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 onthewestside
Joined: 4/18/2007
Msg: 26
The California RE marketPage 2 of 18    (1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18)
Here’s where we are on rent vs. price. See graph on housing price v rents called GAP YEARS one-third of the way down the page here - http://money.cnn.com/2007/11/06/real_estate/home_prices.fortune/index.htm

Empty house will return as rentals..banks won't want to become landlords, so they will sell repo'd houses. Smart investors will only buy when price of 160 (index) drops to 100….less smart investors will get in at higher prices and suffer lower ROI. Since there are too many housing units out there (excess supply), why would rents rise? They shouldn’t. Unless millions of people show up in the US with jobs and income...demand for housing won't rise - it'll stay where it is today (and rise by 1% to 1.5%, i.e. population growth). Here's the golden nugget - smart investor waits for price-rent ratio to return to normal before buying.

[For those pro-immigration fools out there, opening up the borders won't add a job here - so no benefit. Yes it might add renters, but hard to pay rent w/o a job. Don't get me started on the economics of amnesty...ugh...]
 onthewestside
Joined: 4/18/2007
Msg: 27
The California RE market
Posted: 12/27/2007 10:18:26 PM
When I say investor - this applies to any homebuyer...
 The Minister of Dudeness
Joined: 6/11/2006
Msg: 28
The California RE market
Posted: 12/27/2007 10:21:07 PM

I had an INTUITION that this was as good as it was going to get.


Hey Ms. Cleo, is lilly grace your Plenty of Fish screen name? And I noticed you changed your hotline number to 888-RENT-4-NOW.
 MermaidSari
Joined: 2/4/2007
Msg: 29
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The California RE market
Posted: 12/28/2007 8:33:03 AM
Thank Kzin and Justcrazyenough...

The question about google is will it crash? The climb google took is questionable despite the cutting edge innovation outside of search engines.


Foreclosures go up, so do rents


The article I mentioned was from a stock watch group -- not economists or RE and held statitics that went beyond Ca. I think other states might have some catching up to do in the stabilization. I dated a developer here who is now developing a 'retirement' community out of state in consideration of all the changes occuring. It will be interesting to see his final profit or loss (most developers have gotten themselves in quite a situation).

In Ca, I've witnessed investors increase the rent as much as $200.00/month (unincorporated areas under county versus city regs) in order to make their rental property more attractive for resale and to get out from underneath it as RE prices drop. The rent increase established though remains after the property is sold.

Okay so this is what I found:

There is a 3 story home that was $530k three months ago. It is now selling at$300k. With the feds moving in and offering 'make ups' to lenders in foreclosures...how much of this over $200k drop is federal assistance...and how much indicates a 'true' decrease in homes in the area. Comps are not showing compariable [no recent sales at the $300k mark. The most recent was $480k last year].

Any thoughts on this 3 story home?

2nd scenerio...a foreclosure in east county -- a nice sized home with a pool/spa that is possibly bought at 250k (single story). Comps still report in at $400k with *recent* sales in the area. Again how much is federal asst. to lenders versus an 'actual' decrease in value?

Thanks. :-)
 RUFOREAL
Joined: 10/28/2007
Msg: 30
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The California RE market
Posted: 12/28/2007 11:10:18 AM
JUst Crazy Enough

Pretty good post for the early morning!!

Basically you put it all in a nice neat package and hit the nail on the head. Well done!

Your comment about foriegn investment groups buying paper and in some cases originating some of the loans was right on the money too!

