Skip to content
Subscribe
Notify of
67 Comments
Oldest
Newest
Inline Feedbacks
View all comments
CA renter
11 years ago

So glad we’re not still
So glad we’re not still looking. This has to be an incredibly frustrating environment for prospective home buyers.

carlsbadworker
11 years ago
Reply to  CA renter

CA renter wrote:So glad we’re
[quote=CA renter]So glad we’re not still looking. This has to be an incredibly frustrating environment for prospective home buyers.[/quote]

That would be me. I am still waiting for a pending short sale approval and has given up looking at new listings for months.

CA renter
11 years ago
Reply to  carlsbadworker

carlsbadworker wrote:CA
[quote=carlsbadworker][quote=CA renter]So glad we’re not still looking. This has to be an incredibly frustrating environment for prospective home buyers.[/quote]

That would be me. I am still waiting for a pending short sale approval and has given up looking at new listings for months.[/quote]

You have my sympathies, carlsbadworker. Maybe it will slow down a bit in the winter. Keep your eyes open October-January, as that’s usually when things naturally slow down and the best deals are typically seen.

Best of luck!

Anonymous
Anonymous
11 years ago
Reply to  carlsbadworker

As someone who waited out the
As someone who waited out the bubble for almost 10 years now I’m certainly a little frustrated. 5 offers, all over asking, all beat out by flippers paying cash. A large majority of the active inventory of late in north county has been flipped properties purchased in summer. I’m certainly hoping for an end to the madness. Anyone care to speculate on what may change the current market dynamic and when?

I’m probably the only one rooting for Ben to allow rates to rise as they naturally would minus all the interference!

Jazzman
11 years ago
Reply to  Anonymous

Bubblegirl wrote:As someone
[quote=Bubblegirl]As someone who waited out the bubble for almost 10 years now I’m certainly a little frustrated. 5 offers, all over asking, all beat out by flippers paying cash. A large majority of the active inventory of late in north county has been flipped properties purchased in summer. I’m certainly hoping for an end to the madness. Anyone care to speculate on what may change the current market dynamic and when?

I’m probably the only one rooting for Ben to allow rates to rise as they naturally would minus all the interference![/quote]

Bubblegirl, you are not alone. There seems to be several factors which are contributing to the current housing market woes, but the overriding one is the battle between home price deflation and poor economic performance. If the economy picks up momentum, there will likely be less interference as you aptly put it. In the short term, inventory is unlikely to improve even if investors eased up on snapping up foreclosures. A flood of homes on the market would drive down prices. We know rates are likely going to remain low for some time, and monetarists argue inflationary conditions do the opposite to what most expect ie rate rises. The problem is not unique to CA. I’m currently in Europe where inventory is low as well. With few investment options available money in piling into RE even in countries like Germany, which has hitherto been immune to the housing bubble. Many are looking to 2013 and the fiscal cliff as a turning point and the possible danger of protracted adverse conditions. Whatever, it’s hard to see a return to more normal conditions for some time. I know many FTBs have indefinitely postponed plans to buy in spite of low rates, simply due to the frustration of over-competition. In fact, Redfin did a survey which concluded it is the major concern of buyers. Concentrating on finding a good rental would seem to be a sensible alternative, and has its merits.

spdrun
11 years ago
Reply to  Jazzman

Market conditions are local.
Market conditions are local. I can name at least five good markets in the US where prices are as low as they’ve ever been in the last 10 years, and where there’s little competition.

Jazzman
11 years ago
Reply to  spdrun

spdrun wrote:Market
[quote=spdrun]Market conditions are local. I can name at least five good markets in the US where prices are as low as they’ve ever been in the last 10 years, and where there’s little competition.[/quote]
Would you care to share which local markets this is not true? Are you a Realtor? Low prices do not necessarily mean normal inventory nor do they mean no or fewer restrictions on obtaining credit. IE saw big declines but there’s a dearth of homes for sale. I’ve searched and bought in over a dozen markets, and either one or both complaints seem pretty universal. In France, agents complain of low inventory and few buyers due to credit tightening and very high fall through rates.

CA renter
11 years ago
Reply to  Jazzman

Have to agree with Jazzman
Have to agree with Jazzman here. I’ve been hearing about inventory shortages all across the country. These low interest rates are killing “organic” RE buyers, mostly because there’s a feeling that stock and bond markets are offering very little return and/or too much risk. The only place one can get any kind of decent, fairly low-risk returns is the RE market. That’s why all the cash is going there.

