June 2012 Resale Data Rodeo

Submitted by Rich Toscano on July 15, 2012 - 6:40pm
It was more of the same last month, as months of inventory remained very low:



...and prices (as measured by the median price per square foot) continued to rise:



These two trends are tied together on this next chart, which shows that months of inventory (inverted on the blue line) has done a good job of predicting price changes (red line):



While we are now approaching the weaker part of the calendar year, the trend towards tightening inventory continues:



...and months of inventory as pictured in the first chart remains near multi-year lows.  Unless something rather drastic changes, this implies further upward price pressure in the months ahead.

More charts below...



















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Submitted by an on August 1, 2012 - 9:02pm.

spdrun wrote:
Whereas having rentals capping at 7-8% will put you FURTHER ahead. Parity does nothing for you if you lose your day job, whereas with rentals or a primary that rents at a profit, you could at least have a trickle of income.

Running the numbers doesn't pan out the way you're assuming. Using that same example, because it's cheaper by ~$850/month buying vs rent after tax deduction, after ~17 years, you'd be able to save up $150k. Which will allow you to buy the same amount of investment properties as you would have if you rent and take the $150k to buy x amount of investment properties. This is assuming 7% cap rate on the $140k of investment properties and 2% yearly rent increase. So, assuming the one who buy won't buy investment properties until he save up the $150k (after 17 years), after 17 years, the one who rent and the one who buy will be at parity. After 17 years, the one who bought will blow past the one who rent. After 30 years, the one who bought will be ~$450k ahead, assuming he/she didn't buy anymore investment properties after 17 years. If he/she did, then the difference will be much bigger. Now, lets look past 30 years and you're in retirement by now, the one who bought 30 years ago will have a month housing expense of about $1600/month while the one who rent will have a housing expense of $7k. So, after they both die 30 years after retirement, Both will leave their heir the same amount of investment properties. However, the one who bought will amass another $4M ($3.3M in cash and $700k from the original house, assuming it depreciate by 10% over 60 years) to give to their heir (assuming no appreciation of that $3.3M over the previous 60 years). So, your assertion that the renter will be further ahead doesn't pan out. BTW, base on this example of the 2 properties I provided, they're not at parity. If you count in deduction, the buyer have about $800/month advantage and if you count in the fact you're paying down the loan, the buy would have another $800/month advantage. So, that's $1600/month advantage for the buyer. Even if you put $140k in investment property getting a cap rate of 7%, that will only decrease the advantage of the buyer by ~$800/month, so the buyer still have an advantage of $800. This is also assuming your rental goes smoothly and you don't have to spend any money fixing the place or lost rents due to change of tenants.

Submitted by spdrun on August 1, 2012 - 9:20pm.

Meanwhile, the rental property owner has a source of INCOME to fall back on if his dumb f**k of a boss fires him. Perhaps he could even move in to one of his rentals and have the others pay his expenses there.

The homeowner at near parity only has a burden. If income drops, tax breaks may mean jack-squat.

Speaking for myself, my goal is to be able to live for free and pay exactly ZERO per month for housing inside of a couple years. Property is worthless to me unless I can rent it out and actually have POSITIVE cash flow. And I'm not talking about positive flow that just pays off the principal.

Submitted by deadzone on August 1, 2012 - 10:52pm.

sdrealtor wrote:
Deadzone
$3500 is on the low side for houses like the one I sent you. A friend who moved up to LA and kept his just got $3900. I saw the new tenants moving in this morning on my run. There was a Benz in the driveway too. A friend with a slightly nicer one who moved up to RSF got $4500 for his.

I dont know when you last looked for rentals but the market went up substantially around her in the last 2 years. At least $500 on every decent 4BR with at least 2200 sq ft.

I will tell you what. I have a specific house you could buy in that price range. It would easily rent for $3500. Send me a PM with contact information, get me a pre-approval letter from a reputable lender and statements showing you have the money for the down payment. We can go see the house tomorrow morning and write up your offer on the spot! Do you want it?