Im in a rush this morning so I wont have time to read all of the posts so I dont know if anyone covered this, but another concern of mine was some of the bogus appraisals that were done on some of the properties purchased with 100 percent/125 percent or more financing. I was not personally involved in any of those types of sales (as I have always offered conservative advise to anyone that I work with), but noticed many properties that reported final sale prices that had nothing to do with comparable sales at the time. Lots of concessions made that were not reported, and in so many of the cases I would venture to guess that the appraisers involved made some unwarranted upwards adjustments in their reports!! Waiting til after the first of the year to start dealing with the wreckage!
 onthewestside
Joined: 4/18/2007
Msg: 31
The California RE market
Posted: 12/28/2007 12:00:32 PM
Seri.... 'JustCrazy...', others have given you facts and you are still not listening to the real information. You can't seem to get away from your desire to invest in real estate despite everyone telling you the real estate play is gone and won't be back for a least a decade (perhaps longer). Clearly you are too much of an emotional investor - you should probably put 1/20th of your current cash in an S&P index fund over the next 20 months and find another hobby.

The google play has nothing to do with past run-up but what one thinks the prospects that google has to capture incremental advertising dollars going forward that otherwise would have gone to traditional media outlets. Not sure you have the education/tools to have insight on that judgement.

I don't mean to be harsh, just trying to save you beaucoup bucks.
 onthewestside
Joined: 4/18/2007
Msg: 32
The California RE market
Posted: 12/28/2007 3:21:49 PM
Nathan - For the reference to long-term appreciation, see #1 below. In the last 25 years, you've seen 2 SoCal bubbles...so some have done better/worse (depending on entry/exit). There's no economic reason why SoCal should be different than other markets.

As for 'fraction of the down payment' comment, yes, I agree and noted that in my post above - see comment on 'leverage'. Readers should note that leverage also has negatives - your loss can exceed the amount invested should the underlying leveraged asset's price cave. However, if you look carefully at your real estate investments, you probably benefitted from either (1) a bubble or (2) a decline in interest rates. Historical data shows that had you taken an equally leveraged position in an index fund, your return would have been much higher. Unless you benefitted from a bubble (luck?), I suspect that if you look at your entry/exit points in real estate, the annual growth real pales relative to other assets classes...

___________________
1. Robert Shiller, a Yale economist and the author of "Irrational Exuberance," which predicted the stock-price collapse in 2000, has recently turned his eye to house prices. Between 1890 and 2004, he says, real house returns would've been zero if not for two brief periods: one immediately after World War II and another since about 2000. (More on them in a moment.) Even if we include these periods, houses returned just 0.4% a year, he says. (Excerpted from SmartMoney - http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/WhyRentToGetRicher.aspx?vv=500 )
 MermaidSari
Joined: 2/4/2007
Msg: 33
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Posted: 12/28/2007 6:59:07 PM
Onthewestside...just keeping beneficial conversation and interesting discussion moving. Emotional investor? -- I know real estate agents that wished it were true. :-p No offense taken...btw.

You are leaving out the variable of 'government loan make-ups' that are occuring with foreclosures. The home on Dictionary Hill I talked about earlier -- it will sell for more than 3ook...even with the current market. I've been watching this occur. Are people foolish for the purchase. No--not as a primary resident in which to live for 7-10 years. More folks seek primary residence over investments.

Thanks for your contributions to thread.

Hershey Kiss...the Dow reports would agree with you as well as others. I'm not certain it is 9-11 causing this reaction though. We have agriculture and service and spending. American's 'want' higher wages, higher min. wage, National Health coverage, lower taxes, etc. [we are spoiled in all honesty and as all economists know ... there is no free lunch]. How do you think we fair in consideration of China's labor force? I agree that things will get worse. I also see opportunity for folks in all markets though if they are willing to educate themselves [and see the worth in it]. :--).
 MermaidSari
Joined: 2/4/2007
Msg: 34
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Posted: 12/29/2007 5:47:44 AM
Just Crazy enough -- Ron is my second vote after Duncan. I don't think either have much of a chance though. I was polled yesterday by the Republican party (Paul's and Hunter's name was mentioned only once as far as the primaries in a lenghty discussion over other candidates). The gold standard? Not sure we could handle this. Metals sure have been good in terms of investment though. :--)
 MermaidSari
Joined: 2/4/2007
Msg: 35
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Posted: 12/30/2007 6:08:42 PM
Thanks everyone for your posts....one thing is for certain...it will be interesting to watch the RE market this coming year (and years to come). :-)

Happy New Years to you all.
 AceOfSpace
Joined: 5/28/2007
Msg: 36
The California RE market
Posted: 12/31/2007 5:29:42 AM
Two thoughts.

