‘A Silent Crash Going On’ In San Diego
This San Diego Reader article from a few days back was sent in by a reader. “In..San Diego housing market today, two kinds of gamblers are leaving town in a hurry: (1) speculators, or people buying condos to sell them, not live in them, and (2) homebuyers taking on exotic mortgages so they can buy houses they can’t afford. The former have been skipping town for a year, and the latter are being restrained by regulators who fear a wave of foreclosures and defaults.”
“Two abuses are exacerbating this situation: (1) overblown housing appraisals and (2) false statements of family income on mortgage applications. These deceitful practices, typical of financial bubbles, have permitted the gambling game to go on.”
“‘The price of the asset has gone way beyond its long-term fundamentals,’ says Robert Campbell, publisher of San Diego’s Campbell Real Estate Timing Letter. ‘It’s become a Tinkerbell world.’ As regulators ‘tighten up on funny-money loans,’ those housing prices will come down to earth quickly.”
“Campbell just heard the story about a San Marcos fellow who bought a $700,000 home in mid-2004 without putting any money down. ‘Today the home is worth $610,000. It’s $90,000 underwater,’ says Campbell. The fellow hasn’t made a mortgage payment in a year. He figured he would have to sell the house for $760,000 to make the back payments and get out even. But his broker told him that the highest price he could get for the home is $610,000, based on comparable prices in the area.”
“‘There is a silent crash going on,’ says Campbell, who talks to real estate brokers every day.”
“‘I have not yet seen a bankruptcy’ as a result of the exotic mortgages, says bankruptcy trustee Richard Kipperman. ‘But we know it’s coming.’”
“The ultimate engine of housing demand is job growth, and that has been slowing for several years, even as home construction has continued to grow. Sales have been slipping, but ‘we have more product on the market than we need with current levels of job growth,’ says Peter Reeb.”
“Campbell points out that the housing market itself has been a big source of job growth. So an implosion could affect the economy generally. He sees a high probability that Southern California home prices will plunge 20 to 40 percent. His Real Estate Crash Index signaled ’sell’ in August of last year and continues to plummet.”
“Unfortunately, San Diegans have been borrowing against the inflated equity in their homes to continue their consumption. If home prices decline and lending regulations tighten up, that game could slow. Sales at retailers, car dealers, and other consumer outlets could suffer. This will impact jobs and, in a snowball effect, further whack the housing market. An economy based on debt is risky. An economy based on dangerously speculative debt could be disastrous.”
BTW, the RSS feeds are up in the sidebar and the comment fixed requested should be done this week.
So in essence the ‘San Marcos fellow’ has had free occupancy of a 700K house for a year and a half, and stands to lose nothing but his credit rating when he BK’s.
Where can I get that sort of deal?
stands to lose nothing but his credit rating when he BK’s.
If his income is above the median, he will be forced by the bankruptcy court to make at least some payments. Even if the bank writes the debt off as a loss, they can report it to the IRS as imputed income, and he will have a tax bill as a result. IRS debt cannot be eliminated via bankruptcy.
It is gratifying to see some confirmation in the media that things in San Diego are playing out almost exactly as Piggington has been predicting all along. SoCal and the Bay Area should be following along within the next year or so.
“Campbell just heard the story about a San Marcos fellow who bought a $700,000 home in mid-2004 without putting any money down…”
Can these sorts hang out in their places indefinitely under the law? Maybe I made a mistake by not buying afterall. My rent is a lot higher than $0.
The general tone of these stories has slipped faster than I imagined. For months now I was thinking a mediocre 2006 and a tough 2007. Maybe I was a year long. Seems all downhill now.
Yup…like I have been saying all along. It is happening, it just isn’t showing up in the stats yet. Just give it a few more months.
If inventory is any indicator…San Diego us up over 16,300 properties. Inventory is up about 800 properties in the past 2 weeks!
Don’t say I didn’t try to tell people the I/O, 100%, Stated, Neg-am’s weren’t going to have consequences!!
SoCalMtgGuy
Another F@CKED Borrower
FB FORUMS
Sorry if I have already overloaded this blog with my SD posts, but at least this is OT!
Let’s see how recent statistical evidence squares with the crash story:
Current ziprealty inventory for Greater SD = 16,352 (2/7/06)
ziprealty inventory on 1/1/06 = 13,916
Percentage increase from 1/1/06 until today = 17.5%
Annualized rate of percentage increase since BOY =
[(16,352/13,916)^(365/37)-1] X 100% = 391% / year.
