‘Tipping Point’ May Be Approaching In California
Some housing bubble news from California. The North County Times. “Higher rates have had an great effect on buyers who hold homes as part of their investment portfolio, real estate agents say. Many such investors plan to rent out the houses for a year or two before selling for a profit, and people in the industry are divided over whether those investors’ reactions will tilt the rental market toward tenants or toward owners.”
“Danny Morris, who rents a house in Menifee, said tenants are in a pretty good position now, at least compared with people who own their house. Morris pays less than $1,400 a month to live in a 1,450-square-foot house. The average Southern California homebuyer, meanwhile, committed to a $2,437 mortgage payment last month, according to DataQuick.”
“‘It’s better for a renter right now than for a buyer,’ Morris said. ‘I know some of them have humongous payments, and there’s no way they can get that out of a renter.’”
“‘Right now you can’t go rent out a house for a positive cash flow or even break even,’ said Marsha Swanson, a longtime real estate agent who has also owned and rented out several houses over the years.”
“Pat Davis, who manages roughly 100 local rental houses, said she actually expects more houses to come onto the rental market in the next year. That’s because many investors are finding it more difficult to ‘flip’ houses, to sell them quickly for profit without renting them out. When the houses don’t sell, such investors are being forced to find renters just to cover the mortgages on the houses, Davis said.”
The San Diego Business Journal. “A risk that could sink the local economy is a housing slowdown, followed by more energy cost jumps and fallout from the city’s pension fund scandal.”
“‘The condo market is where most of the major correction is taking place,’ economist Lynn Reaser said. Another certain sign that the housing boom is over is the length of time houses are staying on the market, Reaser noted. ‘People who have their house on the market can’t believe they aren’t getting their asking price.’”
The LA Daily News. “It looks like this unwinding real-estate market is going to make more of a mess than expected. ‘I don’t think there is any doubt it’s going to be a harder landing than was originally forecast,’ said financial analyst Greg McBride. ‘The forecasts were made with the rose-colored glasses still firmly in place.’”
“In some places prices in June did something not seen in a long time, fall under year-ago levels. Of the 101 markets in Los Angeles County, the median price in 16 fell under the year-ago level, including Tarzana ($567,000, down 27.2 percent) and Calabasas ($1.1 million, down 17 percent), according to DataQuick.”
“A tipping point may be fast approaching here in the Valley, too. ‘The fact is appreciation has pushed affordability beyond the bounds of many buyers and that, coupled with a rising interest-rate environment is bound to have an effect on people,’ McBride said.”
The Orange County Register. “Orange County’s hot real estate markets led to the county’s biggest boost in property tax bills in 15 years. The county charged property owners $3.8 billion for the year ending June 30, a 10.5 percent jump from a year ago and the biggest year-over-year increase since 1991.”
“There was one troubling trend in the numbers, county treasurer John Moorlach said. The percentage of unpaid tax reached its highest level in eight years. Owners stiffed the county out of 1.52 percent of taxes owed. In dollar terms, the $57.7 million in unpaid taxes increased 44 percent vs. a year ago.”
“Lenders last month mailed 462 notices of default to borrowers who had missed several home mortgage payments, a 90 percent jump from a year ago, DataQuick says.”
The tipping point is here. Last week I saw a pickup truck painted with advertisments for sign twirlers.
I pose the question will foreclosures accelerate with thought that a borrower can walk knowing that they can rent the same house for half of their monthly mortgage payment???? Interesting thing about this peak in the housing market is the gap between monthly rent and monthly debt payment for the same house. This does not help flippers, who are just uninformed victims of housing bubble. Cry me a river.
>>will foreclosures accelerate with thought that a borrower can walk knowing that they can rent the same house for half of their monthly mortgage payment????
Maybe but the question in my mind is how are they going to rent (a SFH) when their credit goes out the window after defaulting? Here in Washington DC (Maryland / NOVA) people who have firm control (i.e., 10-20 yrs of ownership) of a SFH for rental income can afford to be very selective and they are based on my experience. If these borrowers walk they may face significant hurdles to finding a decent apartment to rent — much less a SFH of the same type that they default on.
They sign a new lease before they walk from their current mortgate. (If they are smart)
California is host to 9 out of top 10 most un-affordable markets in the US, according to a chart on this site: http://www.homepricebubble.com
Suffroggy:
I would read the websites you post…
If they were readable, get some organization and layout help and then maybe the traffic will go up.
The site style gives me a headache.
Please forgive my ignorance. I live on an island. But what the hell is a sign twirler? Are they people who stand on a corner and rotate somthing? Does the sign rotate in the wind? Or we talking about a human billboard jumping up and down on the corner to draw attention? I can’t paint a mental picture of what you are talking about. What do they do???
A directional sandwich-board man. A low-wage human carrying an arrow-shaped sign four feet long and twirling it around to catch your eye. The goal is to sucker you into a stupid “investment”.