BTW, in the example I sent you last night I didnt mention that the mortgage payment included $800 toward principal the very 1st month!

So do you you want it? If not, how about a $500 wager? I show you a house I can sell you in that range and show you rental comps inexcess of $3500. Is that not specific enough?

sdr, no I don't follow rental rates in that area. But I am shocked that anyone would pay over $3500 per month to rent those houses. I guess the question then is why would they do that instead of buying if price parity is as you claim? Doesn't make sense to me. But either way, I'm not interested in living in Carlsbad area so unfortunately I can't take advantage of any good deals going on there. Nice area up there but pretty much BFE for those of us who operate out of San Diego.

Submitted by sdrealtor on August 1, 2012 - 11:32pm.

A few examples come to mind. Young physicians with lots of debt and lots of income that will grow. Recently divorced with lots of income but don't want to own and be responsible for big house. Recently moved to area and not ready to commit to specific neighborhood yet. Walked away from underwater house with non recourse loan with good income. Self employed with income they can't or don't fully document. Moved to area for schools and only staying while kids in schools which is only a few more years.

Right now in this area a 4br 2200 sq ft home will run you about 3000. A couple years ago you would have gotten a 2800 sq ft home for 3000. now a 2800 sq ft home will run you 3500 or more.

The nicer newer homes over 4000 sq ft rent for 4500 and up. They have no problem finding tenants either.

Time drop the very skeptical part. It's very real.

Submitted by FormerSanDiegan on August 2, 2012 - 9:02am.

spdrun wrote:
Meanwhile, the rental property owner has a source of INCOME to fall back on if his dumb f**k of a boss fires him. Perhaps he could even move in to one of his rentals and have the others pay his expenses there.

The homeowner at near parity only has a burden. If income drops, tax breaks may mean jack-squat.

In that case you could rent out the primary and move in with your parents, sibling, or in-laws (or kids, I guess depending on age).

If you can own a houose at rental parity or better, you have a built in back-up plan to rent it out.

I like your idea above that for your primary you would buy something that would pencil out as a rental. Makes sense to me.

Submitted by an on August 2, 2012 - 10:02am.

spdrun wrote:
Meanwhile, the rental property owner has a source of INCOME to fall back on if his dumb f**k of a boss fires him. Perhaps he could even move in to one of his rentals and have the others pay his expenses there.

The homeowner at near parity only has a burden. If income drops, tax breaks may mean jack-squat.

Speaking for myself, my goal is to be able to live for free and pay exactly ZERO per month for housing inside of a couple years. Property is worthless to me unless I can rent it out and actually have POSITIVE cash flow. And I'm not talking about positive flow that just pays off the principal.


Uh, unless your rental is in places you want to live, I rather be the buyer with rent parity. If you lose your job, you can rent out the other rooms and have your tenants pay for your house while you're still living in an area that you want to live in. While, the one who rent would have to hope his rental income is enough to pay for his rent. Else, he'd have to move into one of the bedroom in his rental. Rentals with better cap rate wouldn't be the type of property or areas I'd want to live in.

Good for you on your situation. If I own rental, I wouldn't want to live in any of them, since the areas I want to live in have crappy cap rate and the area that I'd invest in with great cap rates are areas I wouldn't want to live in. So, I'm glad that you're willing to move into your rental. I wouldn't want to do that. I want to live where I want to live and rental properties are there provide a steady source of income when I retire and not to be a place where I'd want to live in. What's the point of retiring if you have to live in a shitty rental in a shitty area.

Submitted by spdrun on August 2, 2012 - 10:37am.

There appear to be quite a few condos in SD in acceptable areas that pencil out at 7-8¢ on the dollar. Not talking about Encanto here. Same goes for NJ - I can get a building that caps at 8-9% in a very livable area, easy train trip to NYC.