(Interpretation: At this rate, we will have five times as many homes on the market at the end of 2006 as we had in the beginning of the year.)
Number of ziprealty listings w/price reduced = 4411
Percentage of ziprealty listings with price reductions = 27%
—————————————————-
Yep. It’s a crash alright.
Situations like Campbell makes me want to go and steal an identity… Example: I am cash rich. However, not dumb enough to buy in these market conditions.
However, wouldn’t it be fun to have a second identity? Take on a ludicrous mortgage for a “pimp” house, withdraw the HELOC, buy that “pimp” ride, max the credit cards, and live high-on-the-hog until they finally call in the sheriff’s department to forcibly remove me.
Identity # 2 files BK.
Meanwhile, original identity is in tact, FICO in the 800s, buys the “pimp” house, in cash, at the rock bottom price of 50% of last sale (to identity #2).
Anyone else think this is possible?
I mean, really, outside of this blog, I feel like the biggest moron for NOT pillaging the f’d up system in place.
La Behind wrote:
>> …wouldn’t it be fun to have a second identity?
>> Take on a ludicrous mortgage for a “pimp”
>> house, withdraw the HELOC, buy that “pimp”
>> ride, max the credit cards, and live
>> high-on-the-hog until they finally
>> call in the sheriff’s department
>> to forcibly remove me.
I have also wondered about this.
If you were a crook could you:
Buy R/E via a shell corporation set up
with virtual people created from
stolen identities?
It seems like a such huge crack in
the financial system.
Perhaps others who are much more knowledgable
than myself could comment on such a theory.
It wouldn’t surprise me one iota that we will
see in the news identical/simliar scams
played out for real.
I wish we could get an article like this here in Orange County CA.
You know it is going on here as well as Los Angeles, Florida, Las Vegas, Phoenix……I could go on and on and on……..
getstucco.
To be fair, the inventory was in the low 15,000’s at the end of the year. Lots of properties expired and were relisted. The inventory quickly returned to the 15k level quickly, but I am quite surprised how there seems to be 40-200 homes added each day.
There is definitely growing inventory though!
Another F@CKED Borrower
FB FORUMS
As to the comment that the borrower will have to file for bankruptcy, I’m not sure that’s actually the case. In California, residential real estate loans are “non-recourse” due to the anti-deficiency laws. In other words, if you don’t pay they can’t sue you for the shortfall on the debt and you don’t owe anything once they’ve foreclosed. This little-known fact will probably become widely known real fast…
That law only applies on first mortgages. Once they Refi, or take out additional loans, they are F@CKED. And many deserve what is coming their way.
that’s an interesting observation. is it only in ca that 2nd mortgages or re-fi put the borrower on the hook? or is that the case nationwide? do you know of any websites that reference this aspect of lending? i’ve done some basic google searches, but have not come up with anything good.
Meanwhile, original identity is in tact, FICO in the 800s, buys the “pimp” house, in cash, at the rock bottom price of 50% of last sale (to identity #2).
Anyone else think this is possible?
——————————————–
Randy “Duke” Cunningham probably does.
some quick and dirty math:
Loan original $700,000
Added Principle @ 6.25% 12 mos 43,750
Loan total 743,750
sales price 600,000
less sales costs (6%) 36,000
proceeds 564,000
loan forgiveness 179,000
combined fed & state rate .37
tax bill 66,230
if i was this guy, i’d drive to the vet and have myself put to sleep.
Bubble Butt, just when I think the OC market is cooling off I keep getting mixed signals. Condos in our tract in Irvine (Westpark) are still selling, albeit at a slower pace. Prices and inventory have been about the same. Worse yet, I posted here last week how I went to check out some new development called Villages of Columbus on the old Tustin Air Base…figured it would be dead but there were dozens of people swarming around these McMansions on zero-lot lines. The cheapest places started at 900k, had a nice view of the Waste Management facility next door AND were SOLD OUT! Luckily for us they have some 1.2 mil ones still available..Whew! Mind you, this development is smack dab in the middle of some major cross-streets in Irvine…Jamboree, Barranca, and Harvard.
Don Bauder, the author of this piece in the San Diego Reader, was for many years the Financial Editor of the San Diego Union Tribune. Bauder left the Union several years ago, and has been writing a weekly column for the Reader.
Bauder’s speciality has been in the cons and scams for which San Diego (aka “Enron by the Sea”) is widely known. As one example, Bauder documented the J. David Dominelli pyramid scheme in “Captain Money and the Golden Girl: The J. David Affair”, which was based in La Jolla.