I also think that the primary trigger to change this will be interest rates. Until then, buyers are pretty hosed. The central banks are destroying our economies (for working and fixed-income folks) in order to save asset holders. It’s a great way to reward those who’ve tried to be most prudent over the past decade, no?

an
an
11 years ago
Reply to  CA renter

CA renter wrote:I also think
[quote=CA renter]I also think that the primary trigger to change this will be interest rates. Until then, buyers are pretty hosed. The central banks are destroying our economies (for working and fixed-income folks) in order to save asset holders. It’s a great way to reward those who’ve tried to be most prudent over the past decade, no?[/quote]
Uh, interest rates wouldn’t affect these investors because most of them buy it for cash. So, if price does go down like you think it would when rates goes up, investors would jump in even more, since their net cost will decrease and their profit will increase. The only way to get cash investors to get out of the market is to have price increase to a point where it would no longer make sense in term of ROI.

spdrun
11 years ago
Reply to  an

Most INITIALLY buy for cash,
Most INITIALLY buy for cash, then do delayed financing. Interest rates are very much a part of it.

an
an
11 years ago
Reply to  spdrun

spdrun wrote:Most INITIALLY
[quote=spdrun]Most INITIALLY buy for cash, then do delayed financing. Interest rates are very much a part of it.[/quote]And?

sdduuuude
11 years ago
Reply to  an

AN wrote:spdrun wrote:Most
[quote=AN][quote=spdrun]Most INITIALLY buy for cash, then do delayed financing. Interest rates are very much a part of it.[/quote]And?[/quote]

There is no and. He is saying that even though investors use cash to make a purchase, they eventually refi the place, then use the cash for the next sale.

Being a cash buyer helps them get houses, but they are sill affected by rates as any borrower because they go into the deal knowing they are going to borrow the money back.

It’s a good point, methinks.

an
an
11 years ago
Reply to  sdduuuude

sdduuuude wrote:AN
[quote=sdduuuude][quote=AN][quote=spdrun]Most INITIALLY buy for cash, then do delayed financing. Interest rates are very much a part of it.[/quote]And?[/quote]

There is no and. He is saying that even though investors use cash to make a purchase, they eventually refi the place, then use the cash for the next sale.

Being a cash buyer helps them get houses, but they are sill affected by rates as any borrower because they go into the deal knowing they are going to borrow the money back.

It’s a good point, methinks.[/quote]
So what if they refi after they bought the house for cash? What do you think will happen if rate rise? As long as the ROI stays the same, why would it matter if rate rises? Do you suspect ROI will go down as rate goes up? I.E. rate rise, price stays the same, and rent stays the same? What’s the likelihood of that happening?

spdrun
11 years ago
Reply to  an

Well, if rates are 3-4% and
Well, if rates are 3-4% and ROI is 7-8%, then you can get them to cash flow if remortgaged. If ROI is the SAME and rates jump to 6-7%, you won’t cash-flow after amortization. Does everything really need to be explained to you?

Homes are cheap these days.
Rates are low.
Rents are high.
Perfect time to buy a home for cash, lease it up, and pull some cash out at the Ben-Shalom 5-finger Discount Rate.

an
an
11 years ago
Reply to  spdrun

spdrun wrote:Well, if rates
[quote=spdrun]Well, if rates are 3-4% and ROI is 7-8%, then you can get them to cash flow if remortgaged. If ROI is the SAME and rates jump to 6-7%, you won’t cash-flow after amortization. Does everything really need to be explained to you?

Homes are cheap these days.
Rates are low.
Rents are high.
Perfect time to buy a home for cash, lease it up, and pull some cash out at the Ben-Shalom 5-finger Discount Rate.[/quote]
Haha, its really that simple huh? That’s a big if.

heywood
11 years ago
Reply to  an

Its not that the IRR for that
Its not that the IRR for that asset goes down, its that the competitiveness of other assets (bonds for example) goes up. People are buying real estate as an investment because returns in other asset classes are miserable.

an
an
11 years ago
Reply to  heywood

heywood wrote:Its not that
[quote=heywood]Its not that the IRR for that asset goes down, its that the competitiveness of other assets (bonds for example) goes up. People are buying real estate as an investment because returns in other asset classes are miserable.[/quote]I agree with the competitiveness of other assets goes up when rates goes up. But what do you think would cause rates to go up? Do you think the fed will let rate go up without inflation? What would that do to housing price when inflation hit? Rates would have to go way up 10-12% or ROI would have to go way down in order for a 6-7% bond/CD rate to take away some of the investors. If you’re leverage to buy investment properties and housing price are rising, then rates would really have to sky rocket to compete. Again, my point is, it’s not as simple as some would like us to believe. There are many moving variables. BTW, some are buying RE because they want to diversify, or because they see value in RE vs other asset classes, or because they see this is a bottom and they’re banking on appreciation, or they want to move and don’t want to sell their house at/near the bottom. I’m sure there are many other reasons.

Jazzman
11 years ago
Reply to  an

AN wrote:heywood wrote:Its
[quote=AN][quote=heywood]Its not that the IRR for that asset goes down, its that the competitiveness of other assets (bonds for example) goes up. People are buying real estate as an investment because returns in other asset classes are miserable.[/quote]I agree with the competitiveness of other assets goes up when rates goes up. But what do you think would cause rates to go up? Do you think the fed will let rate go up without inflation? What would that do to housing price when inflation hit? Rates would have to go way up 10-12% or ROI would have to go way down in order for a 6-7% bond/CD rate to take away some of the investors. If you’re leverage to buy investment properties and housing price are rising, then rates would really have to sky rocket to compete. Again, my point is, it’s not as simple as some would like us to believe. There are many moving variables. BTW, some are buying RE because they want to diversify, or because they see value in RE vs other asset classes, or because they see this is a bottom and they’re banking on appreciation, or they want to move and don’t want to sell their house at/near the bottom. I’m sure there are many other reasons.[/quote]