Wow. That screams desperation. If I am intrested in buying a house I would hope I would be able to find it without a person on the corner to show me the way.
We have a couple sign-twirlers here in Irvine, CA touting the new housing development “Villages of Columbus” that’s conveniently located next to transportation (surrounded by three noisy thoroughfares) and industry (Waste Mgmt. processing facility and concrete stamping plant next door) with lots of amenities for your $1M SFR (zero lot lines).
This poor guy was standing in the 95 degree heat last weekend for who knows how many hours…The only way I could do that is if I had an intraveneous martini-feed…guess you gotta do what you gotta do…
Two related links:
‘It’s a baking hot Sacramento Saturday and a couple of dozen parents and kids have gathered in a vacant lot to watch sky divers, with their colorful parachutes, float to earth. It’s all part of a plan to lure buyers into a set of model homes in the Woodbury Glen development just steps away. JOHN SCHLEIMER: The worst situation for a builder is to be caught with standing inventory that’s unsold. The interest clock is ticking and their profit margain dwindles quite quickly when they have large numbers of inventory homes that are unsold.’
‘Thousands of homes were built in American Canyon over the past several years, said ReMax Realtor David Barker. ‘People who bought new from the builder now are putting them on the market and moving on,’ Barker said. ‘We don’t have that frantic pace we had last year,’ said Barker. The Realtor estimated sales were off 40 percent from 2005. American Canyon open houses that once drew 20 to 30 visitors now bring in only two to three, he said.’
Oh my, a big housing bubble newsday on a Sunday. That is a new trend. This story has got some legs for the media now.
NEVER buy Newsday or the New York Times. I implore you. Please DON’T EVER, EVER give them a dime.
Yeah, just bury your head in the sand and watch Fox News.
Could only be more comical if one of those chutes failed to open and the RE skydiver went thru the roof of a model home!
The roof would hold him, it is a bubble.
I’ll be eagerly waiting to share the Valley numbers with you all when they come out for July (next week). I think they could come out with a neg median y/y for the whole valley. That should be a real wake up call. We have already worked our way up to almost 7 months of inventory. By fall I expect we will be pushing 9-10 months worth. Sales volume is probably going to be off over 30% for July y/y.
It’s unravelling fast now. I’ll be very interested to see if sellers begin to really cut their crazy prices when we get those negative y/y numbers. Lots of people still in denial around here, but the houses just sit and sit.
That would be the San Fernando Valley (you know, THE Valley)
valley boy here deb.i thought there was only one valley.
San Gabrielle Valley, Coachella Valley, Victor Valley…
Yes, they are valleys just like Farmington Valley in CT, and those you mentioned above - there are valleys everywhere……but there is only one “VALLEY”
We all agree “the City” is New York ,right?
only if you finish the phrase “…that never sleeps”
I thought that was Vegas
SFV used to be THE Valley. That was then, this is now. The San Fernando Valley is sooo 20th Century. The here and now is all about the “hot” Valleys; Antelope, Santa Clarita, Moreno, etc.
The problem is…the specuvestors haven’t left this area yet. There are 2 properties in my neighborhood that recently sold (immediately) for flippers.D@mn! I’m in Studio City.
I live in Encino. We pay $1,238.00 for a 1,350 sq.ft. huge apartment close to the Boulevard. We’ve lived here for almost a year and a half.1 1/2. Previously we rented a small house in Encino Park for $1,200. The owner sold it for half a million. The people who bought it tried to sell it less than a year later for $600,000 (the house was only 1000 sq. ft. but had a nice yard)– but they didn’t sell it.
It was on the market for over 3 months.
I am out walking in the neighborhood both north and south side of the Boulevard (for those of you who don’t know, the Blvd –which separates housing prices) and I am paying very close attention to the housing market. There are some houses that are selling, but a lot of them are just sitting. One of them (South of the Blvd) has been on the market for about 3 months. Went down from 1.4 m to 1.265 to now 1.185, and if it doesn’t sell now, I bet you they’ll take it off the market. Several other houses didn’t sell and they were taken off the
market. Another thing, drive around on a Sunday and there
are real estate signs in every street corner from a number of Realtors pointing in every direction except heavenward.
Million dollar homes for EVERYONE!
The valley that is the most visible in the California region from space is the San Joaquin Valley / Sacramento Valley. Where’s San Fernando Valley? Ha!
We are talking house (SFV) not cows (Big Valley)
DEB….i couldn’t remember your name. i’m following the sfv closely as well and your past postings have been very helpful. i don’t want to miss your sfv evaluation. my email address is agentjmf@yahoo.com thanks again for all your hard work.
as an aside, during the last bubble burst during the 90’s…i noticed the sfv took a nose dive before the westside. it was creepy…it started in the north and west valley and slowly crept in. i’m seeing it all over again.
I personally think the Valley’s going to get creamed in the upcoming price “adjustment”. Crappy 3 BR in Reseda for over half a MILLION dollars, please! Things are so far out of whack based on incomes/wages, I really think it is “different” this time. I think it could actually end up being worse than the early 90’s.
