Prediction: California Real Estate

[laurence]

I must live in a different universe than others, San Diego (that dumpy town nobody likes) is down as much as 40%, foreclosures are everywhere. There are no bidding wars, there are no waiting lists. There are markets where the prices haven't gone down much, if at all, but they also didn't grow much, if at all, during the boom!

If you have cash and good credit, I think there are some rental opportunities here, though. People gotta live someplace. Those who were prudent can be well rewarded with the perfect storm of slashed home prices, rental rates on the rise, and mortgage rates through the floor. My aunt has bought some condos and has them all rented out now making positive cash flow.

 

[tryan]

Neighborhoodscout .com

Interesting site ... now I understand how you're picking your cherries. I tried a few areas I knew well. Appreciation rates seemed in line with expectations. Obviously I don't see any value in buying HIGH (which is exactly what the result of this excercise is) ... but we can agree to disagree.

Also not to nit-pick, but the annual appreciation calculations are not compounded returns. If we're comparing apples to apples (i.e. RE to other investments) ... a compounded return would be useful.

 

[honobob]

While this may have been true six years ago, it no longer is. Even in desirable areas properties that would have sold in a day six years ago (or a year and a half ago) are sitting on the market for months with no offers. A lot of this is due to inflated sellers' expectations, but it also reflects a shift in buyers' attitudes as well.

I am only speaking of SF when I say CA. This is interesting from 8 months ago.

The San Francisco Real Estate Blog

I chedked the 2939 Divisadero property. Sales history was 6/91 sale for $945,000/ 11/93 resale at $1,310,000 and the sale mentioned on an asking price of under $4mil was $5,050,000. That's about 16years of compounded appreciation at 11%. 2848 Union sold 10/94 for $1,4275,000 / resale 6/05 for $4,275,000 (10.3% compounded appreciation) and again sold AND CLOSED in less than 15 days at $5,000,000!!

 

[honobob]

Interesting site ... now I understand how you're picking your cherries. I tried a few areas I knew well. Appreciation rates seemed in line with expectations. Obviously I don't see any value in buying HIGH (which is exactly what the result of this excercise is) ... but we can agree to disagree.

Also not to nit-pick, but the annual appreciation calculations are not compounded returns. If we're comparing apples to apples (i.e. RE to other investments) ... a compounded return would be useful.

Why would I pick lemons when I want something sweet? I don't buy high, I buy high appreciation. Big difference.

Hey nit-pick. I've always disclosed what I am reporting, compounded or not.
Why don't you do the math for us? 24% average annual vs. 7% compounded.
Please also adjust for leverage or explain how YOU leverage in other investments long term with fixed carrying costs. I'd like to see them apples!

 

[laurence]

"The composite 10-city November '09 contract is currently trading 12% below its October '08 level. San Francisco is expected to fall the most in 2009 at -18%, followed by Los Angeles (-16.6%), and Las Vegas (-13%). The rest of the cities are expected to fall less than the composite, with Boston home prices expected to fall the least at -6%. Miami, Denver, DC, and San Diego are all expected to see home prices fall by less than 10% from 10/08 to 11/09."

Estimated Change in Home Prices -- Seeking Alpha

 

[samclem]

"The composite 10-city November '09 contract is currently trading 12% below its October '08 level. San Francisco is expected to fall the most in 2009 at -18%, followed by Los Angeles (-16.6%), and Las Vegas (-13%). The rest of the cities are expected to fall less than the composite, with Boston home prices expected to fall the least at -6%. Miami, Denver, DC, and San Diego are all expected to see home prices fall by less than 10% from 10/08 to 11/09."

Estimated Change in Home Prices -- Seeking Alpha

Sure, sure, but these numbers are for entire cities! If you know the secret you can screen data available on the internet to find the neighborhoods that will continue to appreciate for decades. Then, you just have to totally immerse yourself in those handful of neighborhoods so you know exactly what a house should sell for--it's not hard, you just need to know who the bad neighbrs are so you don't buy next door. Drive around, ask the neighbor kids which houses aren't well kept, look for any unkempt cars in the driveways, peek over the back fence to see if the weeds are high, etc. Check the tax rolls to see if anyone is behind on their payments--you don't want to buy a house next door to an impending foreclosure! It only takes a few hours a day. Then, when a property goes up for sale (gotta keep in contact with your network to find the good ones before they are listed publicly) you sweep in and buy it cheap. Then the real work begins. . . but it's really not "work" or a "job" or a "business", because you are an "INVESTOR" living the good life.

 

[NW-Bound]

Argh. I'd rather spend time pondering the answer to the "circumferencialist" challenge.

 

[laurence]

LOL - where can I sign up for your seminar, Samclem?

 

[Shawn]

I bought my house in the San Francisco Bay area for 185K. That was 10 years ago. Today, it's worth about 450K. The fact that it could have sold for 550K two years ago doesn't change the fact that it's appreciated an average of 9%/yr over the last ten years. I realize that this is mostly a paper increase since the gain would be offset by inflated prices if I sold and moved to a new place.

While it's true that some people had the misfortune to buy at the peak or buy more than they could afford, I don't believe my situation is too different than the vast majority of homeowners. It's a non-issue for most people. For first time buyers, it's an opportunity.

 

[NW-Bound]

I must live in a different universe than others, San Diego (that dumpy town nobody likes) is down as much as 40%, foreclosures are everywhere. There are no bidding wars, there are no waiting lists. There are markets where the prices haven't gone down much, if at all, but they also didn't grow much, if at all, during the boom!

If you have cash and good credit, I think there are some rental opportunities here, though. People gotta live someplace. Those who were prudent can be well rewarded with the perfect storm of slashed home prices, rental rates on the rise, and mortgage rates through the floor. My aunt has bought some condos and has them all rented out now making positive cash flow.

Well, people still like San Diego and vicinity, but they like it less than before. Or rather, they do not like it enough to trade an arm or leg for it.

My sister-in-law bought a 2nd home, a 2-bedroom condo, in Chula Vista, Otay/East Lake area, south of San Diego in 2006 or perhaps early 2007. I said they should wait a bit, but her husband was anxious, saying the price was low enough. He had failed earlier to put a bid on a few condos, despite getting in line in the early morning outside the RE sales office.

For less than what they paid (low $400K), they can now get a 4-bedroom single family home, not a condo, in the same area, built in the same year.

House prices are quite reasonable now, that I would be tempted, if I did not have 2 homes already. If the purchase is for your first or only home, I second Laurence that now is as good a time as any.

PS. No, I take that back. Not in CA. Sorry Laurence, but I forgot about this thing called Mello-Roos that could eat you alive. If I work and live there, it is a different situation than as a purely optional 2nd home.

 

[laurence]

There are plenty of places without mello-roos, and mine are about $140/month, and will expire in 9 years. One definitely must consider the total cost of ownership. Having prop 13 to cap your real estate tax also helps.

My nice but not spectacular new (when I bought it) 3 bedroom 2.5 bath home in north county west of the 15 near a top 100 elementary school was purchased for 274k in summer 2001, peaked at 580k and is down to 350k. That's about a....why...it's about a 4% increase per year! That can't be right.

 

[Nords]

LOL - where can I sign up for your seminar, Samclem?

I'm pretty sure there's a link from Rob Bennett's "Passion Savings" website... or maybe that's Kiyosaki's team approach to investing?