It should be very enlightening to read Bauder’s columns in next few months, documenting the coming debacle in San Diego housing.
Check out today’s issue (Feb 13 dated) of Businessweek. This blog gets a mention on page 14, along with a great quote from our own Mr. D!
When total sales drop and prices are not reflecting a drop what is happening is the bell curve of buyers has shifted to the left (lower prices) - sellers will have to lower prices to sell. Buyers are plentiful at some right price.
OCKurt:
I know where that is. Right next to the blimp hangars right? Our carpool has a guy that lives close to there in Tustin. As far as mixed signals, there is big mix of Asian and Mid Easterners buying in that area probably propping it up(got some people in my office who are and have family buying there). I still think once this starts picking up momentum you will see everyone in OC on the sidelines. Remember that as long as the housing market stalls and refinancing drys up and the Fed keeps raising ratesup alot of the mtg. industry here will be hurting. Layoffs will continue to grow and eventually the OC economy will start to feel the pain like the Wash and NE area are feeling………
A client of ours…the last deal he closed was November 05′. Getting very freaked out and indicated that he’s considering working for a title company. My wife, to his dismay, informed the him that she heard the title company in question,just laid off a couple sales reps.
These folks LIVED LARGE over the last year or so. VERY large. Vacations, new boat, local Casino’s, Vegas twice. We always cautioned them….save for a rainy day. They always poked fun at me with my 11 yr old dirty minivan with a broken rear tail-light courtesy of my son emulating a Randy Johnson fastball.
Now,instead of a rainy day, perhaps it’s going to be a Hurricane. Their financial situation is like being in a Hurricane with no shelter, food or emergency PLAN.
As much as I want to help them out, I’ve got my own family to worry about. It sucks. Boy oh boy.
If you have a few bucks saved I predict you’ll be able to upgrade your minivan real soon now :).
just came across some interesting info from the only high rise condo project in irvine orange county calif. checked the MLS and The Marquee Park Place project on Michelson has 18 resale units available for sale from $778,000 to $1,350,000. None (per MLS) have been put into escrow). It looks like about 17 of the units are vacant. most of the units were put on the market after the first of the year. looks like a lot flipping is going on.
Yup….I was in a brand new neighborhood in Irvine on Sunday (Woodbury) there are at least three or four sets of model homes for sale but at the same time there were two open houses for “resale” homes……selling within six months is never planned.
Bubble Butt, yeah, right next to the blimp hangars. Funny you mention the mix of people…I noticed that as well…many didn’t speak any English either. I also thought it was odd that these people were acting like these serious buyers for these $1 mil+ homes…like it’s no big deal…maybe I’m just not making enough $$$..
I think as rates keep going up, more and more buyers will be forced to the sidelines and this market will crater under its own weight. But I heard the mortgage industry has a 50 yr loan now…
The Daily Transcript, a Real Estate whore publication, has always stated RE prices would not go down. Most of their revenue seems to be RE adds. Today they have this piece that admits that the housing market is cooling. A first for this newspaper.
Link Here
Ockurt and bubble butt….
I have friends in the OC, and they say the same thing….LOTS of asians buying. They think I’m crazy when I say that things are slowing down. I know of 3 people that sold placed within 10 days there. Lots of asian and foreign money coming in.
I was talking to some people at a superbowl party, and one of the people (re agent) sold 10 houses last month. I think that Orange County is behind the power curve that San Diego is leading.
I’m just amazed at many of the houses that people will pay 700k+ for! Stuff in Garden Grove, Placentia, Santa Ana, etc. Each of these areas have their nice parts…but I’m talking about older, run of the mill homes that have NOTHING special abou them. Lots of money!
SoCalMtgGuy
Another F@CKED Borrower
FB FORUMS
I just noticed I used the word “these” way too many times in my previous post. My apologies…too much vodka this evening
alright oc, wherjuget the smilies?
OK, let’s try the standard wordpress set. (Replacing ‘:’ with ‘#’ for display purposes.)
#) - :), #D - :D, #( - :(, #o - :o, #lol: -
So far so good,
#???: - :???:, #cool: - :cool:, #mad: - :mad:, #razz: - :razz:, #oops: - :oops:, #cry: - :cry:, #evil: - :evil:, #twisted: -
Last group,
#roll: - :roll:, #wink: - :wink:, #!: - :!:, #idea: - :idea:, #arrow: - :arrow:, #neutral: - :neutral:, #mrgreen: -
Ohhhhh. Did someone say “SILENT?”
