Real Estate Frenzy

[rodi]

Laurence - sounds like you did well here in San Diego if you're cash flow neutral (assuming 25% down).

There's a lot of discussion about whether this is another bubble or not, here in San Diego on Piggingtons. (A San Diego local economics/real estate message board. Piggington.com) Also the famous Jim the Realtor's blog has a lot about the recent run up in prices in North County coastal. ( http://www.bubbleinfo.com/)

Good luck and congrats on your new rental.

 

[Livefree]

My co-worker placed a bid on a 3-family in Brighton, just outside of Boston. The price was $895k. The rents were $2500 each unit. He lost out on it, as there were over 50 offers. And he bid over the asking price.

 

[lhamo]

My co-worker placed a bid on a 3-family in Brighton, just outside of Boston. The price was $895k. The rents were $2500 each unit. He lost out on it, as there were over 50 offers. And he bid over the asking price.

Could some of this be because people who have done very well in the stock market recovery are trying to find better returns and diversify as they anticipate a drop in the market? If I had $900k sitting around that I was looking for a place to put, this would look like a pretty good option to me:

2500*3*12 = 90,000/year in rent on a 900k investment = 10% nominal return.

Obviously you'd still have taxes, etc to consider but even so the cash flow looks nice if you have the money to put into it. It probably doesn't make sense from a traditional real estate investment/cash flow perspective if you don't have the cash, but if you do and if you have a fairly low cost of living it could be a really great option even at those prices (live in one unit, rent out the other two, and you're still looking at a decent 6.67% return and 60k in rent/year)

 

[brewer12345]

Could some of this be because people who have done very well in the stock market recovery are trying to find better returns and diversify as they anticipate a drop in the market?

Doubtful. TThis appears to me to be the classic retail rube scenario often seen in the equity market: They are too gutless to buy when its tough for a seller to get a bid, but when they see that things are rocketing upward they run with the rest of the lemmings to run over the cliff en masse. Herd behavior.

 

[ziggy29]

Sounds to me that the return to froth in the housing market is mostly limited to major metro areas. I don't see or hear much evidence of it in more rural areas.

 

[haha]

Doubtful. TThis appears to me to be the classic retail rube scenario often seen in the equity market: They are too gutless to buy when its tough for a seller to get a bid, but when they see that things are rocketing upward they run with the rest of the lemmings to run over the cliff en masse. Herd behavior.

And this is the way god intended it, right? I don't remember where I read this, but the suggestion was that in the absence of inside information, the best strategy was to supply liquidity to markets needing it, and withdraw liquidity when there is a surplus.

This sounds like a rather blunt strategy, but if you can do it, and you don't get too concentrated, it works. Rebalancing and dollar cost averaging are programmed minimalist ways to approach this.

Ha

 

[brewer12345]

And this is the way god intended it, right? I don't remember where I read this, but the suggestion was that in the absence of inside information, the best strategy was to supply liquidity to markets needing it, and withdraw liquidity when there is a surplus.

This sounds like a rather blunt strategy, but if you can do it, and you don't get too concentrated, it works. Rebalancing and dollar cost averaging are programmed minimalist ways to approach this.

Ha

No argument from me. I love liquidity constrained markets as a buyer and I love an excess of liquidity when I am a seller.

 

[daylatedollarshort]

We are in a frenzy market. We want to downsize and move somewhere cheaper outside the metro area within a few years. We have been thinking of speeding up the process with prices so crazy high.

Using your crystal balls, do you think now is a good time to sell? Or would you hold out a bit longer for prices to go up even more if your selling date was optional?

 

[haha]

We are in a frenzy market. We want to downsize and move somewhere cheaper outside the metro area within a few years. We have been thinking of speeding up the process with prices so crazy high.

Using your crystal balls, do you think now is a good time to sell? Or would you hold out a bit longer for prices to go up even more if your selling date was optional?

Not expert enough to offer advice, but I will make an observation. Mt Bernanke is scaring the bond and equity markets. If he really does pull back, and not just talk about it, it will also cause mortgage rates to rise. This can stimulate sales, at least temporarily, by making potential buyers think "it's now or never, let's buy while we can!" But eventually higher mortgage rates will kill the real estate rally.

Also, if you really want advice, anyone willing to offer it would need to know where you live, what the characteristics of your home and market are, etc.

Ha

 

[kramer]

Kramer, literally a street away from the La Costa border.