Anyway, speaking for myself, if I wanted to spend $750k on property, I'd spend half of it on a nice place that rents for at least slightly above parity. The other half I'd spend on rentals that pay the expenses in the above-parity place. What I'd get first would depend on what kind of financing I could secure and how much cash I had on hand.

Rentals provide actual income. Renting rooms in a house at best pays for the house and little else.

Submitted by sdrealtor on August 2, 2012 - 11:03am.

Its a god plan but excuting it is another matter. Hope you get there.

For some of us, an acceptable/livable area is not what we aspire to. Thats our choice just like your have this issue with authority and controlling our own destiny. Neither is wrong or right.

Submitted by an on August 2, 2012 - 11:13am.

spdrun wrote:
There appear to be quite a few condos in SD in acceptable areas that pencil out at 7-8¢ on the dollar. Not talking about Encanto here. Same goes for NJ - I can get a building that caps at 8-9% in a very livable area, easy train trip to NYC.

Anyway, speaking for myself, if I wanted to spend $750k on property, I'd spend half of it on a nice place that rents for at least slightly above parity. The other half I'd spend on rentals that pay the expenses in the above-parity place. What I'd get first would depend on what kind of financing I could secure and how much cash I had on hand.

Rentals provide actual income. Renting rooms in a house at best pays for the house and little else.


A condo would be a last place I want to live in. I rather move to a different city and find another job than having to live in a condo that have 7-8% cap rate.

Your cap rate would have to be at 40% inorder for the $70k you'd spend on investment properties to pay for the expenses of your primary place. I don't see any place that have that kind of cap rate from day one.

Renting rooms allow you live in a house/area you want. Living in your rental forces you to live in an area or house/condo you don't want to live in. Big difference. You might want to pick the later but I'd pick the former. The later would be my last resort.

BTW, you seems to be miserable at your job and are constantly afraid of losing your job. That's a horrible position to be in and I understand why you don't want to depend on "the man".

Submitted by spdrun on August 2, 2012 - 11:27am.

Where are you getting the $70k number from? In my scenario, the buyer would spend $375k for each of a primary and investment property.

I see an 8% cap on the investments, paying about $13125 after mortgage. Plus the other one would be rentable in a pinch at say 7%, yielding an additional $9000. Basically $20k of additional income that can be put towards rent in another city should you have to move for work.

What's wrong with condos? Grew up in one, live in one (co-op, technically) now.

I'm not miserable at my job at all. I'm freelance, love most of my clients, but realize that freelance income may not be dependable in the long run. I'm also 100% not willing to get a full-time job, since that would compromise my freedom and ability to travel at will.

So the long-term alternative is to create my OWN job where I'm guaranteed an income without having to kiss anyone's ass. Basically, I want to be in the position of having both freedom AND security by age 35.

Not be a slave with two miserable weeks of vacation and 50 hrs a week like the average American rube. Work to live. Not live to work. Basically, I want to live like a European in America, by way of exploiting those Americans who were too stupid to make good real-estate decisions 5-6 years ago.

Submitted by an on August 2, 2012 - 11:28am.

spdrun wrote:
Where are you getting the $70k number from? In my scenario, the buyer would spend $375k for each of a primary and investment property.

I see an 8% cap on the investments, paying about $13125 after mortgage. Plus the other one would be rentable in a pinch, yielding an additional $9000. Basically $20k of additional income that can be put towards rent in another city should you have to move for work.

What's wrong with condos? Grew up in one, live in one (co-op, technically) now.

I'm not miserable at my job at all. I'm freelance, but realize that freelance income may not be dependable in the long run.

And I'm not willing to get a full-time job, since that would compromise my freedom and ability to travel at will.

So the long-term alternative is to create my OWN job where I'm guaranteed an income without having to kiss anyone's ass. Basically, I want to be in the position of having both freedom AND security by age 35.