# cereal Says:
February 7th, 2006 at 4:34 pm
some quick and dirty math:
——————————————
So cereal, are you telling us that like Al Capone, it is the tax man who will end the fun for FBs?
i just typed in a normal text smiley and it came up…kind of surprised me too
What’s up SoCalMtgGuy…yeah, seems like a repeat of the last boom around here when the Japanese were buying everything…now it’s the Chinese and Koreans…
It’s crazy how pricey it’s gotten. When I saw a listing for a 2500 sq. ft. tract home in Westmonster for 900k (that’s Westminster to non-OC folk) I almost had a heart attack :O
One thing realtors can do for this country is selling those 400% overvalued homes to Chinese and Koreans. The Fed should keep track of how many of them are sold to overseas investors to decide when to pull the plug.
Sell them 1M of those $1M homes and then see them lose 80% or $800B. There is no better way to reduce trade deficits than selling them bubbles.
ockurt,
I know exactly where Westmonster is. Absolutely NOTHING special at all about many of these areas. I don’t think most people even associate them with ‘orange county’…but they are.
It will be interesting to see if the ‘beast’ really is invincible to a downturn
SoCalMtgGuy
Another F@CKED Borrower
FB FORUMS
I live and rent in Irvine and just decided to check out the new Avenue One by K Hovnanian, the new 400 unit high rise town home condominimum on busy Jamboree. When I arrived I asked how sales were going and was told that only 11 units remained from its opening two weeks ago. However after further investigation that was just the first phase of 25 units so it is a rather small number. I toured the three models that ranged from 725 Sq. Ft. to a whopping 846 Sq. Ft. Prices from $475,787 to $494,106. In my opinion they were nothing but expanded hotel rooms with a kitchen and small master suite 11.5′ x 12.10′. and they call these a home…….
If these sell out it will confirm my belief in the greater fool theory and P.T. Barnum as Comander in Chief.
“Westmonster”? I thought it was “Wasteminster.”
My wife is the queen of mangled OC placenames. Anaslime, Costa Messy, Garbage Grove, etc.
Forget about the baby boomers and wealthy s. americans, maybe we can eliminate our asian trade deficit by exporting the bubble.
To OCkurt or anyone that lives in or Near Irvine. I heard that there is a rumor that Compass bank and Bank of America in Texas and SOCal are instructing their employees to respond to questions about their assets in the event of an economic collapse.
Do you know anything of this or is this hot air. I guess one way to find out would be to go in a BoA in Irvine and ask the question..
OK, someone please tell me that the market in Orange County isn’t going to have ANOTHER strong year. I know there are some good stats folks on this blog, so please help! I got completely out of the California market 6 months ago and invested in NNN fast food properties in Iowa and Tenn that are yielding 9.5% caps. I thought this was a safe bet since the all the investment ratios in OC are totally out of wack. Maybe I was wrong, but I can’t believe this insanity will last another year in OC.
San Diego condos for everyone!
Bob the Banker:
The topic of recourse versus non-recourse loans in CA has been beaten to death at least 3 times on the blog prior to Ben’s glorious migration to a better platform.
Given the uncertain nature of the archives here is a quick rehash of what had been already covered.
CA has non-recourse loans for purchase money only.
If the property has been refinanced, the loan has recourse.
80/20 piggyback financing or the other derivatives (90/10 & 95/5) are also recourse loans. Essentially the 2nd is considered a refinancing.
Very few bubble buyers are putting 20% down or paying PMI (it’s cheaper to do an 80/20 piggyback in most cases).
Hence most buyers have recourse loans.
Despite California haters liking to make a big deal about Californians ability to mail the keys back to the bank. That is simply not the case in this cycle.
Oh yeah and as others have mentioned any forgiven amounts are income that the IRS will collect taxes on.
Not only all of that the new bankruptcy laws state that if the petitioner has an above statewide median income liquidation is not an option, here comes a 5 year payment plan (indentured servitude). (don’t have the BK law chapters memorized 7 or 13)
Laguna Beach Investor:
See Auction Heaven in 2007’s comments above.
The OC inventory explosion pretty much assures a turning point in RE prices, unless economic principles such as supply and demand are different this time.
See: OC Renter’s blog with inventory tracking (on the links above)
http://forum.truthout.org/blog/story/2006/1/25/184329/979
The thing about this crash is that the regular Joe in San Diego is so mum about what’s going on. It’s like no one wants to face reality.
The bubble is bursting in SD!