I’ll drop you an email when the stats come out and I’ve had a chance to do my y/y comparisons, etc.
Teardowns in Van Nuys have been 500K for a year and a half now…it’s time for this baby to fall! The funny part is…I believe the higher end has been propped up by bubble bucks from the westside. Wait till they get a load of our lovely valley summer weather…..triple didits till Oct. Those westsiders will run screaming and melting.(As in the wicked witch of the west)
-triple didits
+triple digits
I personally think the Valley’s going to get creamed in the upcoming price “adjustment”. Crappy 3 BR in Reseda for over half a MILLION dollars, please! Things are so far out of whack based on incomes/wages, I really think it is “different” this time. I think it could actually end up being worse than the early 90’s. ——- I am so happy to read this. I couldn’t agree with you more. I’ve seen houses for as much as $699,000 in crappy Reseda. It’s not just the mortgage payments, but add
property taxes, insurance, utilities, and other up-keep — I don’t know how people make it. You may have already read a great article about the US Housing Crash and the benefits of renting vs. buying, but if you haven’t, go to http://www.patrick.net and
click on the housing crash. Best info I’ve read anywhere.
Hi Deb
I live in Simi but have owned in the West SFV, Canoga Park….and “West Hills”…. LOL….I always loved the name changes that went on from one end of the Valley to the other.
As a property owner I have endured 3 full cycles of boom and bust. I sold in late 05′ and am renting and waiting. In your opinion how bad could it get in the SFV and Simi?
In the past cycles the drop or inaction in RE was bad enough. With the current underwriting of loans and lack of standards, this must compound the issue?
In 1975 I was a first time buyer. I got the best, the only deal 20% down (verfied) balance 28% of my gross income, for the monthly payment. I still had many a sleepless night! LOL….What a joke on me! I just don’t get it?
Thank you I welcome all coments.
Hi Deb
I live in Simi but have owned in the West SFV, Canoga Park….and “West Hills”…. LOL….I always loved the name changes that went on from one end of the Valley to the other.
As a property owner I have endured 3 full cycles of boom and bust. I sold in late 05′ and am renting and waiting. In your opinion how bad could it get in the SFV and Simi?
In the past cycles the drop or inaction in RE was bad enough. With the current underwriting of loans and lack of standards, this must compound the issue?
In 1975 I was a first time buyer. I got the best, the only deal 20% down (verfied) balance 28% of my gross income, for the monthly payment. I still had many a sleepless night! LOL….What a joke on me! I just don’t get it?
Thank you I welcome all coments.
I live in Encino. We pay $1,238.00 for a 1,350 sq.ft. huge apartment close to the Boulevard. We’ve lived here for almost a year and a half.1 1/2. Previously we rented a small house in Encino Park for $1,200. The owner sold it for half a million. The people who bought it tried to sell it less than a year later for $600,000 (the house was only 1000 sq. ft. but had a nice yard)– but they didn’t sell it.
It was on the market for over 3 months.
I am out walking in the neighborhood both north and south side of the Boulevard (for those of you who don’t know, the Blvd –which separates housing prices) and I am paying very close attention to the housing market. There are some houses that are selling, but a lot of them are just sitting. One of them (South of the Blvd) has been on the market for about 3 months. Went down from 1.4 m to 1.265 to now 1.185, and if it doesn’t sell now, I bet you they’ll take it off the market. Several other houses didn’t sell and they were taken off the
market. Another thing, drive around on a Sunday and there
are real estate signs in every street corner from a number of Realtors pointing in every direction except heavenward.
Deb, thanks for the update. Would that be the Wells Fargo Opportunity Index? I remember you had reported last time it was 1.9%. Any guesses what the number might be this time, or when that new report comes out??? Many thanks for your observations, Neil
I’m just talking about the board sales stats which are available right after the end of the month. Somehow, they take about another 20 days to work their way in to the press.
As for the housing opportunity index, that won’t come out until mid Aug, I think. I bet affordability in LA will still be below 2%. I just don’t understand who the housing bulls think will buy all the houses. Total madness.
Agreed, with affordability down to under 2%, there is no “rocket fuel” to power any new wave of appreciation. At the very best, the market would be flat. But with all the option ARM resets, the pain will cause many to lower prices to “get out” at any price. I think the use of option ARM’s will cause the market to implode.
100% right…
2% affordabilty is a housing engine running very lean. I accept that Los Angeles’ home market runs very well at an affordability of 40% to 55%… But 2% isn’t enough to generate a spark.
I have a feeling that the 3rd quarter sales numbers will show that this market’s back is broken.
But to think, the “tidal wave” of ARM resets shouldn’t trigger a price decline on its own until 2Q07.
We’re in for interesting times.
Not to mention “little birdies” are telling me more and more jobs are going to leave southern California.