It takes $150k to have 20% down on $750k property. So, that's $75k to down on primary resident and $75k to down on investment.

Your PITI on primary would be about $2k. So, in order for your investment properties to cover your $2k PITI/month of your primary, it would need to yield you around 35% in order to cover your primary cost. Then to cover your cost of living, they would need to yield 40% to cover food and stuff.

If you rent out your primary, where would you live? In a box?

What's wrong with a condo? Nothing, it's just not for me and I would never want to live in one again unless I have no other choice. I HATE condo for my primary resident.

Have kids already compromise my freedom and ability to travel at will. So, a full time job won't bother me one bit.

Good for you on your goal. I hope you get there. I know I can't get there by 35 but I'm hoping to get there by 50. Only time will tell.

Submitted by an on August 2, 2012 - 11:33am.

spdrun wrote:
Not be a slave with two miserable weeks of vacation and 50 hrs a week like the average American rube. Work to live. Not live to work. Basically, I want to live like a European in America, by way of exploiting those Americans who were too stupid to make good real-estate decisions 5-6 years ago.

Hmmm... I have 3 weeks of vacay, unlimited sick leave, 100% free healthcare for my entire family, and barely work 40 hrs. a week. All the while, getting paid pretty close to freelancing. If you add in my killer benefits, I'm pretty sure I'd be paid more than if I'm freelancing. I know because I've gotten a few offers for freelancing before.

I agree, work to live and not live to work. I'm doing that right now. Don't need to wait till I'm 35 or 50 to do that.

Submitted by spdrun on August 2, 2012 - 11:43am.

The numbers I stated say essentially $22k/yr if all is rented out. That amount after taxes (say $1200/mo) can rent you a decent apartment in many parts of the US. Free housing, basically -- even better than a rent-controlled apt in NYC.

Paying $750k for something that's at parity or barely above gets you bupkiss for income potential.

This being said, I'm glad that more Americans don't think this way. Reduces competition :)

Submitted by spdrun on August 2, 2012 - 11:37am.

Hmmm... I have 3 weeks of vacay, unlimited sick leave, 100% free healthcare for my entire family, and barely work 40 hrs. a week. All the while, getting paid pretty close to freelancing. If you add in my killer benefits, I'm pretty sure I'd be paid more than if I'm freelancing. I know because I've gotten a few offers for freelancing before.

I'd still take the freelance + property investment. Bet you can't choose WHEN you take the vaca or take 3 wks in a row.

Submitted by an on August 2, 2012 - 11:44am.

spdrun wrote:
The numbers I stated say essentially $22k/yr if all is rented out. That amount after taxes (say $1200/mo) can rent you a decent apartment in many parts of the US.

$1200/month can't rent you a 1/1 in my neighborhood and my neighborhood is only average. I wouldn't want a stuff a family of 4 into a 1/1. So, that would be FAAAAAR from desirable situation for me. If I have to move to the bay for work, damn, $1200 probably can't even get me a studio.

BTW, if you buy a rent parity $750k place and you have to move for a job, guess what, you'd have income to pay for your new rent place and your rent parity primary (which would become rental) would make you ~$700/month income. Not as good as $1800/month before taxes, but still not bad. If you're not laid off and end up working for 17+ years in the same city, you'd be in a much better position buying the place. You're trading short term gain for longer term gain. I tend to think long term, so I'd pick buying in this example.

Submitted by an on August 2, 2012 - 11:48am.

spdrun wrote:

Hmmm... I have 3 weeks of vacay, unlimited sick leave, 100% free healthcare for my entire family, and barely work 40 hrs. a week. All the while, getting paid pretty close to freelancing. If you add in my killer benefits, I'm pretty sure I'd be paid more than if I'm freelancing. I know because I've gotten a few offers for freelancing before.

I'd still take the freelance + property investment. Bet you can't choose WHEN you take the vaca or take 3 wks in a row.


