sholling
Premium
join:2002-02-13
Hemet, CA
| reply to laserjobs
Re: So Cal housing bubble ready to pop?
said by laserjobs  :Business getting slow sholling?  Actually mine won't go on the market until July or August and I'm no no rush. There are two units currently on the market - that's 1.5% of the neighborhood. Hardly a glut. I just happen to think highly of Bunny and (put on sappy music, sweater, and tennis shoes) would would love for her to be my neighbor...
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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 jig
said by jig :9% a year, hmm? by paying just a little attention? how much is a $300k condo worth in 30 years? Average home appreciation is 4.8% over the last 50 years. Normally it follows just over year to year salary growth. You also have to factor in changes in lending practices and over and under inflated house values. Hope that helps, let me know what you come up with.
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Trade Entertainment Book Coupons |
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HappyBunny
Hi. Cram It.
Premium
join:2001-06-23
Long Beach, CA
·Charter Pipeline
1 edit | reply to dogma
said by dogma :
You are now "house broke" most likely. In that your bring home check, after all the garbage is taken out, is most likely in the area of $3500/Mo. - $2331 = $1169. Not much to live on. I'm guessing on your income, so you can play with the numbers.
You overestimated my take home by about $300 so, as you can see, not enough to live on. Not to mention a car payment/insurance of $580 per month. And gas, well we all know THAT is going to require a second job all in itself.
quote:
Whats that you say?? What if the market values keep going up forever? You will never own a home and you will need to move to Mexico and push a shopping cart full of bags around mumbling to yourself?? -NOT
Well, at the rate its going, Mexico will be empty and I should have my choice of houses down there  |
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HappyBunny
Hi. Cram It.
Premium
join:2001-06-23
Long Beach, CA
·Charter Pipeline
| reply to sholling
said by sholling :said by laserjobs :Business getting slow sholling? Actually mine won't go on the market until July or August and I'm no no rush. There are two units currently on the market - that's 1.5% of the neighborhood. Hardly a glut. I just happen to think highly of Bunny and (put on sappy music, sweater, and tennis shoes) would would love for her to be my neighbor... Awwww! HappyBun is blushing I wish I could but I just cant afford that payment. |
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dogma
Premium
join:2002-08-15
Boulder City, NV
| reply to HappyBunny
said by HappyBunny :Well, at the rate its going, Mexico will be empty and I should have my choice of houses down there I just read this morning in the L.A. Times Sunday Real Estate section a front page article on foreclosures. Up 63% since last year, and the default notices are up over 400%. We are at the beginning I think. This article will give you much hope.
Your young; be patient, save your buck$, and polish your credit. In short order, 18-36 months, you will be in a position of power IMO. |
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hopeflicker
Capitalism breeds greed
Premium
join:2003-04-03
Long Beach, CA
| I honestly really dont know how people can afford houses in SoCal. What is the average price for a home in Socal? maybe 5 or 6? My wife and I have come to a conclusion that we wont be able to buy a home in SoCal. We understand the reality. In a morbid discussion that i had with my grandmother, she said that ill be getting her house. Now, i dont like discussing things like that, however, this is what she said. May she live many more years.
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You know, I'm not as dumb as you look. |
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tephie
Officially Clueless Since 1984
Premium
join:2001-02-07
Victorville, CA
| reply to HappyBunny
said by HappyBunny :If I had to go live in the IE, I would just go back to Ohio, where its all cheaper. Yeah me too. Actually that doesn't work either. Hubby's job is here, and the construction industry in Ohio isn't nearly as profitable as it is here. Plus, snow sucks.
Unfortunately for us, we are now being faced with either buying a house that may cost more than it's worth (long term) here in the desert, or moving and having to rent a house for a few more years. I'm leaning towards renting again, but we are pretty settled here. *headache*
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The child is grown, the dream is gone. I have become comfortably numb. |
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dogma
Premium
join:2002-08-15
Boulder City, NV
| reply to cactuscool
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.
Also, it's important to understand this was the tail end of a real estate market rise led by the "Savings & Loan" debacle. Credit was loose, and many new, marginally qualified buyers got into the market, pushing up the price (supply/demand)from 1984 until 1989.
I see the same thing now. Then it was called "creative financing", now it's normal financing; negative amortizing, interest only, zero% down payment loans...again to marginally qualified buyers.
Three dynamics are at play now As more properties (inventory) come on the market;
1. Interest rates will rise (as we see already)
2. Credit restrictions will tighten, cutting potential buyers out of the market
3. Values will tumble. ~heres why:
Lets say there is a neighborhood where 5 homes are for sale. 4 homes are owned by recent buyers, and one home is owned by someone who has been in for 15 years. This person bought in at $300K, but now it's worth $900K...but because of the competition, he's happy with $800K and sells quickly, thus lowering the comparables, forcing everyone else to lower their prices since banks now begin to devalue the neighborhood. The chain reaction begins. All South.
I have seen it before first hand, and I am pretty sure I am seeing it again. |
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jig
join:2001-01-05
Hacienda Heights, CA
| 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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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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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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hopeflicker
Capitalism breeds greed
Premium
join:2003-04-03
Long Beach, CA
1 edit | 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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sholling
Premium
join:2002-02-13
Hemet, CA
4 edits | 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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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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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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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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jig
join:2001-01-05
Hacienda Heights, CA
| 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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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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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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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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