If she's still underwater, short sales are very difficult. It's the traditional sales that are getting swamped with offers. But if she only paid $303k she shouldn't be underwater anymore. We nearly offered on a 2 bedroom in La Costa (1000 sq feet) that only had a car port vs. garage that was just under 300k.

But if it's a 2 bedroom, 1 bath with just an assigned parking spot, it's probably getting a lot less attention. Another place we bid on was a 2 bedroom, 2.5 bath, 1150 sq feet but it had an attached 2 car garage and was walking distance from the university (San Marcos). It sold for 315k.

She said it is worth $280,000 and she owes $320,000. Apparently, she had a home equity loan at some point. It is a nice 2 bedroom, 2 bathroom townhome not far off of Alga avenue (which is maybe half mile north of La Costa Avenue). I can't remember how far inland from El Camino Real, maybe a couple of miles? I think she paid $303,000 in 2003. I know she remodeled the kitchen and it is nice. It has its own closed garage, connected the the unit. She cannot refinance, all at 6% interest. It is at 4 different levels, counting the garage. Stairs up from the garage to the living room area, then you have to step up 3 or 4 stairs to the dining room, kitchen, bathroom and bedroom. Then there are stairs up to the main bedroom and bathroom. I never liked all those stairs.

I guess this gives insight into some of the sellers' situations. She is still trapped there. She has no liquid money, typical non-saver.

 

[Maenad]

Twin cities market is pretty hot too.

I had a feeling this was the case. I live in a pretty upscale neighborhood (inherited house from LBYM parents), and we've recently seen a number of For Sale signs go up. I was just remarking to DH that the housing market must be recovering, and people are rushing to sell now that they can get what they feel their houses are worth. Methinks our property taxes will be increasing in 2015. C'est la vie.

 

[daylatedollarshort]

Not expert enough to offer advice, but I will make an observation. Mt Bernanke is scaring the bond and equity markets. If he really does pull back, and not just talk about it, it will also cause mortgage rates to rise. This can stimulate sales, at least temporarily, by making potential buyers think "it's now or never, let's buy while we can!" But eventually higher mortgage rates will kill the real estate rally.

Those are all great points. I think mortgage rates starting to go up is making some real estate markets crazy. I wonder how high they will have to go before sales and prices start tapering off. It would be great to sell at the peak.

 

[laurence]

She said it is worth $280,000 and she owes $320,000. Apparently, she had a home equity loan at some point. It is a nice 2 bedroom, 2 bathroom townhome not far off of Alga avenue (which is maybe half mile north of La Costa Avenue). I can't remember how far inland from El Camino Real, maybe a couple of miles? I think she paid $303,000 in 2003. I know she remodeled the kitchen and it is nice. It has its own closed garage, connected the the unit. She cannot refinance, all at 6% interest. It is at 4 different levels, counting the garage. Stairs up from the garage to the living room area, then you have to step up 3 or 4 stairs to the dining room, kitchen, bathroom and bedroom. Then there are stairs up to the main bedroom and bathroom. I never liked all those stairs.

I guess this gives insight into some of the sellers' situations. She is still trapped there. She has no liquid money, typical non-saver.

Sorry to get back to you so late, life is a lot busier these years. Wow, that's really, really close to the place I picked up. The border of La Costa is across the street from my place. But I'm in the "poorer" zip code. She has a superior "product" to the 2 bedroom I bid on next to her. Zillow may say $280k but appraisals and robo-appraisals like that are way behind the market realities. I'm certain she could get out from under the property if she listed for $330k.

Here's a closing in her 'hood:

http://www.sdlookup.com/MLS-130014393-2323_Caringa_Way_12_Carlsbad_CA_92009

 

[laurence]

Laurence - sounds like you did well here in San Diego if you're cash flow neutral (assuming 25% down).

There's a lot of discussion about whether this is another bubble or not, here in San Diego on Piggingtons. (A San Diego local economics/real estate message board. Piggington.com) Also the famous Jim the Realtor's blog has a lot about the recent run up in prices in North County coastal. ( bubbleinfo.com | An insider's guide to North San Diego County Real Estate | Klinge Realty Blog by Jim Klinge)

Good luck and congrats on your new rental.

Thanks! I've been to those sites before but it's been a long time. Yes, 25% down. 20% has SO MANY PENALTIES! Almost half the extra down payment was recouped from the eliminated fees/points, and it all goes to the principle to boot. Probably one of the biggest things I learned out of this was investement property is so different than owner occupied. I've never been so scrutinized before, normally we are treated like royalty.

 

[gerntz]

Are we talking townhomes or tulips?