First, the California market is different than the national market. People will still want to live here and pay whatever they can--and then some--to come here because of good weather and the perception of the good life. For my money a 'burb is a 'burb is a 'burb, and you can get the same TV shows everywhere. So, for most people the reality won't be much different here than there except for the good weather.

Second, Alibabble's point about the single-family-home model being entirely unsustainable is true, and our grandchildren are going to have to do some serious retooling at big expense if they want to provide the basics for their kids and grandkids.

We have a chance to help them along by investing in in-home energy efficiency and production for the structures we have. As fuel prices increase, the costs of conversion will also increase. That effect will be offset for a while by economies of scale as demand increases, but any improvement that will pay itself off through decreased energy bills within 7 years or so is probably a sound investment.

Options that are available now include: better insulation, secondary earthen external envelopes (cob walls adjacent to existing exterior walls with an air gap in between), solar electric, LED lighting, small-scale wind generators, solar heating for water and air, geo-cooling in summer (forced air through buried vents and cellars where the ground temp is always about 55F), rainwater catchment and gray-water irrigation systems, xeriscape and native-plant landscaping, food production (locally adapted fruits, veggies, fowl, aquaculture), and local food-bartering networks and markets.
 alwayslotsafun
Joined: 7/9/2006
Msg: 37
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Posted: 12/31/2007 9:31:47 AM
To further what Onthewestside mentioned, while yes, you can make money on the relatively short-term fluctuations of a housing market, the long term value of housing remains relatively linked to incomes (i.e. how can you afford to pay 2 or 3 times more for a home if your income has not also gone up by 2 or 3 times -- answer, you can't, thus a real estate market correction). In fact, if you own a home right now and have the ability to sell it (i.e. because you are an individual, perhaps without a family and can be flexible in your living arrangements) then by all means, SELL! People don't seem to realize the amazing deals available to renters right now. And if you think about it, we're ALL renters any way you look at it (either you rent a property outright, or you rent the money needed to buy a property). If you look at what you can rent right now vs. what the same payment would be on a purchased home, it's not even close... Purchasing a home right now is probably the worst investment you could make (once you really start to account for ALL of the costs of ownership -- property taxes, insurance, maintenance, 6% commission on sale -- owning a home will cost you double, maybe triple what the equivalent home would rent for).

A wise man might have sold when the RE was high and relocated in community housing and then waited to repurchase a home. What do you think of this theory?

This is EXACTLY what I did.
 alwayslotsafun
Joined: 7/9/2006
Msg: 38
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Posted: 12/31/2007 10:16:01 AM
As for when this market will bottom? Just look at the charts of home prices over the past 5 years (look at a chart showing at least the last 10 years) -- it's a long way back to the historical trend of consistent, low-single-digit home value appreciation. The number of reasons that more property is headed to market is increasing due to things like reset ARMs (not yet triggered, but coming soon) forcing even more people out of homes causing that property, now entering the market, to compete with existing homes for what little value is left of the lofty home prices of the past few years.

As previously mentioned, we've only begun to see the effects of reset ARMs, but once inventory on top of inventory starts hitting the market, look out below. What we're seeing right now is the front porch caving in on a veritable "house of cards"... And it could take years before steady appreciation returns to the market.
 kittybiscuit
Joined: 2/11/2007
Msg: 39
The California RE market
Posted: 12/31/2007 3:57:50 PM
Gold standard? Are people still on about this?

