Bill
Light Up The Halo
Premium,VIP
join:2001-12-09
clubs:
| reply to dogma
Re: So Cal housing bubble ready to pop?
»www.forbes.com/lists/2006/7/Rank_1.html
Several LA and Orange county cities made it on the list. The highest ranking LA/OC city was Newport Beach (92662) with a median sale price of $2,397,500  |
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supertbone
join:2002-04-04
Pleasant Grove, UT
| reply to dogma
As a person who works for the collections division of a major national lender. We are preparing for some serious issue this summer when ARMs will be adjusted. We have been hiring like mad trying to deal with it. Beside ARMs, more people are falling behind in their mortgages than before. It is sad, some people may lose their homes.
In a personal note my co-worker who is trying to sell her condo is having trouble selling it as several people have backed out of escrow. Many new tracts are seeing that people are backing out of contracts for new houses. |
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jig
join:2001-01-05
Hacienda Heights, CA
| reply to dogma
the last 3-5 posts are interesting, but i'm wondering how inflation fits in. it could be a pretty heavy handed equalizer in a reasonably short amount of time. and i'm not sure that graph takes inflation into account properly by (i think) seeming to assume it's factored out by dividing out income.
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A man compounded of law and gospel is able to cheat a whole country with his religion and then destroy them under color of law. -Ben Franklin |
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jinjimbob
Troy Mcclure
join:2001-11-13
| reply to hopeflicker
said by hopeflicker  :said by jinjimbob :A reason why the costs of buying a house are going up is that the costs of building a house are going up. I don't see any bubble outside of NorCal/NYC. I dont think it's the costs are rising that much. I think it's DEMAND. How come we dont see the astronomical prices in places like Arizona or Nevada. What's the average cost of a NEW home there? what, maybe 3 to 5? $300 to $500k, but the land is cheap.
Yep they, the labour costs, building material, and a big one is permit costs, school mitigation fees etc..
A building permit used to be so the building was built properly, but now they are part of a city income.
Look at your house insurance, mine went up 10% this year, costs more to replace the house. |
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dogma
Premium
join:2002-08-15
Boulder City, NV
| reply to aztecnology
Excellent link. Well supported facts.
said by this article :
Home prices have been driven to current levels not by fundamentals, but by ubiquitous optimism, a complete lack of risk avoidance, a staggering amount of debt accrual, low lending standards, an enormous increase in market participation, widespread misconceptions about what drives home prices, and an utter dependency on continued price gains. Southern California is experiencing a classic speculative bubble.
If prices were to permanently flatten out right now, given current wage growth, it would take over 16 years for home prices to get down to the historical average of 9 times income, and 23 years for prices to get down to the historical post-boom low point of 7.5 times income. Keep those figures in mind the next time someone tells you that home prices "will just flatten out for a while until incomes catch up."
A big bet if one buys in today. From the graph (with dogmas investment windows), things may not look Rosy for a while. |
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aztecnology
O Rly?
Premium
join:2003-02-12
Murrieta, CA | reply to dogma
Why we're in a bubble, easy reading...
»piggington.com/bubble |
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dogma
Premium
join:2002-08-15
Boulder City, NV
| reply to sholling
Don't need to zillow it, heck i live 4 Blocks from it.
-Backstory: When I departed that house, it was at the bottom of the California RE market. Everybody was hurting. I found the home I live in now, a "better" home, that was a foreclosure. Got in for taking over the payments and a promise to pay $60K in 5 years. That was 12.5 years ago, and the value has gone up 500%.
The old house I bought in '89 at $265K, which fell to $193K in '92, is now worth $700K +/-.
Don't get me wrong. We all have to live somewhere. Owning a home is a great, if not the best long term investment...and I agree, loooong term.
This issue is we all have "investment windows". Meaning if we risk a commitment, we need to be able to really afford that risk for that period of time. ALL the risk need to be looked at. All the what if's.
said by sholling :
On top of that in 30 years you will be in the position of having no house payment or rent and paying just $40-50/month in property taxes while your too-smart-to buy friends are paying an adjusted for inflation $1500 for an apartment and eating cat food.