Sure I can and I did. I'd take full time + property investments. I bet you won't be paid if you get really sick and need to take 3 weeks off. I bet if you get cancer or any other expensive illness, you'd have to pay more than $750/year to get treatments. I bet if your future wife gets pregnant, you can't be sure your total cost would be $750.

Submitted by spdrun on August 2, 2012 - 11:48am.

Assuming $150k initial cash, I'd rather have the potential of $1800/mo. "A bird in the hand..."

This number will likely go up with time, so I *am* thinking long-term.

Submitted by an on August 2, 2012 - 11:51am.

spdrun wrote:
Assuming $150k initial cash, I'd rather have the potential of $1800/mo. "A bird in the hand..."

This number will likely go up with time, so I *am* thinking long-term.


While you're thinking "A bird in hand...", I'm thinking "tortoise vs hare". You might pick the hair with "a bird in hand...", I'd pick the tortoise.

Submitted by spdrun on August 2, 2012 - 11:54am.

I bet you won't be paid if you get really sick and need to take 3 weeks off. I bet if you get cancer or any other expensive illness, you'd have to pay more than $750/year to get treatments. I bet if your future wife gets pregnant, you can't be sure your total cost would be $750.

NY = community-rating and guaranteed-issue-insurance state, unlike California :) Though Obamacare should make things easier for you all as well.

Submitted by spdrun on August 2, 2012 - 11:57am.

While you're thinking "A bird in hand...", I'm thinking "tortoise vs hare". You might pick the hair with "a bird in hand...", I'd pick the tortoise.

Nah, my model is middle-ground. "Hare" model would be "fix and flip."

Submitted by an on August 2, 2012 - 11:57am.

spdrun wrote:

I bet you won't be paid if you get really sick and need to take 3 weeks off. I bet if you get cancer or any other expensive illness, you'd have to pay more than $750/year to get treatments. I bet if your future wife gets pregnant, you can't be sure your total cost would be $750.

NY = community-rating and guaranteed-issue-insurance state, unlike California :) Though Obamacare should make things easier for you all as well.


You're not answering the question. Can you be sure your total out of pocket is $750/year, regardless of what illness you get? I know I can. If I lose my job and get COBRA, I'd have to pay well over $20k/year to keep the same kind of coverage.

Submitted by an on August 2, 2012 - 12:00pm.

spdrun wrote:

While you're thinking "A bird in hand...", I'm thinking "tortoise vs hare". You might pick the hair with "a bird in hand...", I'd pick the tortoise.

Nah, my model is middle-ground. "Hare" model would be "fix and flip."


If that's the way you're justifying it, "Hare" would be put and call options. We're talking about example of rent vs buying the same house. Between those 2 options, one will be the hare and the other will be the tortoise. Renting will make you more money in the short term but over the long term, buying the place will make you more money.

Submitted by spdrun on August 2, 2012 - 12:05pm.

What about just making sure that everything you own is above parity?

I also have much lower expectations than you guys. I'm fine with living in 3-400 sq ft per person, having grown up in relatively small houses by CA-in-2012 standards.

Submitted by an on August 2, 2012 - 12:07pm.

spdrun wrote:
What about just making sure that everything you own is above parity?
I also have much lower expectations than you guys. I'm fine with living in 3-400 sq ft per person, having grown up in relatively small houses by CA-in-2012 standards.

I agree with that. The rent parity property I showed is above parity if you're renting it out. The cap rate on it is not as good as properties in shittier areas though. I never said it's good idea to buy a primary when it's below parity.
Yes, your expectations is much lower than mine. I grew up in a 1300 sq-ft house with 6 people, so I know how it feels. That's why I don't want to deal with that if I can help it.

Submitted by jrey27 on August 3, 2012 - 10:14am.

I am new to the forum. Not sure if this an appropriate question, but I would like to see if I could chat over the phone or in person with one of the agents on the forum. If so, let me know how to contact you.

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