Unfortunately, I have at least 2 friends wanting to sell their homes. One put theirs on the market… but withdrew it after receiving minimal interest at her asking price. This was this past fall. The second is more motivated… it’s a combination of financial challenge and being locked into a job that’s not been as fun as it used to be with a new manager.
thomas, classic!
dennis, yeah, those Ave One units seem like a rip-off. Glorified hotel rooms probably with underground parking. Guess since they are new they can charge that. I would rather buy on the resale market.
dude, I think you’ll get screwed on those triple net fast food properties in Bum F@ck, Iowa.
Bad move.
Thanks for the reply Sunsetbeachguy. I looked at all the posts in this thread and didn’t see a post from Auction Heaven in 2007. Also looked for the OC Renter’s blog in the links on the upper right of this page, and didn’t find either. Maybe I am blind. Is OC Renter on blogger.com?
If you can post links that would be great.
Thanks….
“The topic of recourse versus non-recourse loans in CA has been beaten to death at least 3 times on the blog prior to Ben’s glorious migration to a better platform.”
So how will people who are upside down in their homes, who can’t make the payments be able to sell?
Are we talking suicidal solutions? or are there other means to escape?
My friends in OC and LA have scoffed at almost everything I have described to them of the housing market over the past 3 years, until recently. After watching some RE news blurb on tv one day, I got a call from one of them. “Wow, the market really IS messed up in San Diego!” From which they jumped to the “good thing that won’t happen here because we bought in a good area” rhetoric. I guess I can thank Fox news for at least that much.
They still feel that they are living in a perpetual money machine that happens to have a garage. I remind them that SD was just the first to boom and start to decline. LA/OC’s turn is coming. The inventory is starting to build, but doesn’t look as silly as SD’s or Phoenix yet.
They’re now watching sales in their neighborhood if nothing else. I hope they are able to still afford their house when their ARM adjusts soon. Again, they just don’t see a problem… yet.
OT: A laugh from this past weekend. Driving through one area on Saturday, there was at least one Open House sign or more on every corner on a one mile stretch of a busy street. A little later, I noticed that most of the realtors had pulled the signs and it was only early afternoon!
My wife is the queen of mangled OC placenames. Anaslime, Costa Messy, Garbage Grove, etc.
San Diego has some good ones as well (courtesy of my uncouth siblings):
Rancho Penasquitos = Rancho Pinch-yer-penis
Escondido = Escondildo
San Marcos = San Mucus
Oceanside = Oceanslime
Don’t forget about:
Encinitas = Encineedless
Leucadia = Leuhate-tia
Rancho Santa Fe = Rancho Santa Fake
Sunsetbeachguy,
If someone takes out an 80/20 loan to buy, are both the first and the second recourse loans, or is only the second 20% a recourse loan?
Cereal - you just crack me up! I love you man.
A prayer for those in So. Cal.–let’s join hands for them, all together now….
“Our father, who art in heaven…..
The burgeoning demand for princely quarters has caused house prices to surge in many exclusive towns, especially on the East and West coasts. The average sale price of a home in Bradbury, Calif., a Los Angeles suburb, has in the past year gone from $459,000 to $610,000, according to a survey by the nationwide broker network of RELO, a Chicago-based relocation service. In Greenwich, Conn., northeast of Manhattan, the average cost has skyrocketed incredibly, from $467,500 to $1.2 million since the summer. Prices are not rising that fast in heartland suburbs, but almost every region of the U.S. has a strong luxury-housing market…
So who can afford the million-dollar tags on today’s luxury homes? Plenty of people, it turns out. In addition to such traditional mansion buyers as movie stars and corporate magnates, there are fresh legions of investment bankers and lawyers who have made a killing on the merger frenzy…
The economic trends, meanwhile, are being reinforced by demographic and political forces. Hordes of young people who make up the giant postwar baby- boom generation are reaching the ages of 35 to 40 and coming into their peak earning years. The wealthiest boomers are now able and eager to buy luxury homes…
Demand for lavish homes has helped bring feverish inflation to the broad housing market. In just a three-month period, between April and July, the average price of all new single-family homes sold in the U.S. jumped nearly 10%, to $129,200. While the total number of freshly built single-family houses sold last year rose by 9% from 1985…
Sound Familiar?
Time Magazine - September 21, 1987
“What, No Pool In the Foyer?
