patrick.net

I am a rather boring person, and I do not have crazy stories to offer...

david catas Says:
WOW, Look at Spain with the growth rate betwen 14 - 17) /year.

Dvaid, do you have a link for this?

Peter P Says:
I am a rather boring person, and I do not have crazy stories to offer…

You're too modest --you've posted some pretty interesting anecdotes before.

For the < sign, try &lt;

BTW, which Davis are you moving to?

movin2davis -

If the yearly return (after PITI, maintenance, water/trash etc.) is still 2%, I wouldn't call that a GREAT investment, but at least the cash flow is still positive (just barely). Well, technically with "official" inflation at 3%, it's a bit negative in real terms, but it's still a lot better than many recent CA "investors", who can barely recoup 50% of their monthly outlays, assuming they used a standard (non-NAAVLP) mortgage.

MAC -

I think you can deduce the location from the article. The developer was Pulte: tinyurl.com/4y7fg (add the "www.").

Prohozii Says:

Some people are still wating for bubble to pop

So... getting a 13% rent reduction without even having to move is "crazy"? Not sure I get your point here, Prohozii.

HARM, prohozii's crazy story is his own - laughing at an obvious good deal.

I don't have any great anecdotes, but there is a trend in my area that's interesting.

Up until last year, if a house went on the market it could go in a matter of days, if not hours. But now homes are staying on the market for months. Some people who have put their houses up must be asking for astronomical sums because others who ask "reasonable" prices are still able to sell, albeit slower than before.
What's noticeable about the homes that sit for awhile, is that you'll see one RE agent sign on for a couple of months, then all of a sudden you'll see a different realtor is now representing the seller. I notice that many owners in this area go through about three realtors, then they put up the "for sale by owner" sign. End result, the homes are still sitting there, but they are convinced their homes are "worth" the asking price.

Peter, I haven't seen a single post from Jack since that (rather angry) one this morning. Jeeez.... I didn't mean to permanently piss him off with the "Fable". Was just having a little fun, that's all. Hope he comes back.

HARM, send him an e-mail. You certainly have that information (if he is giving out his real e-mail address.) :)

Peter, This is what Jack's "email address" looks like in SiteAdmin - Manage: (. /) Oh, well, guess I'll just have to wait & see...

But my absolute favorite was the jackass in Cayucos who is currently renting his shitbox out for 1400 a month while trying to sell it for 920K.

Wow. Even assuming the most favorable terms imaginable (30-year 5.0% IO-ARM, no HOA or maintenance costs, average closing, 1% prop. tax, etc.) and a full 20% down (FAT CHANCE!), the guy is STILL in the red by over $4500 a month!

Rent vs. Buy Calculator:
dinkytown.net/java/MortgageRentvsBuy.html

When did the guy "buy" this place, Surfer-X? Did he use a $0-down NAAVLP(tm)? Have you checked up on his progress (or lack thereof) lately?
Great anecdotes -thanks.

A P/E of over 54.7! Google suddenly looks cheap now.

Single Family Property, Area: Cayucos, County: San Luis Obispo, Lot is 1 sq. ft., Ocean view, View, Waterview, Single story

I wonder what you can do with a 1 sqft lot. It is too small even for my cat.

I wonder what you can do with a 1 sqft lot. It is too small even for my cat.

lol - maybe that's why there's no photo!
Never been there, but Cauycos is just 6 miles N. of Morro Bay, right off PCH(1). Who knows? Maybe it's actual beachfront property. "Ocean View" can mean oh-so-many many things in Realtor(tm)-speak. Maybe the view justifies the extra $685K above break-even cashflow/rent price?

Sometimes "ocean view" simply means that you can see part of the ocean through the two aligned windows of your neighbor during some time in the day.

In losbanos, lot of new houses for rent. i am renting a 4bed room house for $1250. The new homes 1700 sq ft are going for 400K. There are just building and building as if there is no tomorrow.
however lots of old house listings coming up in the market.
I have decided to wait it out even if i miss this party.

I have decided to wait it out even if i miss this party.

This party is about to catch fire. Good to stay out of it.

Davis used to have extreme rental shortage and very low vacancy rate. I heard that there is no supply problem any more.

I love Davis (go aggies!) but I think the market may drop 70+% there.

Davis is farm-locked though. ;)

Davis has as much land as your eyes can see. Much of its population is transient and demand for permanent housing is mostly for "investment" purpose.