Diversification would be in normal times sensible, but over-exposure to RE probably characterizes many today. A bottom in prices yes, but income would more accurately describe motives than appreciation which I doubt is coming anytime soon, artificially buoyed prices notwithstanding. Still, a reluctant investor is better than a bankrupt investor.

an
an
11 years ago
Reply to  Jazzman

Jazzman wrote:Diversification
[quote=Jazzman]Diversification would be in normal times sensible, but over-exposure to RE probably characterizes many today. A bottom in prices yes, but income would more accurately describe motives than appreciation which I doubt is coming anytime soon, artificially buoyed prices notwithstanding. Still, a reluctant investor is better than a bankrupt investor.[/quote]
But you’re assuming that I’m suggesting one should be over-exposed to RE or that these cash buyers are over-exposed to RE. I don’t have the number to support or refute that fact, but I can say for sure that I’m not suggesting one should be over-exposed to RE. That why I said diversification and not dump all of your money in RE.

Talking about income, for a 1/1 condo in an area I’m at, you can easily get income of around 9-10% before any tax deduction. In Temecula, you can get 10-12% ROI for SFR. So, the income is there. That’s why I said, rate would have to go way up or ROI would have to go way down to take money away from RE right now.

Talking about appreciation, if you would have bought a SFR in Temecula earlier this year with 20% down, you can easily see a 60-100% return on your down payment today. So, yes, appreciation exists today.

heywood
11 years ago
Reply to  an

AN wrote:I agree with the
[quote=AN]I agree with the competitiveness of other assets goes up when rates goes up. But what do you think would cause rates to go up? Do you think the fed will let rate go up without inflation? What would that do to housing price when inflation hit?
Rates would have to go way up 10-12% or ROI would have to go way down in order for a 6-7% bond/CD rate to take away some of the investors. If you’re leverage to buy investment properties and housing price are rising, then rates would really have to sky rocket to compete. [/quote]

Rates need to reflect risk. Currently they are too low so investors are taking bigger positions, proportional to the lower rate. A small change in rate changes leveraged positions significantly. For individual cash buyers, I think there only needs to be a small move in rates to get many out of the RE market. People are there because it is the safest of plausible investments. When interest rates rise to the level of inflation, many will choose to put their funds in traditional investments. Right now there isn’t a choice.

Sorry – to answer your first question – I don’t think it matters what causes the rates to go up for the above reasons.

an
an
11 years ago
Reply to  heywood

heywood wrote:Rates need to
[quote=heywood]Rates need to reflect risk. Currently they are too low so investors are taking bigger positions, proportional to the lower rate. A small change in rate changes leveraged positions significantly. For individual cash buyers, I think there only needs to be a small move in rates to get many out of the RE market. People are there because it is the safest of plausible investments. When interest rates rise to the level of inflation, many will choose to put their funds in traditional investments. Right now there isn’t a choice.

Sorry – to answer your first question – I don’t think it matters what causes the rates to go up for the above reasons.[/quote]
You might say rates need to reflect risk, but I can say the fed don’t care. Hence the current rate.

I don’t know how many cash buyers you know personally, but the ones that I know, they’re buying $60-90k properties for cash. They don’t pull cash out. So, a small move in rates won’t affect them.

For investors who leverage. It would affect somewhat. But it depend on why rates goes up. If rates goes up because we get inflation and home price & rent price goes up, then one might be more willing to put up with smaller ROI up front (assuming it’s still cash flowing) for the back end appreciation. So, again, it’s not so black and white.

heywood
11 years ago
Reply to  an

AN wrote:
You might say rates

[quote=AN]
You might say rates need to reflect risk, but I can say the fed don’t care. Hence the current rate.

I don’t know how many cash buyers you know personally, but the ones that I know, they’re buying $60-90k properties for cash. They don’t pull cash out. So, a small move in rates won’t affect them.

For investors who leverage. It would affect somewhat. But it depend on why rates goes up. If rates goes up because we get inflation and home price & rent price goes up, then one might be more willing to put up with smaller ROI up front (assuming it’s still cash flowing) for the back end appreciation. So, again, it’s not so black and white.[/quote]

I would say that in both cases the liquidity of other asset classes offers a substantial advantage.
I agree it is less of a factor for people that are already invested, but for those looking to invest for regular income, I believe a fixed interest product would be preferred by the majority, it’s just that is not on the table in the current rates environment.

For those leveraging and looking for capital appreciation, the liquidity is a big deal. You require a 6% appreciation just to cover disposal costs. So you start your investment that far behind when compared to other assets (talking about individuals here, not institutional investment products).

an
an
11 years ago
Reply to  heywood

heywood wrote:I would say
[quote=heywood]I would say that in both cases the liquidity of other asset classes offers a substantial advantage.
I agree it is less of a factor for people that are already invested, but for those looking to invest for regular income, I believe a fixed interest product would be preferred by the majority, it’s just that is not on the table in the current rates environment.[/quote]Maybe you’re right. I don’t have any number to argue which is more preferred. Just from the investors I know, they don’t cross shop between the two. They have a pot for investment property and a pot for CD/money market. They bought the investment properties for cash knowing that its a lot less liquid. But, their intention with those is for it to give them income in their retirement and not for them to buy and sell. So, liquidity is less of a concern for them. They have cash in savings account for liquidity.