The price stagnation we’re seeing is sans layoffs… We’ll see those layoffs starting by Christmas and really starting to bite the SoCal economy by mid-2007. So we’ll have two drivers “stacking” to drive the economy down.
Neil
Am I reading this correctly? Prices in the SFV are down YOY? Can anyone confirm? Deb?
Not down overall y/y, just some areas. The weekly reports so far in July have been pretty weak. I’m expecting 30%+ y/y volume declines and -1% to +1% y/y median prices.
Overpriced housing markets + repricing mortgages + coming recession = unbelievable buying opportunities when the CA housing market hits bottom. Build cash and 800 credit score. The pickings are going to be unbelievable.
Robert Campbell
All over that Robert. What markets do you track?
He has a good book on RE indicators. Click on Robert Campbell’s name and check it out yourself.
I’m with you. Probably going to have to close my eyes to do it! Buying with blood in the street will be hair raising!
Morris pays less than $1,400 a month to live in a 1,450-square-foot house.
I am pleased to see $/sq ft being brought back into the casual analysis that the media is fond of…
that’s a much better price/sq. ft. to rent than in my area
Does anyone track the Pasadena rental market? Do rents seem to be rising/falling/about the same? Is it different for houses vs. condos or apts? I am a renter with landlord making noises about raising the rent!
And now, the deluge. The denial is dissipating; fear is setting in, and the stampede for the exits, once in motion, will feed on itself and produce a cascading tide of panic-selling and FB walk-aways (keys on the counter, moving truck speeding away under cover of darkness).
Line up, lemmings. Time for your date with destiny.
Can’t wait for a video showing all these paper-rich idiots heading for the exit at same time. The 6 o’clock news will be teeming with comical reports.
I’m going to have to be the contrarian here again, and say that the smarter idio, err I mean investors have already left the building. We are left with the not-so-brights with negative cash flowing properties, hanging on ‘just a little bit more’ (6 months, a year, two years), hoping to ride out the market. It’s been drummed into their heads that ‘real estate always goes up *eventually*’. Therefore, they will try to hang on as long as possible, even to the point of taking out more loans in order to cover the negative cash flow…because they believe that it will all work out in the end.
On the other hand, people that just want to sell their house in order to move to a new location will re-price their homes rather quickly.
Again, I’m predicting that you won’t see any “panic” until next year. Investors and homeowners alike will be holding on for as long as possible, hoping the market rises to hit the price they want/need sometime next year (or two years, or three years). Never underestimate the effects of greed.
However, if we see rents start to go down (making things harder for the investors) or job losses start to mount (making things hard for the homeowners), *then* I think we will see a panic, and a rather large one at that.
I don’t see rents on SFHs coming down until the foreclosures are well under way. The double whammy will become a triple whammy when the unemployment checks run out. A perfect storm.
You might consider that foreclosures are going to create panic. July 23, 2006 in Las Vegas Notice of Defaults 206, last year there were 12 on that date. History says 18% will go to Trustees Sale and be returned to lender. So in 3 months and 21 days, there will be close to 25 properties in bank REO departments, vacant and waiting for a low ball offer. The foreclosure trend is accelerating. When banks startr marketing these to get them off their books, all hell will break loose.
Sammy:
You are on a roll this morning. Too funny.
We need to design a new Scarlet Letter(s) so that these knuckleheads have the shame of not keeping their word follow them.
Any graphic designers that do up a stylized FB logo for surreptitiously sticking on peoples cars as they flee under cover of darkness.
LOL. Oh trust me, I’m just warming up, Sunsetbeachguy! I just got back from criss-crossing the country on business trips, and never cease to marvel at how many clueless wonders are stealing my oxygen. To wit, it seems like every time I fly, I have to explain to some supersized dolt that YOU’RE SITTING IN MY SEAT since they lack the intelligence for the intricate mental gymnastics required to match the seat number on their ticket with the numbers clearly imprinted above each row of seats. The looks of bovine stupidity I get, as I explain and re-explain the patently obvious, are identical to the toad-in-a-hailstorm expressions on the faces of acquaintances who told me renting was ‘throwing away your money’ or that ‘there is no housing bubble in Colorado Springs.’
So, excuse my tirades!
I am on the same page, I travel throughout CA on day business trips regularly.
Business travelers shouldn’t have to mix with tourons in airports or airplanes for that matter.
What part of the country are you in?
Colorado Springs, CO.
I remember it well. Strip-down parties: Plumbing fixtures, light fixtures A/C units & furnaces, electrical panels… even heavy gauge copper electrical wire stripped from homes just before the keys hit the countertops. This time, with copper trading at $3.50/lb I would imagine even the light gauge wiring and copper piping will be scavenged. LA will look like Beirut (most of it already does, the rest looks like Tijuana).
Can’t wait!
If you really want to see scavengers,strippers at work, just go to any large auto junk yard and watch the Mexican immigrants eviscerate junked autos.