This is assuming they have no other investments. |
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laserjobs
Premium
join:2004-05-02
Las Vegas, NV
 ·Cox HSI
1 edit | reply to sholling
said by sholling : For the last 3 years I've watched friends urge a young family to wait for the bubble to burst, and they've listened. Three years ago they could have bought a 20 minutes from work 1300sgft 3 bedroom 2-1/2 bath townhome in my tract for an affordable 160k-ish. Sadly they believed the naysayers and continue to pay $1,000/mo in rent for an 800sqft 2 bedroom 1 bath Pico Rivera home for their 3 kids - just slightly less than their house payment would have been. These homes are now going for $350-390k and they are now stuck being renters for life. The fundamentals in the market were not changing at that point so how could a bubble burst? We now have the interest rates moving upwards creating a change in fundamentals, this is how a bubble bursts. If interest rates stayed the same we would have a slow down in the market with a soft landing and prices staying around the same due to supply and demand created by affordability. Since the fed decided to put gas on the fire created on the tech crash by lowering interest rates we are in worse shape than before since we now have to stave off inflation by raising interest rates.
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Trade Entertainment Book Coupons |
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sholling
Premium
join:2002-02-13
Hemet, CA
2 edits | reply to dogma
said by dogma :Second, you are correct, money is cheap compared to the early 80's, but prices are expensive. When I bought that house back in 1989, the Realtor that sold it to me basically said the same thing about how California property would never go down 20%...and it went down 30%. Guess I had bad timing. How much is that home worth now compared to what you paid for it? Go ahead and zillow.com it.
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"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--
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sholling
Premium
join:2002-02-13
Hemet, CA
2 edits | reply to nolancj
said by nolancj :And to all those naysayers: It's worse to be out of a market than to try and time a market and miss the rises. This goes for ANY investment. ANY. You cannot time markets. The difference with property is it's REAL, it is LIMITED, and people need a place to LIVE. For the last 3 years I've watched friends urge a young family to wait for the bubble to burst, and they've listened. Three years ago they could have bought a 20 minutes from work 1300sgft 3 bedroom 2-1/2 bath townhome in my tract for an affordable 160k-ish. Sadly they believed the naysayers and continue to pay $1,000/mo in rent for an 800sqft 2 bedroom 1 bath Pico Rivera home for their 3 kids - just slightly less than their house payment would have been. These homes are now going for $350-390k and they are now stuck being renters for life.
Now don't get me wrong, IMHO socal real estate has become a terrible short-term investment. While the flipping days are pretty much over I still think a home is the perfect long-term investment. Yes I agree that if you only plan on living in a place 5 years it's a crap shoot. Maybe it goes up 10-15%, maybe it goes down 10-15%. But if you are thinking 30 years like I do then look at it like this...Put 400,000 into 5% CDs and yes you'll make a sure thing $20k/yr, while paying out $18k in rent. That's a .5% return on your investment before taxes and a net loss after taxes. Over 30 years that 18K in rent will grow to at least $50k with inflation (the apt I rented in HB in 1976 for $225 now 30 years later rents for $1,500 so I'm being conservative) - that's a loss of 30k or a net loss of $35k/yr after taxes.
On top of that in 30 years you will be in the position of having no house payment or rent and paying just $40-50/month in property taxes while your too-smart-to buy friends are paying an adjusted for inflation $1500 for an apartment and eating cat food.
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"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--
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laserjobs
Premium
join:2004-05-02
Las Vegas, NV
·Cox HSI
| reply to nolancj
said by cactuscool :Money is CHEAP today. Look at that 15% interest rate! You can get a 30yr jumbo at just over 6 today. THings are VERY different in SoCal than the 80s. It is not the actual rate to be worried about it is the change in rates that will drive the market either up or down. The only reason real estate is at the price level today is because of the interest rates creating more affordability in the market. Now with the rate reversal what do you think will happen?
As humans we operate under a survival mechanism that if something is working then we keep doing it. So right now we have a fundamental change that is happening in economics that will change real estate values. Also we have people who think the values will increase at the same rate every year not looking at the fundamentals.
Investment is a game of logic not emotion. The combination of the fundamental economics and human judgement creates an interesting scenario. I predict a one year hold out of pricing completely non dependant on interest rates. This means the prices will lower at a slow rate as people hold out for the asking price. After the one year it creates a problem where most investors will not be able to hold on to the property and will start to lower the price creating a domino effect.
Now I also expect a bump either now or the next couple of months where some investors enter the market because the prices have lowered a bit. After the early speculators have exhausted their funds then we will see the inventory rise but not necessarily the prices lower significantly until we hit around one year after the turn (I am guessing early 2007 for the market to really start to decline).