[quote=heywood]For those leveraging and looking for capital appreciation, the liquidity is a big deal. You require a 6% appreciation just to cover disposal costs. So you start your investment that far behind when compared to other assets (talking about individuals here, not institutional investment products).[/quote]Again, liquidity is not a big deal to those I know that leverage for investment properties. They bought those, knowing that it’s illiquid. What disposal costs are you referring to? 6% is a huge number. Again, those I know that have investment properties, even those who leverage, have more than investment properties. They have bond, stocks, mutual funds, index funds, etc. So, RE is one component of their total portfolio. I don’t know anyone that have RE as their only investment.

CA renter
11 years ago
Reply to  an

AN wrote:heywood wrote:Its
[quote=AN][quote=heywood]Its not that the IRR for that asset goes down, its that the competitiveness of other assets (bonds for example) goes up. People are buying real estate as an investment because returns in other asset classes are miserable.[/quote]I agree with the competitiveness of other assets goes up when rates goes up. But what do you think would cause rates to go up? Do you think the fed will let rate go up without inflation? What would that do to housing price when inflation hit? Rates would have to go way up 10-12% or ROI would have to go way down in order for a 6-7% bond/CD rate to take away some of the investors. If you’re leverage to buy investment properties and housing price are rising, then rates would really have to sky rocket to compete. Again, my point is, it’s not as simple as some would like us to believe. There are many moving variables. BTW, some are buying RE because they want to diversify, or because they see value in RE vs other asset classes, or because they see this is a bottom and they’re banking on appreciation, or they want to move and don’t want to sell their house at/near the bottom. I’m sure there are many other reasons.[/quote]

Just want to point out that many countries see periods of very high interest rates that correlate with *weak* economies. Witness what’s happened in Iceland, Spain, Greece, etc. The same scenario can easily happen here.

an
an
11 years ago
Reply to  CA renter

CA renter wrote:Just want to
[quote=CA renter]Just want to point out that many countries see periods of very high interest rates that correlate with *weak* economies. Witness what’s happened in Iceland, Spain, Greece, etc. The same scenario can easily happen here.[/quote]
Yes, but do any of those countries have a fed that can and do buy $40B/month in MBS indefinitely to keep rates low?

CA renter
11 years ago
Reply to  an

AN wrote:CA renter wrote:Just
[quote=AN][quote=CA renter]Just want to point out that many countries see periods of very high interest rates that correlate with *weak* economies. Witness what’s happened in Iceland, Spain, Greece, etc. The same scenario can easily happen here.[/quote]
Yes, but do any of those countries have a fed that can and do buy $40B/month in MBS indefinitely to keep rates low?[/quote]

True, our Fed can keep certain rates low for a prolonged period of time, but will the public and politicians agree with this action indefinitely? Seems to me that whenever the Fed sits on rates for too long, they end up causing more damage than what they were trying to avoid would have caused.

CA renter
11 years ago
Reply to  heywood

heywood wrote:Its not that
[quote=heywood]Its not that the IRR for that asset goes down, its that the competitiveness of other assets (bonds for example) goes up. People are buying real estate as an investment because returns in other asset classes are miserable.[/quote]

Yes, exactly. ^^This^^ is what I was trying to convey.

The cash we’re seeing in the RE market is not from “typical” RE investors, it’s people from around the world who are chasing yield…anywhere, and everywhere. The central banks have, once again, pushed everyone out on the yield curve and are forcing everyone into riskier and riskier assets. Paying cash for a ~5% ROI (if you’re lucky) on a piece of property during a time of artificially reduced inventory and artificially low interest rates is a fool’s game. If a “safer” investment comes up that pays more than the measly 3-7% in RE — and without all the hassles involved with rentals and flips — all of those cash-rich investors we’re hearing so much about in the RE market will disappear overnight.

spdrun
11 years ago
Reply to  CA renter

Property in certain areas is
Property in certain areas is paying more like 8-9% if not more. If you can drop $500k cash on some property, refi, lock in a rate at 70% LTV for at least 10 years, and buy more property, what’s the problem? People were doing this for YEARS before this current market – a good friend of the fam made his bucks buying, holding, and renting in NJ and FL in the 80ies.

an
an
11 years ago
Reply to  spdrun

spdrun wrote:Property in
[quote=spdrun]Property in certain areas is paying more like 8-9% if not more. If you can drop $500k cash on some property, refi, lock in a rate at 70% LTV for at least 10 years, and buy more property, what’s the problem? People were doing this for YEARS before this current market – a good friend of the fam made his bucks buying, holding, and renting in NJ and FL in the 80ies.[/quote]
Again, $500k house is not a $60k house. Try doing that with 8 $60-$70k houses.

Was your family friend in or near retirement in the 80s?

CA renter
11 years ago
Reply to  spdrun

spdrun wrote:Property in
[quote=spdrun]Property in certain areas is paying more like 8-9% if not more. If you can drop $500k cash on some property, refi, lock in a rate at 70% LTV for at least 10 years, and buy more property, what’s the problem? People were doing this for YEARS before this current market – a good friend of the fam made his bucks buying, holding, and renting in NJ and FL in the 80ies.[/quote]

That’s a perfectly reasonable approach for individuals who are looking for extra income for their retirement years, and who live near enough to the rentals to maintain and manage them; there are some exceptions to this rule, like when the ROI is truly high enough to justify having professional property managers, but that’s pretty rare in the more populous parts of So Cal, especially now.