Seriously folks, if there is to be any scavenging/stripping of homes prior to foreclosure/eviction hire Mexican/CA Immigrants to do it. Guaranteed they will strip that home faster than a school of piranhna’s stripping a carcass.
I live in Central California. This thing is playing out just like clockwork. Bad loans, stupid greed, manipulative realtors, mortgage brokers and appraisors. You can rent an equivalent house for WAY less than equivalent mortgage here. This thing’s really going to start gaining more momentum, it’s unstoppable. The house I spent my childhood in went up for sale and sold a couple months ago. A nice 3/2 built in the 50’s. Let’s just say it makes me cringe when I drive by. 5 cars parked out front, lots of people milling in and out. I’m not one to judge, but this truly looks like someone stretched (income stated loans) to get in, and they’re in for a rude awakening down the pike. When the prices start dropping and the loans reset, are counsin Elmo and uncle Larry going to want to pony up “their share toward the family investment” when the comps are dropping like rocks? A grad student buddy of mine said he and his family “pooled their funds” in 04′ to buy house and bare land–telling me to “get in before it’s too late.” Well, talked to him last month. No bragging about real estate. I was discussing my trip to Vegas, he just said, “dude, I can’t go anywhere…mortgage is killing me.” Nuf said. Ouch!
It’s amazing isn’t it? I mean, let’s say someone needed to buy a car in 05′…say a Toyota Corolla. Now, they know that in 01′, 02′ the car sold for about $15k and now all of the sudden (like houses), asking price is $35 -40k. They’d have a fit. “But housing is different”, they say. Right. But now in 06′ the “demand based on undersupply” issue is DEAD, Corollas (houses) everywhere for sale–with prices beggining to drop. NOW they KNOW the hard way, that it’s all been a collective mania after all (and they were happy to join the fold). We’ll folks, the hangover sucks, doesn’t it? And it makes you nauseous just to look at that kool aid cup.
DOC
This makes me think of the “Zero Moment Point” described by the author in “The Perfect Storm” where the boat has tipped over and cannot be righted. It’s doomed.
No doubt. I don’t think enough is being made of the OVER 50% decline in GDP from Q1-Q2 this year. The stock market is making believe that it equates to a “leveling.” Chart it and show me the plateau!
The tide just recessed a mile and a half, and all the savvy traders rushed out to pick up fish and shells.
Pay no attention to that roar in the distance, traders.
In coastal SoCalif, you could not rent a house for break-even cash flow since at least 2002. In the example given, they mention the mortgage payment but do not include the taxes ($520/month for a $500,000 house) or insurance ($50-75/month.)
Speaking of taxes, this is a factor in the slow down in the move-up market. People who bought 5 years ago and in the past might have been expected to move ito a bigger/better house, are reluctant to quadruple their taxes. This may be why many people are fixing up their house instead of moving. I see this a lot with my customers and others.
A house should sell for 150 times the monthly rent it could bring in. I would guess California, Florida, Phoenix, D.C. and other areas are bumping 400 - 500 times the monthly rent to buy the house.
Housing is all about liquidity. Real estate needs to be fed every month, even when you own it completely. Taxes, repairs and utility bills never stop. If you can’t cover the nut on the home with rent then you paid too much. Just wait ’til the boobs that bought into this market figure this out.
Thanks for the site Ben. I made my first donation today. I finally found a place I don’t get yelled at or treated like a jerk when I say that prices will fall. New York is still the home to Denial Central Station. Trains run on time for all bagholders.
Finally, it’s fun to be a bear. Sucks when you can be 100% right about something going south and it continues to go the wrong way - running hard against simple fundamentals. That only means, in the long run, you’ll be right for a lot longer than you expected… think 6 years worth…
The traditional metric is 100-120 times with special cases like California (Prop 13, low vacancy, etc.) being reasonable at 140x. 150x would require an assumed rate of appreciation and another source of income taxed at the upper rates.
I rent a 2/1 SFH in Atwater, Los Angeles for $2100 per month. Similar houses in the neighborhood are listed (some sell, most sit) for $650ish — about 300x rent. As in the Valley, prices haven’t fallen much, though some discounting of insane prices seems to be happening while other homes are pulled off the MLS unsold.
If you’re a seller, comments like those by idiot below fuel the fantasy:
“Ryan Ratcliff, an economist at the UCLA Anderson Forecast, believes that a worst-case scenario of the early 1990s all over again for California is unlikely. “That’s just rare in the historical record. You only see it in severe recessions,” he said.”
Can Ryan really be unaware of the affordability numbers (something like 5% in LA can afford median home) or ARM resets coming due?
Poor analysis and outdated/out of touch with todays N. California Economy.
Cart before the Horse: We had a recession in SF Bay Area in early 1990s due to competition from overseas HT companies. Their cost of labor was much less and this made them cut their prices driving many in employers to close their business. Only 10% made it in the mid 90’s. That was the cause of the recession in N. Cali. Drop in revenue/profits cut the GDP.