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Trade Entertainment Book Coupons |
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jig
join:2001-01-05
Hacienda Heights, CA
| reply to dogma
said by dogma :Property being "limited" is misleading. Yes, other than Kilauea, no new land is being made. But most land is still undeveloped. Take a road trip anywhere over 100 miles and there is plenty of land to build on. come on, now, you know he meant "desirable" property.
who wants to commute more than 100 miles a day?
home sales aren't being driven by people who can live just anywhere... let alone want to.
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A man compounded of law and gospel is able to cheat a whole country with his religion and then destroy them under color of law. -Ben Franklin |
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dogma
Premium
join:2002-08-15
Boulder City, NV
| reply to nolancj
said by nolancj :Just watch, any sharp decline will be short-lived. The speculators will jump back in because the prices go low and drive prices higher. Money is CHEAP today. Look at that 15% interest rate! You can get a 30yr jumbo at just over 6 today. THings are VERY different in SoCal than the 80s. Overvalued? Maybe. A housing crash that will drive prices down 20-40%? Forget it. Maybe a massive earthquake could cause that or some other major catastrophe. First, a jumbo loan (over $417K) for 30 years fixed is
6.5 - 7.000% today (6.5 just means higher points for the loan). With these requirements:
•single-family, owner-occupied primary residence
•loan-to-value ratio of 80% (20% down payment).
•Applicant must provide full income documentation
•Taxes and Insurance will be escrowed by Mortgage holder.
•There will be no subordinate (second lien) financing.
•Fees may be subject to change if the information provided changes prior to closing.
•Fees above do not include pre-paid items such as Interim Interest, Taxes or Insurance (if they are currently escrowed by Mortgage holder).
•You have excellent credit (720+ FICO).
•You have sufficient income and liquid assets to qualify.
So, for a $525K home,that's $105K [+$11K closing] down payment and Est. Monthly Payment (at 6.5% fixed) : $2,654.69 + taxes ($433)+ insurance($80)= $3167/Mo.
Income must be at least $8100/mo or $97.2/yr.
If you don't come to the table with all of the above, expect 8%+ or get steered to a adjustable.
Second, you are correct, money is cheap compared to the early 80's, but prices are expensive. When I bought that house back in 1989, the Realtor that sold it to me basically said the same thing about how California property would never go down 20%...and it went down 30%. Guess I had bad timing.
said by nolancj :Anyway, it's all timing. And to all those naysayers: It's worse to be out of a market than to try and time a market and miss the rises. This goes for ANY investment. ANY. You cannot time markets. The difference with property is it's REAL, it is LIMITED, and people need a place to LIVE. Property being "limited" is misleading. Yes, other than Kilauea, no new land is being made. But most land is still undeveloped. Take a road trip anywhere over 100 miles and there is plenty of land to build on.
Is it timing or not? I disagree, it's worse to be in a market that one can't afford. The buyer signs their name on a big bet if they are "hoping" they can afford it. |
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nolancj
join:2002-06-30
Long Beach, CA
| reply to jig
If you look at what my next door neighbor paid for her house in 1945 and what it could be sold for today, 9.5% ARR.
So for 300k today at 9.5% over 30 years puts future value at $4.5m (annual compound).
Even if it returns 4.5% that's $1.2m.
You're going to have a hard time earning 9% after taxes on an investment. Also, don't forget time value of $, that $1.1m in 30 years is worth just about $400k today assuming 3.5% inflation. |
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nolancj
join:2002-06-30
Long Beach, CA
| reply to sholling
said by cactuscool :In 1983 I bought into a tight housing market and got in way over my head with creative financing (I'm now a fanatic believer in straight up financing - and reading each and every line of a contract from cover to cover) but back then I didn't know any better. I bought an Anaheim 4bd 2bth pool home for $94,000 on $11/hr at 15% interest. With the huge interest rates of the time and balloon payment I had to sell after 3 years for $95k. Even with a 90's crash it's only worth $553k on today's market That's a 9.3% ARR. Not bad at all for that house. Not taking into account taxes, improvements, etc. Still, considering that your house payment would have only been about $1100/mo on that place.
Anyway, it's all timing.
And to all those naysayers: It's worse to be out of a market than to try and time a market and miss the rises. This goes for ANY investment. ANY. You cannot time markets.
The difference with property is it's REAL, it is LIMITED, and people need a place to LIVE. Just watch, any sharp decline will be short-lived. The speculators will jump back in because the prices go low and drive prices higher. Money is CHEAP today. Look at that 15% interest rate! You can get a 30yr jumbo at just over 6 today. THings are VERY different in SoCal than the 80s.