I’m talking about the institutional money that’s running all around the globe trying to find any kind of yield. This is what’s moving the markets right now, IMHO. These people/entities do not want to be landlords. They are being forced into it, and I think it will end up badly when things get shaken up.

People should also realize that *if* they are counting on appreciation going forward, they are using some mighty optimistic assumptions. For income in the short-mid term, buying rentals makes sense, but by the time most people realize that trade is going to move against them, it will be too late. They will likely be stuck with those rentals when they don’t want them, and when yields on other, more favorable asset classes are higher. Just MHO.

sdduuuude
11 years ago
Reply to  an

AN wrote:Do you suspect ROI
[quote=AN]Do you suspect ROI will go down as rate goes up? I.E. rate rise, price stays the same, and rent stays the same? What’s the likelihood of that happening?[/quote]

I think the point made was that cash investors who are refinancing after the purchase are affected the same by changes in rates as a “normal” debt buyer.

In response to your comment here:

[quote=AN]Uh, interest rates wouldn’t affect these investors because most of them buy it for cash[/quote]

True cash buyers would be unaffected. Cash buyers who refinance are not true cash buyers, but regular old borrowers pulling a smart trick to make their offer more attractive.

an
an
11 years ago
Reply to  sdduuuude

sdduuuude wrote:
I think the

[quote=sdduuuude]
I think the point made was that cash investors who are refinancing after the purchase are affected the same by changes in rates as a “normal” debt buyer.

True cash buyers would be unaffected. Cash buyers who refinance are not true cash buyers, but regular old borrowers pulling a smart trick to make their offer more attractive.[/quote]
How many cash buyers buy and refi? I mean true cash buyers and not cash buyers who borrow from one house to financed the next. The cash buyers I know buy it for cash and don’t refi. BTW, since I started this point about cash buyer, I was referring to the true cash buyers who buy it and hold it w/ no mortgage. Not the “cash” buyers who buy and refi. Those “cash” buyer can only buy it for “cash” the first 1-2 houses. After a couple of houses, then said buyer won’t have enough cash left to buy stuff for cash. So, even if rate doesn’t change, those “cash” buyer would disappear as “cash” buyers and come a leveraged buyer.

I agree that those who buy and refi is equally affected as leveraged investors. Here’s what I said about leveraged investors:
[quote=AN]For investors who leverage. It would affect somewhat. But it depend on why rates goes up. If rates goes up because we get inflation and home price & rent price goes up, then one might be more willing to put up with smaller ROI up front (assuming it’s still cash flowing) for the back end appreciation. So, again, it’s not so black and white.[/quote]The difference between the cash & refi investors vs the leveraged from day one investor is not that big. Yes, the cash buyer can usually get the deal (sometimes at a slight discount), but to buy cash and refi, you can only take out 75%. While those who came in the deal with financing, then they only have to put down 20%. So, you might save money as cash buyer but you’ll have more money tied into the house. So, again, what do you expect to happen to price and rent when rate goes up?

sdduuuude
11 years ago
Reply to  an

AN wrote:I agree that those
[quote=AN]I agree that those who buy and refi is equally affected as leveraged investors.[/quote]

I think that is all the guy was saying.

an
an
11 years ago
Reply to  sdduuuude

sdduuuude wrote:AN wrote:I
[quote=sdduuuude][quote=AN]I agree that those who buy and refi is equally affected as leveraged investors.[/quote]

I think that is all the guy was saying.[/quote]
No, this is what he said:
[quote=spdrun]Most INITIALLY buy for cash, then do delayed financing. Interest rates are very much a part of it.[/quote]
I like to get some data befind the statement of most. Then secondly, what’s the point? He didn’t say ROI is very much a part of it. He said interest rate. Interest rate is one variable of the ROI calculation. Just because interest rise doesn’t mean it’s a bad thing.

spdrun
11 years ago
Reply to  an

With money being cheap these
With money being cheap these days, why wouldn’t you leverage to a “safe” level (say 75% LTV max) and double your cash-on-cash return or more?

i.e., if you can legally use counterfeit money, why wouldn’t you?

an
an
11 years ago
Reply to  spdrun

spdrun wrote:With money being
[quote=spdrun]With money being cheap these days, why wouldn’t you leverage to a “safe” level (say 75% LTV max) and double your cash-on-cash return or more?

i.e., if you can legally use counterfeit money, why wouldn’t you?[/quote]
Because some people are near retirement and they don’t want to deal w/ mortgage anymore? If you have a mortgage, you have less net monthly income. Not everyone is in their early 30s.

spdrun
11 years ago
Reply to  an

If payments + interest are
If payments + interest are less than your cash ROI, then you can increase your effective ROI (and thus income) by borrowing a reasonable amount of money. I’m not suggesting 3% down (baby) here.

an
an
11 years ago
Reply to  spdrun

spdrun wrote:If payments +
[quote=spdrun]If payments + interest are less than your cash ROI, then you can increase your effective ROI (and thus income) by borrowing a reasonable amount of money. I’m not suggesting 3% down (baby) here.[/quote]
You obviously haven’t talked to people in their late 50s who own investment properties out right. They don’t care about leveraging and getting more properties because what they have is enough to pay for their retirement. They don’t need to take a risk and get more.

