[temeculaguy]

Awesome picture!!! Especially love the giant high voltage lines. Go back in six months and take pictures of the weeds growing out of the sandbags. I had a flashback when I saw that picture of my house in 1992 where I lived on one half of the street that was finished and the other half looked like that picture for five years. It was quiet but the block parties sucked and I kept having to get new cats. Something about those weed covered graded lots that coyotes just love.

Want to know how to really make money in the coming downturn, sandbag sales!

[temeculaguy]

23109, I disagree with the rent trend here in Temecula. I’ve been following pretty closely and it has come down since August 2006 when I started watching. Here’s a harveston for you I found on craigs

http://inlandempire.craigslist.org/apa/322993663.html

One of the things is that most rentals aren’t dialed in with granite and top end applinaces and expensive flooring, so your selection is limited for now but it’s growing every day. Some of the landlords are having cash flow issues, many are for sale and rent and a lot of the brown lawners aren’t for rent during foreclosure. By late summer when the listings that are growing every day fail to sell, many will choose to rent them out.

Another thing is the shortage of rentals, in 92592 (so. temecula) pop. 56,000 there aren’t any apartment buildings and as of a year ago only one small townhome complex. Now, 92592 has four major projects under construction with more than a thousand units of condos most will be completed by years end, none are rented as apartments (even though half look like them) but many will end up as rentals or first time purchases for current renters. You can’t increase a product a few thousand percent without putting downward pressure on pricing.

To the poster that asked why you can’t apply a rent multiplier in San Diego, I should have qualified it by saying “you can’t apply it now” since it has never been this silly.

I used Bugs’ formula and it was spot on for the last down cycle. In 1996 I was faced with renting out or selling a property. It sold for about 140x rent. I chose to sell because investors were buying the massive forclosures and renting them out, finding a renter was difficult at the time and price wars and incentives for renters were commonplace. But, history never repeats itself, right?

[temeculaguy]

Bugs is my favorite sage! As I was reading your post I kept thinking Milton Freidman meets Lao Tzu, “invisible hand of economics” and “ying-yang” and a little Obi-Wan Kenobi mixed in.

Seriously Bugs, never stop posting, I appreciate the wisdom you bring to the boards.

[temeculaguy]

The flaw in this question is that you are trying to apply logic and history to develop a real estate valuation method based on rental price. This can be done but you’ve chosen a house in San Diego to apply it to, this cannot be done.

Here’s my best guess, take your 2150 rent. I don’t know what it includes besides rent (gardner, trash, hoa, pest control service, etc.) add those things up and subtract from your rent. My guess is affordable for most would be 15-20% more than rent for principle and interest. The tax and insurance will be offset by the new deduction plus a little more and that will cover repairs and maint.

If you can afford to rent for 2150 you would buy for 2500 to 2800 (principal and interest). The extra 350 to 650 a month would hurt for a few years but would be offset over time because your payment would be protected. Your actual payment will be higher but the tax break will bring you back around your P&I as your true outlay. You don’t need a downpayment to rent so you can’t compare it to a loan with a downpayment in this scenario, but you should have one in reality. You also need to use 30 yr fixed to get your numbers. 400k at 6% 30 yr, $2400 P&I

my guess is 425 to 450 and it’s inline with fundamentals for for a 2150 renter, 400k it’s a no brainer, more than 475, keep renting. Now’s the part where you tell me the owner wants to sell it for 850K because he forgot to take his crazy pills.

[temeculaguy]

While the points about not disrespecting someone’s community are valid, throwing up a post about a potential purchase deserve honesty. The flight path noise in the previous post is a prime example of something a buyer might not know. The comment about how the area is “block to block” is also helpful, maybe the buyer didn’t wander far or at night. It is also helpful to hear the opinions of others because opinion drives the market and negative opinions of certain areas will minimize possible buyers.

My .02 is that at the beginning of a downturn (right now), stay clear of the battlelines of redevelopment, that tide can turn and the frontline blocks fall first. At the beginning of the next upswing the fringe and even a few blocks beyond will become good investments again.