Overvalued? Maybe. A housing crash that will drive prices down 20-40%? Forget it. Maybe a massive earthquake could cause that or some other major catastrophe. |
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sholling
Premium
join:2002-02-13
Hemet, CA
4 edits | reply to hopeflicker
said by hopeflicker :said by jinjimbob :A reason why the costs of buying a house are going up is that the costs of building a house are going up. I don't see any bubble outside of NorCal/NYC. I dont think it's the costs are rising that much. I think it's DEMAND. How come we dont see the astronomical prices in places like Arizona or Nevada. What's the average cost of a NEW home there? what, maybe 3 to 5? I spoke with a friend in the phoenix area and asked if the rumors of a burst bubble were for-real. She said that prices were still rising, like socal, the rate of price increases had dropped.
Anyway to answer your question - the reason is partly income. A seasoned mid-level network engineer that makes $60-70k in socal might make $35-40k in AZ. It's the same thing for other fields. Incomes and population growth do not support higher prices.
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"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--
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hopeflicker
Capitalism breeds greed
Premium
join:2003-04-03
Long Beach, CA
1 edit | reply to jinjimbob
said by jinjimbob :A reason why the costs of buying a house are going up is that the costs of building a house are going up. I don't see any bubble outside of NorCal/NYC. I dont think it's the costs are rising that much. I think it's DEMAND. How come we dont see the astronomical prices in places like Arizona or Nevada. What's the average cost of a NEW home there? what, maybe 3 to 5?
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You know, I'm not as dumb as you look. |
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jinjimbob
Troy Mcclure
join:2001-11-13 | reply to dogma
A reason why the costs of buying a house are going up is that the costs of building a house are going up.
I don't see any bubble outside of NorCal/NYC. |
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sholling
Premium
join:2002-02-13
Hemet, CA
2 edits | reply to dogma
said by dogma :said by cactuscool :Correct me if I'm wrong: Wasn't that due in a large part to a lot of defense spending cuts? ... I don't really see that happening again. As I remember it, vividly BTW, there was a recession in most of the U.S. during the late '80's, but didn't affect California until Early 1990's. Yes, there was a exodus of Aerospace/defense jobs, but not necessarily "cuts". Many operators simply moved elsewhere, and took jobs with them. I'm old enough to remember those times. I lived them. The California recession of the mid-70's was brought upon primarily by huge post Vietnam defense cuts. Housing was not effected but as an out of work 19y/o defense-plant tool & die maker (a very highly trained machinist) I wound up living on stove-top stuffing M-F and treated myself to mac and cheese on the weekends. I had $48/week in unemployment (rent was $40/wk) and the gas pumps were manned by downsized engineers.
Next came the carter years. I scored a mid-level tool & die gig at less than market rate - $3.50 an hour (a $1 cut from my last job) with a horrible company, and paid $200/mo in rent while inflation hit double digits and raises were unknown. My former employer rescued me with a good job and a $1.25 extra.
In 1983 I bought into a tight housing market and got in way over my head with creative financing (I'm now a fanatic believer in straight up financing - and reading each and every line of a contract from cover to cover) but back then I didn't know any better. I bought an Anaheim 4bd 2bth pool home for $94,000 on $11/hr at 15% interest. With the huge interest rates of the time and balloon payment I had to sell after 3 years for $95k. Even with a 90's crash it's only worth $553k on today's market - per www.zillow.com. I learned to read contracts and take my time to make a decision (the agent brought a dozen buyers and gave me 5 minutes to sign - yup I was early 20's and dumb).
I watched the property crash of the early 90's. A close friend sold at market (175k) and through a brilliant combination of luck and fast talking picked up buy a $400k (1st, 2nd & 3rd) foreclosure for the $225 1st. Today it's worth well over $1M.
My whole point (illustrating both dogma and my arguments) is that all that maters in the end is time. Over 5 years any investment can lose money, but over 30 most quality investments will make you money.
To me it's almost a sure thing investment over 30 years - with the only kicker being the question of LA being nuked by terrorists or not. Another reason to buy away from downtown.
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"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--
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jig
join:2001-01-05
Hacienda Heights, CA
| reply to dogma
it only works that way if there aren't buyers willing to buy. i don't think demand has slipped that much. i could see a correction looming, but not a free fall. and i don't think the correction will be that scary.
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A man compounded of law and gospel is able to cheat a whole country with his religion and then destroy them under color of law. -Ben Franklin |
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