BTW, not all properties can be refi. Try a do a cash out refi of a $60k property. Tell me what’s the cost and the rate and the LTV?

livinincali
11 years ago
Reply to  an

AN wrote:The difference
[quote=AN]The difference between the cash & refi investors vs the leveraged from day one investor is not that big. Yes, the cash buyer can usually get the deal (sometimes at a slight discount), but to buy cash and refi, you can only take out 75%. While those who came in the deal with financing, then they only have to put down 20%. So, you might save money as cash buyer but you’ll have more money tied into the house. So, again, what do you expect to happen to price and rent when rate goes up?[/quote]

I wouldn’t be worried about the small mom and pop landlord buying a couple properties with cash to produce an income stream. There’s probably quite a few that don’t really want to be there and would rather be in something more liquid but they need the income so they are moving into Single Family RE. The problem I see is the hedge funds and REITs getting involved in bulk buying of properties to return yield. These guys have virtually zero experience in single family tenant management and are just looking for a temporary place to park cash. None of these hedge funds really want to be long term single family RE investors they’re just chasing a quick buck.

The problem for the market place is want happens when these guys decide it’s time to liquidate. It’s probably not even their money so they’ll just chalk up a loss is things don’t pan out the way they are expecting. It might even be that they get overledged and are forced to liquidate. It happens all the time to various hedge funds. The housing market probably can’t handle a forced liquidation of a hedge fund holding hundreds or thousands of single family properties, especially when some of these hedge funds are heavily concentrated in a particular market.

Will it kill high end San Diego, of course not. This will be something that effects the low end and who knows what the mom and pop small time yield investor do in this scenario. They’ve already taken liquid cash and tied it up in real estate, they don’t have anything left to absorb those properties, so you’re left with hedge funds liquidating into first time buyers.

It looks like a coming disaster in my eyes, but wage inflation or a new batch of zero down financing could save us. I’m just not willing to bet on the success of hot money investors chasing yield. They always seem to create a disaster even though a few get lucky and get out with huge profits at the right time.

Jazzman
11 years ago
Reply to  an

AN wrote:
The only way to

[quote=AN]

The only way to get cash investors to get out of the market is to have price increase to a point where it would no longer make sense in term of ROI.[/quote]

Not the only way. Many like myself would rather be more in stocks, bonds, and savings. If that comes back, cash buyers would rid themselves of the headaches of being a landlord.

an
an
11 years ago
Reply to  Jazzman

Jazzman wrote:AN wrote:
The

[quote=Jazzman][quote=AN]

The only way to get cash investors to get out of the market is to have price increase to a point where it would no longer make sense in term of ROI.[/quote]

Not the only way. Many like myself would rather be more in stocks, bonds, and savings. If that comes back, cash buyers would rid themselves of the headaches of being a landlord.[/quote]
You don’t have to be a landlord to invest in RE. There are a number of REITs that you can buy that will do the same thing, but you don’t get the leverage advantage. The cash buyers I’m talking about are mainly the REITs, not the small mom and pop landlord.

spdrun
11 years ago
Reply to  Jazzman

Would you care to share which

Would you care to share which local markets this is not true? Are you a Realtor?

Not a realtor, though my business works with quite a few. As far as which markets — let’s say certain judicial foreclosure states on the East Coast.

Jazzman
11 years ago
Reply to  CA renter

CA renter wrote:So glad we’re
[quote=CA renter]So glad we’re not still looking. This has to be an incredibly frustrating environment for prospective home buyers.[/quote]
I don’t recall it being a good time to buy for the last decade. Although many have simply moved on, there’s always the up and coming who missed the seminar and get ensnared. Either that or they simply won’t be home owners.

an
an
11 years ago
Reply to  Jazzman

Jazzman wrote:I don’t recall
[quote=Jazzman]I don’t recall it being a good time to buy for the last decade. Although many have simply moved on, there’s always the up and coming who missed the seminar and get ensnared. Either that or they simply won’t be home owners.[/quote]
With hind sight behind us and hind sight is always 20/20, I would say late 2008-2009 was a good time to buy.

moneymaker
11 years ago
Reply to  an

That’s when I bought Feb
That’s when I bought Feb 2009. Though a good time and a good house it stills occurs to me now and then that for the same price elsewhere in the country I could have got a house twice the size on twice as big a lot and half as old elsewhere in the country, for the same price.

urbanrealtor
11 years ago

Interesting to see the months
Interesting to see the months of inventory go up while total inventory went down.
To me that indicates longer aggregate market times for a small number of actual properties (probably by definition).
In other words, lots of short sales and unappealing non-shorts.

Not fun.

Mayze
11 years ago

Just opened escrow this week
Just opened escrow this week after a 2 year+ search. I cannot express enough gratitude to Rich and the Piggs for the incredible insight and generosity with their time and knowledge. Even through primarily lurking on the forum, I have learned so much!

And, yes, the frustration level is very high. Not only waiting for a property to come open, but then to know, for a desirable listing, that you don’t have much time to evaluate it, lest it be gone.