Rediculous.
 AceOfSpace
Joined: 5/28/2007
Msg: 40
The California RE market
Posted: 12/31/2007 7:20:39 PM
The subprime collapse won't be as catastrophic as all that. Why? Because banks can't afford to precipitate a crunch that would leave them without cash flow and sitting on huge inventories of relatively worthless properties. They'll renegotiate enough of those loans to keep the bottom from falling out completely, and keep taking cash from foreign investors to stay solvent until they can ride it out.

The upshot will be that our banks will have increasing foreign ownership. Our kids and grandkids will wind up footing the bill for it, but at least they'll have grown up in nice homes!
 alwayslotsafun
Joined: 7/9/2006
Msg: 41
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Posted: 1/1/2008 4:38:58 PM
Subprime is only ONE of the reasons for the RE collapse -- about 1 out of 11 loans made in California in 2006 were PRIME loans known as option ARMs (with the unbelievable trait of having the loan size INCREASE over time depending on the payment option, such as "less than interest only", selected) which are now also contributing to the downfall of property values.

5 years ago, the median cost of a home was about half what it is today and represented an expense of about 1/3 of the median homeowner's income. The government considers 35% of your income to be a maximum level of affordability for a home purchase. While property valuations have doubled over the past 5 years, income has only gone up about 15% (anyone with a 100% increase in their income over the past 5 years, please raise your hand...) meaning that the proportion of our income devoted to housing is now more like 60% (if you buy today) rather than the 33% of 5 years ago, far exceeding typical affordability.

Further, I know of someone who just recently was about to sign on the bottom line to take ownership of a house (with good credit and a fixed-rate loan). He was planning to spend about $1300 MORE than he was currently spending on the house he was renting, yet the rental was still a better house. Even before buying the "new" home, he and his wife were unsure as to where this additional money would come from (not to mention money for upkeep, property taxes and at least two types of insurance). He was basically setting himself up for a few years of astronomical payments followed by a likely foreclosure (albeit delayed a few years). This home, too, would then be competing for price and it had absolutely nothing to do with subprime -- housing just cannot maintain these astronomical levels which is why often, the option to refinance isn't even with the banks -- the homeowner simply walks away from the property the same way that home builders have been walking away from land deposits.

Also, the government just made it a lot easier for people to walk away from properties when they owe more than they are worth by forgiving the "income" tax bill they would have received when the bank forgives the difference owed on the loan vs. the home's lower resale price.
 AceOfSpace
Joined: 5/28/2007
Msg: 42
The California RE market
Posted: 1/1/2008 8:48:34 PM
The problem with the gold standard is that there simply isn't enough gold to back the amount of currency needed to keep an economy this large operating. So what then? Well, you can peg the value of a dollar to some other commodity or more likely a set of other commodities, say a mix of gold, silver, and other precious metals. But then, what happens when the relative demand for those commodities changes? If you leave the relative values fixed per the standard, then distortions in the markets for those commodities occur. If you don't, you no longer have a fixed standard of value.
 AceOfSpace
Joined: 5/28/2007
Msg: 43
The California RE market
Posted: 1/2/2008 8:43:16 AM
Actually, microeconomic theory suggests that as prices go up, demand _decreases,_ especially if substitutes can be found. Unfortunately, when it comes to money and the function it serves as a proxy for the relative value of other goods and services, there is no substitute.

The Great Depression disproved the idea that an economy could function with an inadequate money supply. Money needs to circulate for an economy to work. There has to be enough liquidity for people to want to trade the tokens. When dollars are scarce as hen's teeth, people hoard them, especially when they're redeemable for a commodity that has real value and is also scarce. The gold standard, combined with the rapidly increasing industrial capacity in the early 20th Century, led to global contraction of the money supply relative to the demand for purchasing power, which meant that people couldn't get loans to start new ventures that would have provided jobs and increased effective demand and therefore prices. The lack of liquidity forced a downward spiral of purchasing that paralyzed both production and discretionary spending.