Davis can be fog-locked though. I remember having to drive at 10 mph.

Davis: all the pretensions of the Bay Area, plus the Sacramento weather.

Go _Bears_

I kid. I kid.

Kinda.

Cheers,
prat

My first post--love this site and have learned a great deal from it. Thanks to everyone.

My anecdote is that we just returned from visiting my husband's family in San Francisco, and suddenly all our family and friends there are trying to become real estate gurus, looking for investment homes, buying out of state property, etc. It's astonishing that these people who never thought of real estate investing before are all of a sudden chasing after the bandwagon. My husband grew up in SF but is in the army, so we move around, have never owned a home, and currently live in the So Cal desert, but our past few visits to SF we've had to fend off suggestions from everyone that we need to buy a house in the Bay Area now and rent it out until we're ready to settle down, because if we don't buy now, we'll never be able to afford it later, yadda yadda...

What is everyone smoking that they think we could even begin to afford a house we'd WANT to buy there now, let alone that the prices are just going to go up and up? These are otherwise intelligent, rational people. When I tried to point out that maybe real estate wouldn't be such a good investment, I got the "prices never drop here" comment again and again. One person, maybe with a better memory, said that prices during the last real estate bust in the Bay Area only dropped on high-end homes and one-bedroom condos. Does anyone know if this is true?

One of the articles I read (can't recall which one) spoke about the real estate investment seminar 'victims', amongst them a young woman who was frantically bidding on a place in Boston and she managed to win the auction only to find she had bought a garage for hundreds of thousands of dollars, not the condo she thought she was buying into. Let me do some searching to see if I can find that reference.

Oh and hi Peter P. I'm glad to be back. I was a little burnt out on the subject as we were house hunting at the same time due to lack of living space but we have that on hold for now so I can think sanely again:)

As the bubble stories aren't bubbling over I'll annoy everyone by digressing with some news from the Australian market. I follow a forum over there that is pretty good so I'll put in some of their observations that look interesting. I think they are going through what we might sometime in the future. Their market slowed down about 6-12 months ago and declined in some places. They are going through a slight bump up at the moment and the newspapers (one is very biaised to only give 'good' property news) says the downturn is over. The locals are a skeptical bunch and don't appear to believe this is true. Anyway here are some comments from one poster:

A bounce after a market (any market, shares, bonds etc) falls from its peak is a perfectly normal event.

Market activity does appear to have picked up lately but I am expecting a renewed downturn (the "real" downturn) to start sometime between August and the end of this year.

Only if falling prices are not readily apparent by March next year (by which time activity should have returned to normal after the Summer holidays) will I become worried that we may not see an actual fall.

As for those "triggers" that everyone looks for, personally I don't belive that one is required since overvalued markets have always reverted to the mean (usually with an overshoot) in the past.

But if you are looking for a trigger then I think I have found one. Oil. Firstly, oil itself isn't getting any cheaper. Seccondly, there is insufficient productionc capacity to meet demand towards the end of this year when heating requirements in the Northern hemisphere increase. Thirdly, the Australian Dollar looks very toppy and of course oil is priced in US Dollars so any fall in the AUD will make it more expensive.

Bottom line - petrol at $1.159 a litre (current price in Hobart)is likely to look like a bargain by Christmas. This will strain household budgets and wont be at all helpful to the housing market.

Nor will the new low wages.

Oh and more:

In Sydney, the time taken to sell a property has fallen to 82 days in May from 90 days in March.
(They used to get snapped up ON the day of auction - most houses used to be sold at auction to get the prices up but they are less popular since the downturn)

Good story, Jamie, and welcome to the party!

One person, maybe with a better memory, said that prices during the last real estate bust in the Bay Area only dropped on high-end homes and one-bedroom condos. Does anyone know if this is true?

Well, since I was living in L.A. (and still am) I can't personally vouch for what happened in the B.A., but I know firsthand that prices overall dropped in SCAL quite significantly (the CA statewide drop was 21% in real terms from 1990-96). In general, condos always get harder hit than SFRs during market downturns, largely because neighbors/lack of yard/HOA rules, etc. makes them relatively less desirable and therefore harder to sell. There tends to be a lot more apartment-to-condo conversions towards the end of a bull market as well, so oversupply is more of a problem.

Not sure if I agree about the high-end homes being hit harder %-wise. Actually, homes in "desirable" neighborhoods do tend to hold up a bit better, but, that does NOT mean that prices can't/won't fall at all during down markets. When prices everywhere are as out-of-whack with rents & incomes as they are now, look out below.