It’s fascinating to think about where things go from here. Prices aren’t rising that much, even under all this inventory pressure, the low rates, and the buzz around ‘finally bottoming out’.

Here’s hoping Rich will be up for continuing the series – “Shambling Towards Affordability: Year-End 2012 Edition” 🙂

Thanks again to you all.

ocrenter
11 years ago

it’s amazing how low the
it’s amazing how low the inventory is these days. most sub-markets around the county only have about 100 condo + houses combined.

if someone is looking for a SFR in Tierrasanta, they only have 24 homes to look at.

do we have data on inventory that goes back to the last bottom of the market? did it ever hit this low in proportion to population size in the past?

spdrun
11 years ago
Reply to  ocrenter

There’s also a lot of stuff
There’s also a lot of stuff bouncing in and out of contingent for weeks to months.

an
an
11 years ago
Reply to  spdrun

spdrun wrote:There’s also a
[quote=spdrun]There’s also a lot of stuff bouncing in and out of contingent for weeks to months.[/quote]
No there isn’t. Not around here.

spdrun
11 years ago
Reply to  an

No there isn’t. Not around

No there isn’t. Not around here.

Put an offer last week (didn’t get it) on a condo in Mission Valley that was in and out of contingency several times in the last 90 days.

an
an
11 years ago
Reply to  spdrun

spdrun wrote:
No there

[quote=spdrun]

No there isn’t. Not around here.

Put an offer last week (didn’t get it) on a condo in Mission Valley that was in and out of contingency several times in the last 90 days.[/quote]
So you mentioned one condo. Since you didn’t get it, care to share the address? Why was it in and out? Why didn’t you get it? How many times did it bounce in and out of contingent? How many places are you seeing bouncing in and out of contingent that would qualify as a lot? When it bounce in and out, did the price drop?

BTW, Mission Valley currently have a grand total of 28 property active. It also have 45 properties in pending or contingent. In the last month, there were 29 closings. So, there’s less than 1 month supply of active and 1.5 months of pending. The numbers points to a very tight supply right now.

peterb
11 years ago
Reply to  an

If money gets much cheaper, I
If money gets much cheaper, I don’t see how anyone that’s interested would not be a buyer. Mortgage rates are amazingly low and look to be headed a bit lower.

Jazzman
11 years ago
Reply to  peterb

peterb wrote:If money gets
[quote=peterb]If money gets much cheaper, I don’t see how anyone that’s interested would not be a buyer. Mortgage rates are amazingly low and look to be headed a bit lower.[/quote]
Great time to borrow does not mean great time to buy. How can you expect buyers to maintain interest when as someone put it, it’s like shopping in the former Soviet Union …long lines and all sold out.

an
an
11 years ago
Reply to  ocrenter

ocrenter wrote:it’s amazing
[quote=ocrenter]it’s amazing how low the inventory is these days. most sub-markets around the county only have about 100 condo + houses combined.

if someone is looking for a SFR in Tierrasanta, they only have 24 homes to look at.

do we have data on inventory that goes back to the last bottom of the market? did it ever hit this low in proportion to population size in the past?[/quote]
Totally agree. In MM right now, there are only 39 SFR AND condos available. For an area that have 23k household and over 70k+ people, that’s just crazy, IMHO.

Jazzman
11 years ago
Reply to  ocrenter

ocrenter wrote:it’s amazing
[quote=ocrenter]it’s amazing how low the inventory is these days. most sub-markets around the county only have about 100 condo + houses combined.

if someone is looking for a SFR in Tierrasanta, they only have 24 homes to look at.

do we have data on inventory that goes back to the last bottom of the market? did it ever hit this low in proportion to population size in the past?[/quote]

Not sure about the bottom of the last market, but depending on where look levels are 40-50% below the peak, and 20-50% below earlier this year. Those are drought conditions, and it must be hurting Realtors as well. So. why isn’t the NAR lobbying to force more foreclosures onto the market with restrictions on wholesale investors?

sdduuuude
11 years ago

Good thread. Nice to see some
Good thread. Nice to see some of the less-active posters getting involved, too.

I have altogether stopped looking in CV. Not even checking Redfin regularly anymore. Got tired of looking at the same 6 houses that met my Redfin search criteria but that I didn’t really like. Literally – it’s 6 houses. Hasn’t changed in about 4 weeks now, except a couple of houses that I “X-ed out” sold.

I know many say there is a recovery afoot due to increasing prices, I can’t help but think of this market as anything but broken – recoveries are not based on weak inventory.

I started a thread about the Nov 1 short sale rules recently. I’m hoping that brings some inventory out but I’m not so sure it will happen. It may be exactly what the market needs.

If it were an active topic in the news or blogs, one would guess that there is pent-up inventory – people current on their upside-down mortgage who want to sell waiting for this rule change to list their house. But, nobody is talking about it so I don’t know if it is a non-issue or a surprise on the way. Even if it is significant, it will take time for the effect to show up in inventory, then sales, then stats.

I’m hoping this is the peak in prices for the year but I’m not counting on it or betting on it. Things seemed soften just a bit after Aug and we should start to see $/sqft prices come down as things that went into escrow in Sept (vs. Aug) start to be reflected in the stats as they close.

bzribee
11 years ago

I am glad to see this
I am glad to see this discussion, as I’ve been actively looking in North Park and there is SOOOO little available. I could be a cash buyer, just for myself, but I want to see the place, and by the time I get there, the flippers have already bid and bought it seems.