Most people learn about the law of supply and demand and then think they understand economics. However, there is more to it than that. In order for a market economy to work, there has to be an infrastructure that supports it. The real challenge of economic policy is to figure out what the elements of that infrastructure really are and what is the most cost-effective way to maintain it.

A gold standard can work in a low-population agrarian/subsistence economy. In an inudstrial economy, relative value is probably best measured as a proxy for embodied energy. How much cumulative fuel does it take to produce an item, or in the case of real estate, how many erg equivalents is a person willing and able to trade to take title?
 MermaidSari
Joined: 2/4/2007
Msg: 44
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Posted: 1/2/2008 10:06:04 PM
alwaysalotoffun...


This is EXACTLY what I did.


(That is what I like to hear). :-)

Considering inflation rates (as were normal before) and the average home price before the surge in price...that would indicate as you said...a longer wait for the bottom than predicted by many (June/July 2008), but not as long as predicted by some perhaps (we have to watch the lowering prices and consider the variables that will cause 'spikes' in the market, but 'not' recovery). Needless to say, the bottom as well will last a while prior to any form of recovery (indicated by home prices increasing in a normal fashion again).

************************************************
Gold...as I said...it 'was' a good investment if following and adhering to the Dow theory, but I'm not so sure I'd buy high at this moment. It all makes sense though -- in economics. As stated we would collapse if attempting to return to gold standard! Well, according to the Dow theory though -- our economy might collapse anyway *shock*!! I agree with one thing...it is going to get worse and we might want to consider this so we won't be whining when it does. I don't care for complainers? Anyone else care for these?

Thanks everyone for your thoughts on the market. :-)
 alwayslotsafun
Joined: 7/9/2006
Msg: 45
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The California RE market
Posted: 1/2/2008 11:34:43 PM
Even though selling my house was the right thing to do for me, it may not be for everyone. Ironically, I bought my first home at about the equivalent point of the previous housing bubble of 1990 but the reason I bought was for continuity of my residence, not as an investment. And I watched the equity from my initial deposit fall to zero back then before ultimately returning about 6 times my investment 15 years later. But I took advantage of the fact that I wanted to live in this place for an extended period of time and still managed to come out on top by simply waiting through to the next bubble. I also wisely avoided the fixed 13% interest loan I was offered at the time in favor of (if you can believe it) an ARM that I rode all the way DOWN to about 7% before exercising a conversion option to a fixed.

And anyone buying today would likely have a similar result if they want to wait 10-15 years, but since prices are falling, buyers have time on their side (and sellers don't if they want to take advantage of this pricing anomaly) and I'll just get a better and better cost basis for my next purchase (not to mention getting the use of the money gained from the previous sale while waiting for the next entry point). Gold has tripled over the past few years so that magnifies the gains even more for those who got on this boat. And since the government is considering eliminating the capital gains tax from home sales, there's relatively little risk in taking advantage of your one-time capital gains exemption now (if selling into the current market).

I believe onthewestside noted that to have gained from the RE market, you probably took advantage of either a boom market or a drop in interest rates -- luckily (by waiting through the period of time 18 years ago that many are experiencing right now) I got both.
 MermaidSari
Joined: 2/4/2007
Msg: 46
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Posted: 1/3/2008 12:34:57 PM
alotoffun...

As well if you have pre-prop 13 property...I would hesitate to sell it if planning to remain in the same area (let me rephrase--I woud have held on to it)!
 kittybiscuit
Joined: 2/11/2007
Msg: 47
The California RE market
Posted: 1/3/2008 9:46:32 PM
No, I wasn't. The gold standard is outdated and not feasible for as large an economy as ours. Going back to the gold standard would harm the US economically. And no, fiat does not cause inflation. Inflation is a multifactoral response to economic pressures and is not simplistically explained away by "we made 2 many dollurs!!!!"

Greenspan to Ron Paul:


<div class="quote">
Well, you say central banks own gold – or monetary authorities own gold. The United States is a large gold holder. And you have to ask yourself: Why do we hold gold?