Today is different. Employers will hire some 15% locally and the bulk elsewhere, China, India, other states. You can easily check the Jobs sites of local employers for those facts. But in no way will that sustain all the home prices here.
Therefore jobs can and do shift overseas/other states making employers more profitable and competitive reducing the chance of lossess and minimize the reduction the impact on GDP overall.
So if cost of production increases employers will shift those jobes without seeing any impact that would cause a recession. There will be less well paid workforce in Silicon Valley to pay these overvalued homes.
I rent a really small (900 sq foot) house in 90039 too, for $1700 per month.
I figure it’s ‘worth’ about $550-600,000
Similar numbers to yours.
Yep, 471 times the rent at my place here in Santa Barbara… it’s no mansion, believe me.
Sensible, you are correct. I know I have considered trading up, but I just don’t want to pay the higher property tax… many of my neighbors are just fixing up their places and staying put to avoid that…and considering I would be buying a falling knife right now too…
Excuse my ignorance, but doesn’t remodeling cancel the prop13 limitations on increases and result in reassessment? I thought I read somewhere that it did.
just wondering.
The value of the improvements are added to the existing Prop 13 value and are subsequently folded in.
Market: $800,000
Prop 13 basis: $200,000
New bedroom and pool: $60,000
New Prop 13 basis: $260,000
There’s lots of “fudging” but you get the idea.
Yeah Robert, you are right…lots of “fudging” that doesn’t get reported to the assessor’s office…most people that get work done without permits aren’t reporting that to the assessor’s office.
Just to add, on total teardowns if one existing wall is kept you can keep the existing Prop. 13 basis and add the improvement value (correct me if I’m wrong)
Lots o’ loopholes!
ockurt,
You are correct on teardowns. It’s funny to watch a big new structure being built around a rotten old doorframe preserved from the original structure. That’s SOP around here.
Too funny. Especially in Santa Monica where it’s crazy expensive. Do you really think the owners want their tax basis increased by 1M or 2M bucks on a tear-down there?
Indeed. They are even called “Santa Monica teardowns.” The general rule is to leave a washbasin and tub on one timber frame wall to “qualify.” The usual event is to build around the two and then rip them out after the inspection. The house immediately next door is one such. About 1200 sf that was recorded as like 1800 sf bumped up to 2600 sf per permits but really comes out to about 3200 sf. A “patio” turned into a two story high family room and a cement work pad turned into an attached office. House is sitting empty as some “anonymous” source tipped off the county who won’t issue occupancy. Geeeee. Sniffff.
Heh heh…were you the “anonymous” source…lol…hope you are not losing lots of sleep over it
Thanks all!
You are correct on teardowns. It’s funny to watch a big new structure being built around a rotten old doorframe preserved from the original structure.
Wow, this explains a lot. A couple years ago I saw them tear down and rebuild an old supermarket in my neighborhood –everything except the rear wall, which they took great care to preserve (used lateral bracing to hold it up). I couldn’t comprehend why they would rip out everything else but go to such trouble to preserve one bare wall. Now it all makes sense.
Yeat another reason why Prop. 13 distorts incentives and should be abolished.
Moving up is the absolute worst thing to do in this market. You’ll see the higher priced places take the hardest hit, at least at the beginning of the slide. A move-up toward the end of the bubble bust might be a good move, if you can unload the smaller place first, as the differential in DOLLARS, gets smaller.
I bought my 2/1.5 condo in 2001 with a 30% fixed mortgage (6%). Even today, with HOA fees and taxes, I think I’d just break even if I rented it out. The last time a unit was sold in my complex was in late 2004, for more than twice what I paid in 2001. And, believe it or not, they’re renting it out. How they’re even coming close to turning a profit, I can’t fathom. (I/O loan, I’d guess… wonder when it resets…)
Depending on what they do their house can get reassessed during a remodel.
You the People,
please protect yourself by buying physical gold and silver. Bury it in the ground. Do not use bank vaults. Do not buy paper claims on gold and silver (e.g., GLD and SLV etfs…these are frauds and the physical gold is held by London banks….in the future, they will be confiscated by governments).
Buy physical gold and silver coins to wheather this storm. i.e., inflationary storm.
In case the “unFed unReserve” (i.e., privately held central bank in the US), engineers deflation by reducing the money supply, make sure to keep a third to one half of your wealth in currencies of solvent and stable countries.
That’s all. Let’s not rely on our stupid/corrupt government officials to get us through this. They are either aiding our enimies or are very stupid. Wish Ron Paul was president for a “Liberty Party.” He is the only government official I respect.
I’m with ya!
Ron Paul is the only politician who tells the truth. [political comments tag off]
Forget the gold and silver until you have storage food and water, seeds (and the knowledge to garden). If you live in the city, god help you.
Great comment… people think I am negative about the future. I’m not, I’m just realistic.