[temeculaguy]

OK Sd keep the wife, you gotta love the toyota truck driving wife that wants old scripps, she’s got style. I think Schizo has the idea you need, JEDI MIND TRICKS, that is classic, I’m bummed I didn’t throw that one in. Come to think of it, high end commercial appliances are the modern day equivalent of jedi mind tricks on women. Take her to pacific sales, there’s one near 4-s (the best prices on high end) and show her some wolf stoves and bosch dishwashers, some dacor ovens and sub zero fridges, even let her see the warming drawers, damn i miss my warming drawer and the perfect new york hot dog cart style steamed buns it created, they have mock kitchens set up by brand. That is the modern day feminine equivalent of “these are not the droids you are looking for.” Tell her that every month you wait, one item is essentially free.

Schizo, ignore the radicals on both ends of the spectrum or those with an agenda, the truth usually lies in the middle. Do follow Dr. Robert Shiller of Yale, that boy has his act together and I haven’t figured out his motivation toward either side, he called the tech bubble and I ignored him then so he still has juice with me and may be closest you get to a crystal ball. It’s real easy to say that houses will decline 50% by friday when you probably can’t afford it even then. You, like alot of us know that that house will go down 100k by October and even though we can afford it now and we won’t go in the poor house either way, it will mean the difference between curly head arturo fuente cigars and arturo’s hemingway series as your daily smoke, so it’s worth it to brush up on the jedi mind tricks.

By October I’ll think of another distraction because that may still be premature, but you need to tell her October because there is a formula for wife years just like there is a formula for dog years, Dog years is 7 to 1 but wife years is measured in holiday seasons and she won’t buy into a strategy that includes two thanksgivings and two christmases in a rental (4 wife years), October isn’t even a legal wife year so we go with that for now.

[temeculaguy]

One more thing, I checked the crystal ball and it says that 800k tract homes on small lots that aren’t on the coast go down in value every quarter for at least another year.

[temeculaguy]

Schizo, I feel you brother. You are doing the right thing by taking the spin that the salesperson at the 4-s models or George Chamberlin on the radio tells you and letting us unspin it for you. You need to realize that you are looking for a reason to buy and still can’t find it. The fact that you are on this site means that you really do know better, you just need affirmation like someone who needs their AA meetings. We don’t need to convince you, you need to convince your wife. Model homes to wives can be like porshe dealerships to husbands, it’s better to not even go look at them. Everything about them are marketed to the wife, just understand that she can’t help herself much like you can’t not look at the big T.V.’s at costco, it’s instinct. Try some distractions on weekends, Summer is almost here and San Diego has a million fun things to do that can tie up your weekend. Buy her a dog, go look at the new hard top convertible BMW, feed the homeless, tell her the models are closed because they found a dead body there or that Oprah said the carpeting caused fibro-myalga, do anything but for god sake keep her away from those models.

[temeculaguy]

Having never built homes I’m guessing here, but once framing starts they keep moving because raw wood is exposed to the elements and they have already made “reservations” so to speak with the various subcontractors, scheduling their time in advance, there may be a financial penalty if they cancel on short notice. Plus they already paid for the models, the sales staff, permits and advertising, shuting down in a falling market is probably a bad idea. What they will do is delay the next phase until a percentage of the released phase is sold and discount the unsold stuff. It seems to be a double edged sword because if they sell three houses and then discount the other three, the first three buyers will cry foul and they haven’t really bought, just reserved with a deposit. It is my guess that most builders have a lot of money invested by the time the foundation is poured that they might as well and finish and get paid even if it is for less than what they had hoped for. Plus they have no guarantee they won’t have to lower prices further, they probably want to get what they can while they still can since the average Joe may not follow the market like a pigintonian.

[temeculaguy]

The wood framework is underway and almost complete. These houses like many new houses have choices you can make about the floorplan. An upstairs living room (loft) instead of a 4th bedroom, A bathroom off a secondary bedroom, a den without a closet in lieu of a bedroom, decks, etc.

All options have a deadline date for each option category, once they start framing they cant change the configuration of the rooms or walls (usually the cutoff is just prior to framing). Plumbing options for things like laundry room sinks or additional hose spigots and electrical options such as ceiling fan outlets, cable, phone, wiring for surround sound and outdoor t.v., etc. are usually not allowed once drywall has started. At each stage, chunks of options are eliminated. If a house does not have a buyer by the time framing starts it has a harder time selling because some people want the 4th bedroom and not the loft. If it get to cabinets and appliances, the builder guesses or goes with the cheapest and that can turn away some buyers. With each option cutoff date that is passed, the builder’s odds of selling at full price diminish. When the house gets to what is called “standing inventory” (done except for flooring) they really panic.