And the answer is essentially, implicitly, the one that you’ve raised – namely that, over the generations, when fiat monies arose and, indeed, created the type of problems – which I think you correctly identify – of the 1970s, although the implication that it was some scheme or conspiracy gives it a much more conscious focus than actually, as I recall, it was occurring. It was more inadvertence that created the basic problems.

But as I’ve testified here before to a similar question, central bankers began to realize in the late 1970s how deleterious a factor the inflation was.

And, indeed, since the late ’70s, central bankers generally have behaved as though we were on the gold standard.

And, indeed, the extent of liquidity contraction that has occurred as a consequence of the various different efforts on the part of monetary authorities is a clear indication that we recognize that excessive creation of liquidity creates inflation which, in turn, undermines economic growth.

So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard?

And the answer is: I don’t think so, because we’re acting as though we were there.

Would it have been a question at least open in 1981, as you put it? And the answer is yes.

Remember, the gold price was $800 an ounce. We were dealing with extraordinary imbalances, interest rates were up sharply, the system looked to be highly unstable – and we needed to do something.

Now, we did something. The United States – Paul Volcker, as you may recall, in 1979 came into office and put a very severe clamp on the expansion of credit, and that led to a long sequence of events here, which we are benefiting from up to this date.

So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we’ve behaved as though there are, indeed, real reserves underneath the system.
 spitfire6844
Joined: 6/30/2007
Msg: 48
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The California RE market
Posted: 1/7/2008 12:59:47 AM

We need to go back to the gold standard. Than we will have a basis for the value of the dollar. Way to complicated to get into here but look at the price of Gold, Silver, etc, today... as well as the stock market, but compare that to the strength of the dollar and the rate of inflation


It's not feasible to go back to the gold standard unless everyone is willing to revert to an agrarian/subsistence economy. The last time we were on the gold standard, the U.S. population was barely over 100 million people. Farmers made up nearly 50% of our citizens. It's nothing like that now. We are now over 300 million people in an economy largely driven by the service industries. Removing currency from circulation would drive all the markets right through the floor and would have disastrous results internationally. Yes, the value of the dollar would go up relative to other currencies; but we would have a Great Depression-era crisis with 3 times as many people as before......people who aren't bound by religious and local customs in this country as they used to be. Crime would skyrocket, and the country would become Balkanized at a horrific rate.

I think a Gold Standard monetary policy is the most ideal as well; but that horse is already out of the barn. Too much time has elapsed to even return to it incrementally. Certainly, we can greatly restrict the printing of new currency. A multi-year freeze would help things. But, a true return to the Gold Standard bodes nothing but disaster.
 PolarBearKing
Joined: 4/16/2007
Msg: 49
The California RE market
Posted: 1/11/2008 5:08:34 PM
Now may be a good time to buy real estate in California, but it certainly isn't a great time. I'd suggest one should avoid it if they are looking for a short term investment. I see it falling a lot more and not hitting bottom until late 2009 or spring of 2010. This will be followed by a long long flat spell at best.

As baby boomers get older there will be more supply than demand, since they will down size and Gen X'ers are not only fewer in numbers but they are having smaller families as well.

Inflation will help to make real estate values hold steady and even rise a bit over the long haul, but the value won't be realized for at least a decade.
 spitfire6844
Joined: 6/30/2007
Msg: 50
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Posted: 1/11/2008 5:44:33 PM

People who bought the subprime loans are new in the housing market and they don't have very much equity to start with... so, when the prices dropped from a sluggish year, they wound up not making anything. Some new owners lost 20-30% equity in their homes...


Agreed. When you see a family of 5 on a combined income of $60,000.00 a year buying a $500,000.00 house--something is wrong. I can understand the greed of the mortgage brokers; but there are consequences for giving loans to be people who are in no position to assume an expensive mortgage. Anyone who was observant saw our present crisis coming as long ago as the summer of 2005.
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