God help all of us if things turn that bleak. The odds of something like that happening are 1:10000000000000000000. I won’t be stocking a root cellar any time soon. I would be concerned and armed if I lived in LA though. The riots back in the early ’90s and the fact that the timing coincided with the housing collapse was no coincidence. I’m expecting it will be worse this time around…..
How were they in any way connected? Wouldnt poor people and minorities profit greatly from a housing bubble collapse? If riots were to happen they would’ve happened at the peak of the bubble when they were getting moved out by people buying up their homes as investment. Sorry, dont let me stop you from arming yourself, moving to rural Idaho away from the evil black people, starting up your garden in preparation of the coming global meltdown. However, dont be surprised if more than one person laughs at you when nothing even similar to that doomsday scenario materializes. The housing bubble pop will be tough, but theres nothing to indicate what you are saying.
Think about what happens during a severe economic downturn and who gets slammed the hardest. Those with a lot have a little less. Those that have next to nothing end up with nothing. It’s that simple. The boarded homes will be widespread in the poor areas and despair will be the prevailing mood. What reaction would you expect in the face of complete despair?
BW:
Gets the daily pollyanna award.
Q:
What do you call a pessimist?
A:
An optimist with experience.
If you really think out the worst case scenario, the best currency in case of a complete financial meltdown and chaos will be guns, bullets, and canned food. Stock up on as many guns and ammo as you can. That will be the only currency worth trading. I shiny bar of gold doesn’t do squat for you if thugs are trying to steal whatever you have left.
In case this got lost at the bottom of the bit buckets, it seems to resonate with this thread:
http://www.signonsandiego.com/uniontrib/20060730/news_1h30newhome.html
P.S. I suggest a different byline, “San Diego Housing Market is Going to the Dogs”
“Prices also have retreated from their dizzying heights this year, MarketPointe said. The weighted average base price – not counting upgrades and lot premiums – was $512,830 for all new houses in the second quarter ending June 30, down from $584,799 in the first quarter and $545,886 in the second quarter of 2005.”
a nice 12% down.
Love the comment “they were order takers”. The whole sales staff was fired. Looks they will still be order takers - “do you want to Supersize that?”
Housing futures outlook and snippets from the cracking Bubble:
http://www.xanga.com/russwinter
From the LA Daily News article:
Leslie Appleton-Young, the association’s vice president and chief economist, attended a conference in Northern California on Friday. She heard that San Francisco still has low inventory and sellers are getting multiple offers. Locales that could get stressed include those that have seen a lot of building or condominium construction.
“It’s more like a return to normal with a bumpier landing in some areas than others,” she said. “It’s not a replay of the mid-1990s. The economy is growing. We’re seeing not spectacular but certainly solid job growth.”
I guess she found her new moiniker. Could some of you SF folks comment on the low inventory/multiple offers? Sounds fishy.
There are 33,925 homes for sale in San Francisco Bay Area, CA as of 9 minutes ago
http://www.ziprealty.com/buy_a_home/search/form/cityG.jsp?usage=search&cKey=74rbwvlk&metro=sf
There are 806 homes for sale in Tracy, CA as of Sun at 2:14 PM PDT.
Foreclosures rise
John Upton
Tracy Press
Nearly 350 homeowners in Tracy are on the verge of losing their homes because they’ve fallen behind on their repayments, and auction dates have been set for 63 of the properties, according to foreclosure monitoring company RealtyTrac.
San Joaquin’s foreclosure rate was the highest in the state between April and June, with one out of every 154 homeowners behind on repayments at some point during the three-month period
http://tracypress.com/2006-07-28-rise.php
multiple offers?
Can you as one of the bidders confirm who the other buyers are?
Are you told what those offers are?
Both are NO…
“Trust but confirm” - Ronald Regan
Ops forgot to say….
Its a losing game when your told multiple offers. I would not trust such comments from realtors. Its just wrong practive in the industry and has caused too much damage in economy.
Of course it’s the tipping point. Ding! It will be August in two days.
Thousands of sellers will silently say to themselves… “I thought we’d have it under contract by August… families usually want their moves complete before school starts.”
Thosands of Realtors will be thinking …. “It’s August, the last month of the prime selling season. Is there any way to get this inventory to move? Can my sellers be more realistic and cut pricing?”
August. August. Tip. Tip.
Thousands of sellers will silently say to themselves… “I thought we’d have it under contract by August… families usually want their moves complete before school starts.”
Families (the smart ones, anyway) also have problems taking on insane levels of debt for grotesquely overpriced houses in districts with declining or substandard schools. They’ll go elsewhere, and rent if they have to in expectation of lower prices down the road (yes, that view is taking hold). When the “back to school” uptick fails to materialize, that’s when more and more sellers are going to see the writing on the wall.
Question: If you are unable to rent a house for the cost of the mortgage payment, can you write off the loss? Or is it treated as an unrealized loss until the sale of the house?
Just wondering how the rental income and its tax treatment will affect flippers. Will it exacerbate their financial woes?
Depends. Most of these “investments” were based on fraudulent credit applications indicating they would be owner-occupied. Hard to explain how that translates into a business loss.