Actually here is a post-bubble anecdote from the Sydney market talking about the % downturn in the market http://tinyurl.com/dv6dt :

Some buyers are already reaping rewards, such as Adam and Stephanie Horne who secured a Blakehurst property initially valued at $1.2m for less than $800,000 – a 30 per cent drop.

"It was on the market for about a year," Mr Horne said. "They actually knocked back $1.1m a year ago and it went to auction five weeks ago and I got it for $791,000, so we were happy with that."

-- I wonder if we will be seeing this kind of story next year?

gabby-

Definitely interested in hearing more about the real estate investment seminar ‘victim’. Please post the link if you can find it. And thanks for the stats on Australia. They (and the U.K. seem to be about a year or two ahead of us on the Bubble curve). A glimpse of things to come, perhaps...

gabby, thanks for the information.

Do you think AUD (or NZD) is a good buy right now?

There are always many false bottoms in the housing market, because information is so imperfect. Saying the downturn is over is much worse than saying that "Bay Area housing crash continues." At least patrick is forward-looking. :)

Jamie, it depends on which downturn you are talking about. During the 2001 "correction", high-end homes got hit because of wealth destruction and one-bedroom condos got hit because single engineers got laid-off and they moved out of state. (It is not that single engineers are more susceptible to laid-offs, but they were more likely to move in that case)

The 1991 crash was probably more severe and broad, but I do not know too much about that.

I haven't been thinking about currency too much lately. Things feel a little odd in the Aus market right now. The locals are ranting about the dollar here: http://tinyurl.com/b395x (scroll down near the bottom and there are a few comments).

I have some money in AUD paying off an offset mortgage (pretty cool financing option) so I'm not going to send more over. I'm considering moving some money to some type of EU currency, not sure which just yet. I'm feeling the need to stay fairly liquid with some diversification. Just watching the stock market bounce around is making me seasick and I'm going for the more moderate risk investments at the moment. I think you could get really lucky if you knew what you were doing at the moment playing off of the uncertainty, but I don't have enough time or money to play that game:)

movin2davis, that seems to demostrate that housing supply can and do come out of thin air. Using future demand and current supply to justify price is very dangerous indeed.

gabby, I am not too bullish about Euro in the long run. The idea of having one central bank (hence interest rate) for multiple countries with completely different cultures and needs is questionable. At the current interest rate level, some countries (e.g. Spain) are overheating and some countries (e.g. Germany) are in near-recession. How can monetary policies be effective?

I think you could get really lucky if you knew what you were doing at the moment playing off of the uncertainty.

The problem is that no one knows what is going to happen... we are all speculating. :)

I do think Aus and the UK are good places to watch to get a feel for similar patterns that may signal similar events in the US market. I remember being out there a few months before the downturn trying to tell friends that the market had to go down and would go down soon as it all felt really wrong (like how I feel right now).

They thought I was completely off base and were convinced that the market would at most flatten out due to a lack of housing, immigration, the wealth in the market etc. I felt like an alien looking in as it seemed so obvious taht the wealth was all on paper and in debt, they were living these insane lifestyles (like the time I was offered cakes to have with tea at a friends that were some organic brand and were tiny things the size of a small cookie that cost $4.95 each!) and were oblivious to anything that might burst their bubble.

One theory on the slight bumb recently is that people are so scared of a recession they want to buy before they lose their jobs. It's really starting to look bad over there.

One theory on the slight bumb recently is that people are so scared of a recession they want to buy before they lose their jobs. It’s really starting to look bad over there.

Isn't it counter-intuitive? Won't they be on the hook for the mortgage as they lose their jobs? Don't they lose financial flexibility byentering the market now?

Peter P - I meant other EU currencies not the Euro persay. I agree, the Euro has too many constraints on it right now and the whole experiment is looking a little fragile. I'm thinking more the Danish Kroner or maybe still the pound. I'm only going to invest if I'm doing something creative with my money but am still working out what to do.

On stories - I was at a friends b-b-q recently and he was excited as he'd bought a piece of land in Florida with a friend as an investment. Nothing built on it, not ROI and an interest only loan. He is a QA engineer by day and his wife is getting her real estate license. He is also looking for other great investments. Another thing I ran into recently while looking at houses was that two of the 6 I looked at were owned by people holding a new real estate agent licence. Sound like a disaster waiting to happen?