Keeping up with the Joneses, 1987 style”
http://tinyurl.com/acxvz
Back to the original topic, San Diego……..”In the early 1990s, home prices plunged 5 to 10 percent in the low and middle ranges and 20 to 25 percent at the high end. But there was an aerospace bust then, and nothing like that is in sight now. ”
How many people were employed in aerospace that it brought down real estate? Aren’t a larger percent of San Diego jobs now related to the housing boom? I’m relatively new to San Diego, so I don’t know what it was like here just before the last downturn.
Matt Fletcher Says:
So how will people who are upside down in their homes, who can’t make the payments be able to sell?
Are we talking suicidal solutions? or are there other means to escape?
With the new BK laws I believe the only way to escape is through a medical release. A new cottage industry of quack doctors may very well spring up to handle these. Of course, these quacks would be putting their licenses on the line.
Other than that, the recipe is:
1. default
2. foreclosure
3. bankruptcy
4. irs tax lien on any forgiven debt tax due
5. indentured servitude under the new BK laws.
6. credit score shot for 10+ years
6. enjoy
San Diego Data
Nice charts. We have five years ahead to hit the bottom, if history repeats itself.
SD Slide: you cited part of Bauder’s article where I think he
is incorrect. The percentage declines were much greater -
those stats smell like something from CAR or NAR, but those
living here know prices went down much further.
Also, you are right on the money when equating the number
of jobs related to housing with the aerospace employment
situation back then. If anything, I argue real estate and
tertiary industries account for a much greater portion of
san diego’s total employment. This bubble has cannabalized
the future bigtime in terms of consumer demand.
“With the new BK laws I believe the only way to escape is through a medical release. A new cottage industry of quack doctors may very well spring up to handle these. Of course, these quacks would be putting their licenses on the line.”
The consensus here seems to be that a bust in real estate will hurt the people who work in the industry the most. ie. title, mortgage, inspectors, construction, builders, and agents.
So once these people are out of work and have completed the suggested course of remedy, the last tangible step is “indentured seritude.” but since these people are now unemployed, how are they going to pay back their debts? Will they be able to collect unemployment? will there be other jobs for them to find? will they even be able to find a place to rent?
After some deductive reasoning, it sounds like this whole thing could be so bad, that it will even hurt those who have lived by prudently.
Should I just take all my savings and buy all the Gold I can, a side arm with ammunition to last for years and a stash of bottled water, top ramen, and a coleman stove?
How crazy is this whole thing going to get?
it’s amazing, the bubble bursted today on Lereah and Mr. Toll.
Cereal =)
LMAO with that one.
“if i was this guy, i’d drive to the vet and have myself put to sleep.”
So once these people are out of work and have completed the suggested course of remedy, the last tangible step is “indentured seritude.” but since these people are now unemployed, how are they going to pay back their debts? Will they be able to collect unemployment? will there be other jobs for them to find? will they even be able to find a place to rent?
After some deductive reasoning, it sounds like this whole thing could be so bad, that it will even hurt those who have lived by prudently.
Should I just take all my savings and buy all the Gold I can, a side arm with ammunition to last for years and a stash of bottled water, top ramen, and a coleman stove?
How crazy is this whole thing going to get?
Yes, indentured servitude awaits the speculators. There are always going to be low-paying service McJobs available and you can bet that even those wages will be garnished. The IRS will get it’s due.
Someone mentioned that that many baby boomers will live in cheap RVs and mobile homes for their retirement and I tend to agree.
It was a great party while it lasted and now the tab needs to be paid. The musical chairs game is over.
And yes, I think gold and oil and are good investments these days.
Stucco wrote:
(Interpretation: At this rate, we will have five times as many homes on the market at the end of 2006 as we had in the beginning of the year.)
—————————————————-
Hmm, your math must be in error (sic). A year ago the ‘experts’ attributed the hugh run up in housing prices due a lack of inventory. ‘There just isn’t enough to go around’ they said. What a crock !
Interesting comments regarding foreigners, asians in particular, helping to blow up this bubble.
In Australia, foreign nationals are forbidden from buying residential real estate that is not new construction. In other words, if they aren’t adding to the existing housing stock they can’t buy it. Foreigners can’t buy resale properties, period.
Wouldn’t be a bad policy for the US to adopt.
SD slide,
The aerospace job losses were in the tens of thousands during the 90’s. One number I saw stated ~20K by 1996 for SD. That’s a lot of jobs, but looking at the numbers of people recently employed in RE, mortgage processing, and construction isn’t exactly comforting. I also have to agree that the local economy’s dependency on RE related industries doesn’t put us in a better situation. The money is coming from houses this time instead of defense spending.
