations and often outside the better school district ranges. It holds true for many areas of S.D. county, you wouldn’t say “why would anyone pay more per square foot to live in Rancho Bernardo when National City is cheaper.” Of those examples in the original post, they aren’t in the same city and thus are in different markets with different dynamics. It’s a county of 2 million, no market of that size can be given a price per square feet assumption. In addition the price per foot of a 1300 sq ft house cannot be compared to a 3,000 sq ft home, smaller ans single story homes are always higher per foot.

[temeculaguy]

I e-mailed a realtor with a 25% off lowball, I know that an e-mail is not an offer but she didn’t even contact me and I gave my phone number and said I was unrepresented. It was actually a pretty reasonable offer, I am suprised that I never got a call or an e-mail. The property was a bank repo, was listed at 399k, reduced a week later to 389k, new stuff at the same sq ft from the bulder next door is 310k after incentives, but the repo had a better lot (but not that much better). I just explained the prices of the neighboring builders and if i was unrepresented that would save the seller about 12k, would they consider something around 300k, no call no e-mail. There is a 30 month supply of resales in it’s zip code, I can only think she never got the e-mail. Too late now, I signed a lease.

[temeculaguy]

I love the note in the kitchen, about the Old World Charm one about three posts before, I like how they tout “seconds from I-5,” is that really a bonus? Maybe they should have said “Don’t just see and hear the freeway, smell it.” Or maybe “Who needs the traffic report, you can hear the crashes on the freeway from your bedroom.”

[temeculaguy]

muggle I love that link, I read the reviews out of curiosity and it appears people are buying it as a gag to put on their coffee tables, I think I’m going to get one. They consider as collectable as the ENRON code of ethics booklet.

I also found by clicking on his name that you can buy an article hew wrote in 1993 that housing would rebound in 1994.

The customer reviews of his book were classic, here is my favorite

“BE WARNED, click on the author’s name link. He’s the same BOZO who was telling people how they could get rich on tech stocks in a book published in MARCH OF 2000!!! Whatever this guy says to do, DO THE OPPOSITE and you should be fine. “

[Author]

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