Yes, but those losses care capped at $25,000 a year for passive investments like rentals.
I’m not an expert, but it is a little more complicated than that. To get any deduction, you have to actively manage the property yourself. Then you can deduct up to $25K of losses if your income is less than $100K. The maximum deduction is reduced proportionately with income over $100K until it reaches zero at $150K. So in effect you can deduct the loss only if it doesn’t reduce your taxes by much.
Not an expert here, but the mortgage interest is already deductible, even if the house is an investment. Any inability to make up for that interest payment would therefore not be deductible. Rental income is just income.
Also, I think you are just taxed on profit/loss when you sell. Simple as that. If it’s only been an investment home then you will see capital gains/losses on the home that are adjustments to income.
Could be wrong here, but this is how I’ve understood it.
Interesting poignancy is that if you get laid off and stop making money from your regular day job (say, selling mortgages or frying chicken in lard at the KFC, for example) then tax deductions on interest aren’t meaningful anymore. This thinking of automagically knocking off 25% of mortgage payments in your head would no longer apply.
I’m no expert, but I believe that is incorrect. Mortgage interest is only deductible on personal residences (up to 2). If you rent a property for more than 15 days a year, it is treated as rental property and complex rules kick in.
I think they can expense the mortgage payment as long as they are trying to rent the house. All passive investment losses are capped at $25,000 against ordinary income, which has to be below $150 K for a married couple. Yeah so a lot of flippers are taking it in the ass even where taxes are concerned.
Someone please help me up off the floor. This is my old neighborhood.
http://sandiego.craigslist.org/rfs/188060544.html
http://sandiego.craigslist.org/rfs/188060544.html
well you won’t be seeing that in Texas. When did you move?
Look at the appreciation on this pig:
http://tinyurl.com/lb562
[zillow.com, 1140 Gleneagles Ter, Costa Mesa, CA 92627]
In one year, sold for $860k and then $1273k. Look at zillows “value chart” for this thing. It’s like a step-function. They gotta be kidding me.
The 2005 tax assessment indicates a value of 100K. Is that a typo?
Why on earth would someone pay 1.3 Million and 50% more for something that just sold only a year prior for double what it was in 2004. THAT IS TOTAL INSANITY!
“Lenders last month mailed 462 notices of default to borrowers who had missed several home mortgage payments, a 90 percent jump from a year ago, DataQuick says.”
__
Those default notices are based on those who began missing payments in March/ April. Imagine what the default numbers will look like when the June/July defaults start hitting the books.
“‘It’s better for a renter right now than for a buyer,’ Morris said. ‘I know some of them have humongous payments, and there’s no way they can get that out of a renter.’”
The compensating advantage of owning (at 50% greater cost in monthly payments) is that the owner gets to cash in later for 10% YOY investment gains.
What did you say? Prices are falling now? Oh…
“Orange County’s hot real estate markets led to the county’s biggest boost in property tax bills in 15 years. The county charged property owners $3.8 billion for the year ending June 30, a 10.5 percent jump from a year ago and the biggest year-over-year increase since 1991.”
Which reminds me of some more advantages of renting: Owners get to pay real estate taxes, insurance, interest on their mortgages, and in some cases, the gardner’s tab and HOA dues. Of course, one could argue that these various costs are all passed on to the renter, who is constantly throwing money down the drain by not owning, but that argument is fairly hard to support when the monthly rental cost is 2/3 the monthly carrying cost of owning comparable properties, especially if prices are decreasing…
All this talk of price declines is great, and hopefully will pan out. But all I know is, a house two blocks from the dump I just moved out of in Valley Village (SFV), a 2000 SF ranch style POS, albeit totally “done up” with granite and shiny fixtures inside, and north of te all-important cut off street Chandler Blvd., just sold for ONE MILLION DOLLARS. Insane. One million to live in that heat and smog and congestion, one block from where Ti Juana starts.
Wait…it’s coming.
i moved out of that hell also,prices are insane….
Here’s an interesting bit of anecdotal evidence: I was researching the cost of living in Cupertino, should a promotion make it necessary to move there. (Naturally, such a promotion would only be accepted if the numbers work— there’s no reason to accept a “promotion” that leaves you broke.)
The cost-of-living calculator had two options: “Own” and “Rent.” So here’s the numbers, considering a $100,000 salary in the starting city (just for clarity, I realize that’s an unusually high figure):
Equivalent COL while renting: $86,160
Equivalent COL while owning: $164,925
It requires almost exactly twice the salary to own in Cupertino as it does to rent. Mmm-hmm. Guess which I will choose (should it become necessary)?
“Of the 101 markets in Los Angeles County, the median price in 16 fell under the year-ago level, including Tarzana ($567,000, down 27.2 percent) and Calabasas ($1.1 million, down 17 percent), according to DataQuick.”
Calabasas median price went from $1.5 million to $1.1 million. Well, that is much more affordable!