… small clarification. Under certain circumstances it may be possible for foreigners to buy resale propery, but each and every case has to go before the ‘Foreign Investment Review Board’.
I have Australian/US dual nationality, in case you’re thinking of screaming racist / xenophobe.
Ducks for cover.
My bad:
OCRenters inventory blog
http://bubbletracking.blogspot.com/
Ben E’s asking price tracker
http://www.benengebreth.org/housingtracker/location/
OC added 1,000 homes to for sale inventory today.
Don Bauder, the author of the article, was the Financial Editor of the San Diego Union for about 30 years. He has since retired. I used to read him every day. He was always on top of whatever financial scams were going around, a very very savvy guy, seen it all. If anyone has the pulse of the bubble in San Diego it is Don.
Hey OC! How much in HOA fees do those Irvine builders want from you for the rest of your life on top of your $500K mortgage for your 800 sq ft condo?
and I heard Irvine schools have good math scores?
Oops! I see Img already posted this.
——————————————-
I was driving around all the new construction in east Chula Vista today, KB Homes is going like gangbusters.
Just to clarify some things.
The Villages of Columbus homes were for sale in mid-summer. When I strolled through the 1 million plus homes I was not impressed. They were sold out at that time. Looking through the models I only ran into middle eastern families and asians. In fact a very stylish middle eastern couple pulled up in their Ferrari while I was there. My husband and I also saw a rat in the garage of one of the models.
I grew up in Westminster. My experience as an adult and living in Hunington Beach with children going to school in Fountain Valley is no different than Westminster. Some neighborhoods are great some are awful.
One short comment on the non-recourse nature of some real estate loans in California. Seller carryback secured financing here in California limits the seller remedy to foreclosure and does not allow the seller to chase the purchaser after foreclosure. Doesn’t matter whether the foreclosure is judicial or non-judicial. Doesn’t matter if the property is non-residential.
When a lender elects to proceed utilizing a non-judicial foreclosure process (CalCivCode Section 2924b), and completes the non-judicial foreclosure sale, the lender looses the right (assuming there was one) to chase the borrower.
In terms of a sale, where you have an 80% first and a 20% second, if the second is also a purchase money loan and we are talking residential property, I would suggest that the second does not loose its purchase money loan status, thus eliminating the ability of the lender to chase the borrower and obtain a personal judgment.
FROM REALTY.com on Phoenix market:
Approaching 30,000 homes for sale, including single family, condos, and town homes, and with interest rates steadily rising, this market has done a complete 180! Last year at this time there was half as many listings, and the market was on its way to becoming one of the strongest seller’s markets in history. Those days are over, and instead of buyers having to decide how much over asking price they should offer, they now are wondering on which of the 20 houses they’ve seen should they make an offer and for how much under list price.
Many sellers are still not in touch with the reality of today’s market and are pricing their homes like theirs is the only one for sale. That is why we are seeing one price reduction after another, and instead of homes staying on the market for one or two days, we are seeing 30, 60, and 90+ days depending on the area and price range.
Investors are now dumping their properties as eagerly as they were gobbling them up at the same time last year. This is one of the reasons there are so many vacant homes for sale. Instead of bringing the price of housing up as they did last year, they are now bringing it down as they create a much great supply than there is demand.
We’ll see what happens as the strong spring and summer seasons approach and those families looking to move before the start of the new school season begin to come out. Yes, that does mean more buyers, but it also means more sellers!
Relocations and winter visitors, most of whom are from the East Coast and California, are still coming in, and as somebody who works with a lot of second home buyers and relos, I predict they will continue to help keep our market somewhat strong. They are coming in with a lot of cash and the rising interest rates are not affecting them.
Although our real estate market is not nearly as affordable for first-time buyers or those already living in Phoenix (affordability index is way down), not much has changed for those cashing out of their more expensive homes in other parts of the country.
The softening of the market is not only happening here though. It is going on nationwide, so there is no need to panic!
Market Conditions for Phoenix, Arizona
Reported by Jill Samuelson, REALTOR
As of February 7, 2006.