[temeculaguy]

Ditto, the loans I have had in the past had a ceiling of about 33% gross for housing and 38% to 41% of total debt (housing, cars, cc’s). I also think you are missing a few things on your paycheck example, Where is the health/ dental insurance, 401k, are you sure those taxes are correct (is medicare,ss,disbility included)?

[temeculaguy]

JWM, I didn’t say or at least I didn’t mean to imply that were in a historicaly comparable time, we are not. I only pointed out that historicaly the down cycle takes as long or longer than the up. I do reserve the right to be wrong because the upswing was so crazy all historical models are moot. I am ready for it, I want it to happen, if homes cost 100k tomorrow I would be elated, but I just don’t think that’s going to happen. It’s just the method they are traded and used they have never had the volitility of other assets and the method slows things. I am not in the R/E industry and I am here to get as much insight as I can to time the market this time. I was unlucky in 1992 and lucky in 1997, here in 2007/2008 I want to combine some wisdom into the equation so I don’t have to entirely base things on luck. It is as if the summer averaged 150 degrees and we are trying to figure out what winter will bring. Some say it will be colder than normal because hot summers normally bring cold winters, some say hotter than normal because the temperature has shifted. Whatever happens, there has never been a 150 degree average in summer so all I am convinced of is come winter, I would real suprised if it was “normal” winter.

And Wiley, I have not seen any info on the Japanese bust but I will look into it.

[temeculaguy]

Asianautica nailed it, median went down and should hold steady because the low end lost a lot of customers and will continue to lose people as the lenders stop giving money to people with bad credit. While there are exceptions, the majority of subprime buyers are in the bottom third of the prices. The middle is up next and will get hit as the move-up buyers fail to materialize. I am in the same boat as affordability has just drifted down to my range but you have to see this play out some more before you panic, even David Lereah in an interview on Monday said it wasn’t the bottom yet. At least let the first half of the summer come and go, by August if it is still moving downward the spin will change to “there has never been a better time to buy” as opposed to “things are stabilizing.”

If Walmart’s sales were to decline 30% but Nordstrom’s went up 2% would any economist declare the economy is fine?

[temeculaguy]

Incarmelvalley, it’s harder to give advice since you are undecided what you are going to do. If you are planning a move out of socal, make sure you won’t want to or need to sell before you refi. Being a landlord more than a drive away has a lot of drawbacks and you need to make sure your income and new housing costs won’t require you to sell before you get into the mathematical benefits of a refi. Sdowner’s situation doesn’t have any variables other than a purely mathematical one. My best advice is to not ask the advice of a mortgage broker unless you already know and trust them (then it’s a maybe).

I’m with sd on this one, I have as many reasons to believe rates will go up as I do they will stay low. Trying to guess future rates can and will make your head explode. If you can afford the 30 fixed, and you will be there a while it may be worth the cost for the ten extra minutes of sleep each night and the 10pts off your blood pressure knowing you can and will ride out whatever craziness happens in the next 24 months.

[temeculaguy]

I am still bearish on todays real estate prices but I have to disagree that real estate usually corrects quicker and deeper, historically it does not. Usually it lays flat or has small declines and over time inflation allows incomes to catch up. Homes are a little different than other assest classes because a certain number are needed for people to live in, we can live without shares of stock. Everyone can’t sell, some own outright and some have completely affordable fixed payments so they have no need to sell (throw in the fact that my kids don’t get mad at me when i sell a stock but moving the into an apartment and to a crappy school away from their friends as an investment decision has far more negative repercussions than selling my microsoft shares, plus the hassle of moving and the 8-10% cost of a R/E transaction make them not fluid). Finally there is a hard floor price at some point in pricing, when owning is at or near the net cost of rent (which it is not currently at) people will buy, I’ve had stocks go to zero but never R/E. What I will completey agree with is that we live in interesting times and we have defied history over the last four years, the pendulum swung right through the side of the clock so to expect the backswing to follow historical trends when the upside did not, defies logic. One thing is for certain, it will be very interesting and the media machine currently in place is far different than what we had in past cycles so get some popcorn, it may be a very good show.

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