 

[laurence]

Are we talking townhomes or tulips?

Hey my Dutch Merchant says they are a can't lose proposition.

 

[kramer]

Sorry to get back to you so late, life is a lot busier these years. Wow, that's really, really close to the place I picked up. The border of La Costa is across the street from my place. But I'm in the "poorer" zip code. She has a superior "product" to the 2 bedroom I bid on next to her. Zillow may say $280k but appraisals and robo-appraisals like that are way behind the market realities. I'm certain she could get out from under the property if she listed for $330k.

Here's a closing in her 'hood:

SDLookup.com | 2323 Caringa Way #12 - MLS# 130014393

Thanks, I just sent it to her. That is indeed close by. And the same place sold for $240K in February!! I assume that that was a bank sale (the previous owner was underwater after a 9 year holding period) and then it was bought by an investor and flipped almost immediately for a huge profit.

 

[laurence]

Cash is king, those who are in a position to do so have made a killing this Spring. I would say the market has begun to level off (you know this because now the newspapers are starting to say, "Real Estate is getting hot!" they are always so behind). It's still moving up, but it's moving up more slowly. It may just be a breather, though.

 

[Gatordoc50]

Cash is king, those who are in a position to do so have made a killing this Spring. I would say the market has begun to level off (you know this because now the newspapers are starting to say, "Real Estate is getting hot!" they are always so behind). It's still moving up, but it's moving up more slowly. It may just be a breather, though.

South Florida homes have been selling but I am noticing an influx of foreclosures on the low end. Also, I hadn't paid much attention to commercial, so I was surprised to see it at about half the value as in 2010. I believe that the struggling housing story, at least in the hardest hit areas, remains to be written.

 

[daylatedollarshort]

I saw a townhouse bought within the last year for ~$400K being flipped for ~$600K just months later. 50% increase in 6 months? I view that as a bubble sign. It reminded me of the stories about tulip mania. There are still a lot of homes in foreclosure on the local real estate sites, so I just don't see the crazy home prices lasting, especially with mortgage rates going up.

 

[P.S.]

I saw a townhouse bought within the last year for ~$400K being flipped for ~$600K just months later. 50% increase in 6 months? I view that as a bubble sign. It reminded me of the stories about tulip mania. There are still a lot of homes in foreclosure on the local real estate sites, so I just don't see the crazy home prices lasting, especially with mortgage rates going up.

DB and wife have been "trying" to buy in their SF neighborhood, but keep losing out to all cash offers. One home billed as fixer up was bought, painted only, then resold 3 mo later for $500k more!

 

[anethum]

The real estate frenzy has gotten much worse in the DC area this year. Condo, row house, & house prices in DC are crazy, even in some so-so neighborhoods. In desirable close-in suburbs in VA & MD, older houses are routinely torn down and replaced with McMansions. After the last bubble burst, homes inside-the-Beltway would still sell readily but at reduced prices. Now prices are higher than they were at the top of the last bubble. After the last bubble burst, developers continued to buy older houses in desirable suburbs and tore them down, but they wouldn't start construction on the McMansion until there was a buyer. Now they're building on spec again. I read a recent article about developers and real estate agents approaching retired folks living in old houses in Arlington, VA, to attempt to woo them to sell. One small, old house in suburban MD, just 1,050 sq. ft on a 5,000 ft lot near a Metro station, was advertised recently as a tear-down for $1 million. It had a contract almost immediately. The developer who bought it wants $2.4 million for a new 4,600 sq. ft. house they'll be building.

 

[laurence]

Phew, sounds nuts. This place is for cash flow via rental only, I'm not smart enough to speculate. Nords put it best when he said, "Ah, your exit strategy is probate!" Indeed. As a 38 year old, I can afford to wait.

 

[MooreBonds]

Now prices are higher than they were at the top of the last bubble.

But remember - interest rates are, what, 33% (or even more) lower than at the top of the last bubble. That makes affordability (for that particular buyer) even greater when looked at on a mortgage payment basis. Sure, more people may be priced out due to lenders requiring 20%+ down and a stronger credit score, but for those that can afford it, having an interest rate on a 30 year mortgage at 3.5% vs 4.5% or 5% is a huge difference.

And perhaps people are starting to realize that this is getting closer to the 11th hour for a truly once-in-a-lifetime opportunity to get a 30 year mortgage at this rate before rates start ratcheting up, and there's a larger influx of people all of a sudden wanting to buy, just as the inventory of homes is steadily decreasing as more people wait for higher prices before moving.