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Missed this part
Stucco… I answered your questions on covered calls in the TOLL thread from this morning…
OC Dude. I don’t know how I got screwed on the NNN deals I mentioned. One is a Pizza Hut that I paid all cash for that is directly across the main access road from the biggest regional mall in the Omaha/Council Bluffs area that is owned/run by General Growth Properties (I think one of the top 3 owners of big Shopping Malls in the U.S.). This location is operated by a financially strong 50 Unit Pizza Hit franchisee. I have a 9 year lease with two 5 year options and this Pizza Hit has been in continuos operation since 1976. It’s a dine in location, not just one of the delivery ones. By the start of the 4th year, it will be running at a 10.5% cap rate and then the NOI will go up by 2% every year after that. I purchased this property below market because it only had a year left on the existing lease with no extensions. Before I closed I had re-negotiated a new lease with the franchisee. With this new lease in place, the property should conservatively go for at least an 8.0% cap (probably lower), so I also have a built upside from the start to go along with the great income.
The second NNN deal I did is for a Captain D’s directly across from the Knoxville International Airport and very close by two huge Alcoa plants. It’s a corporate owned store that has been around since 1978. It’s a very high volume store (top 15-20%) for this chain. I am financing 65% of the purchase price on this one, and it’s starting at a 9.5% cap rate and will go up to a 10.5% cap in Sept. 2009. There are 19 years left on the lease with 2 10 year options. Most Captain D’s NNN’s like this are going for around 7.0% caps, but this store had some easement issues that the seller and other potential buyers didn’t investigate enough to realize they weren’t an issue. So again, I have a built-in upside to go with the great income.
In both cases, the biggest risk would be that interest rates go up a lot and I can’t get the upside I planned on. Unless rates go over 8-9% on 10 year notes, I don’t see taking a negative hit if I sell. Beyond this, the only other major risk is the tenants filing BK, which I think is low with these two tenants and the fact both locations are top performers.
I may be wrong, but I looked at many 100’s of commercial property types of all kinds (multifamily, office, industrial, etc.) all over the U.S. I can tell you I didn’t find anything better than this in my efforts. Also, these locations have not been part of the bubble mania that has swept over many other parts of the county.
So, now that I have described these investments in more detail, do you think I got screwed?
I would be interested what other investors out there think. I am always open to finding out things I did wrong or could do better or what are better options.
Ben,
Looking much better… really like the dividers! Still, would be nice to have the poster’s name in a different color than the post itself.
Sunset Beach Guy.
Thanks for the follow-up
I feel better now with a 1000 homes added in a day. I guess there are some folks just fighting to be the “greatest fool”.
I also think high-end locations like Laguna Beach are going to get hit hard in this downturn and won’t be spared. They didn’t get spared in the 90-96 downturn, so I don’t see why they should this time.
Ben, I looked at the inventory numbers from your site and the bubbletracking blog and there is a BIG difference. Your stats (based on the MLS) as of 2/7/06 show 5361 in inventory while bubbletracking (based on ZIPrealty) shows 9392 as on 2/7/06.
I wonder why there is such a big difference?
Use ziprealty.com. Some of those other sites don’t use all the zip codes in an area. I have found ziprealty to be the most accurate.
SoCalMtgGuy
Another F’D Borrower
FB FORUMS
Sorry, I forgot to mention for which area…. Orange County, CA.
Ben,
Love the new look.
Now we can see the separation of the comments a lot better. Thanks!
BayQT~
Smilies that can be used here:
http://codex.wordpress.org/Using_Smilies
BayQT~
Well, looks like things are starting to get dicey in bubble central (San Diego) We’ll see what DQNews has for January in the next week or so. Maybe they’ll spin more, maybe they can’t anymore. The train has past the peak and the road is probably down from here. The balance of us on this blog agree wholeheartedly that there will be a correction for sure, the unknowns are how fast, deep and when. That when may be starting now.
Robert Campbell has “been there done that”. He is a very seasoned builder who took some hard losses then had to endure several years of “famine” in the early 90’s. He spent his down time trying to figure out how he could have seen the slump coming. His book enforces a sort of “technical analysis” on market conditions and helps you tune out the media blather. You can find out a little more about the book at my bubble book page.
S-Crow,
I think the more appropriate prayer for screwed speculators starts with “Requiem aeternam dona eis, Domine.”
The non-recourse nature of purchase money loans makes the situation much more risky here in Calif, given the large number of 100% financings over the last few years. It is my understanding that this applies to first and second loans used to purchase.
Since it takes about 7% in total selling costs, the $600,000 house/condo is down by $42,000 before paying off loans. I will bet that not many people will dig into their pockets to make up any shortage in their sales.
“Campbell just heard the story about a San Marcos fellow who bought a $700,000 home in mid-2004 without putting any money down. ‘Today the home is worth $610,000. It’s $90,000 underwater,’ says Campbell.”
Hey, don’t forget to add the $50k+ fees to get into the home!