Why buy? Because I dislike my wonderfully low priced apartment ($700/month!!!) of 20+ years but to rent at a place I’d like would easily double what I’m paying now, or close to it. That’s why I’ve been looking.

I’ve been wondering if inventory will improve. From what I’m reading here, y’all seem to think not. Maybe I will just do the higher priced rental or (more likely) continue to make do in my icky place and stay invested in the stock market…

Great discussion!

CA renter
11 years ago
Reply to  bzribee

bzribee,
I vote for staying

bzribee,

I vote for staying where you are. Heck, you’ve been there for so long you might as well stay there for a bit longer while you wait. The money you’ll save in the meantime will go a long way toward buying your home when it’s the right time for you to buy.

Sorry to hear you’re also in the pool of prospective buyers right now. This is a good time to buy IF you are using a mortgage and plan to stay for the long haul (lifetime purchase); I just don’t see it ending well for those who plan to move up in the next 10-20 years. Just my 2 cents.

Best of luck to you!

MistaVista
11 years ago

It is sooo frustrating to be
It is sooo frustrating to be a buyer. There is nothing to buy. Plus the segment of the market I am in is the worst (aka Starter Home/Investment property). A property on University Heights popped up yesterday for 325k, the price is low to attract multiple buyers and get an above listing price offer, but we would be competing with all cash buyers and were told we cannot even look inside until we put in an offer. If anything comes up investors are snagging it and flipping it. All I want to do is find a home for my wife and kids in a decent neighborhood and it can’t be done.

sdsurfer
11 years ago
Reply to  MistaVista

The situation does suck, but
The situation does suck, but hang in there and you might get lucky.

I definitely would not recommend spending all day or weekend looking at homes for your family, but I do think that from a supply and demand standpoint you are not the only frustrated one and a lot of people are probably over it and giving up.

I’ve always believed that difficult situations provide opportunity because most people take the easy route. Give it a shot…it does’nt work out…give up…repeat….get nowhere in life or business.

Most of the people I know that are successful do not give up no matter what. Yes…they might focus on some other things (or maybe get a nice rental for the time being or become satisfied with the one they are in), but they keep the goal in their mind the entire time and take steps to get there no matter how large or small.

If I were in the market right now I would be working my agents ass off writing offers. Until acceptance it costs nothing except your time and your agents time, but they work for you and need to earn it. Short sales especially. Lots of people get sick of waiting and a nice back up offer on a short in the neighborhood you desire might just get acceptance when the other family that’s been waiting 3 months decides to sign a lease on a rental. It might not be tomorrow or next week, but eventually that home needs to change hands to someone that is going to pay the mortgage…someone like you.

Does anyone on this board see an issue with writing offers on a ton of short sales hoping to get lucky with one?

I would think the investors steer clear of the shorts because they do not want to wait? Cash makes nothing sitting in the bank, but they need it liquid to show proof of funds.

My 2 cents. I hope you get one soon!! Good Luck.

carlsbadworker
11 years ago
Reply to  sdsurfer

Well. Sometimes giving up is
Well. Sometimes giving up is not a bad strategy. At the end of the day, buying primary residence is consumption rather than investment. And successful people usually focuses on getting revenue rather than cutting costs.
I deal with shorts in my search the past year because that’s the only ones that are available in reasonable price range to me. Submitting offer quicker is the key to win the short sale. Because the seller doesn’t give a rat’s ass about how much it sells for. The headache is that banks are moving very slow and they may counter the price again and again because it passes the maximal time since the last appraisal and you may find it not much cheaper in the end after all, in such a price rising market.

spdrun
11 years ago
Reply to  carlsbadworker

Wasn’t there a rule change
Wasn’t there a rule change this summer, that GSE short sales are required to have a response to offers within 30 days?

Nothing wrong with writing multiple offers. And if you’re not a complete cretin, a primary residence is an investment as well as consumption. i.e. it provides extra income, since it’s cheaper to live in it than renting the same. And furthermore, can be rented out for a profit whenever you please.

carlsbadworker
11 years ago
Reply to  spdrun

spdrun wrote:Wasn’t there a
[quote=spdrun]Wasn’t there a rule change this summer, that GSE short sales are required to have a response to offers within 30 days?[/quote]

I don’t know about that. I only know that for the one that I have a pending offer, it was submitted in early May and now it is November already and the bank (BoA) has not yet given us a response.
My opportunity cost is that I cannot refi my existing house into lower rates because the broker advised against it since I have a purchase loan that may be approved any day. I don’t mind cash sitting in the bank though because I think the stock market is over-valued. The twin pillars of high PEs (historical profit margin and positive earning surprise) are starting to disappear in the latest earning seasons…everything now relies only on FED’s cheap money, which is very dangerous for investors.

spdrun
11 years ago
Reply to  carlsbadworker

I think the Mr. Market is
I think the Mr. Market is saying “Pbbbbbt” to Ben-Shalom this time round. Note the notable lack of reaction to QE3 – in fact, DOW is down since Sept.

an
an
11 years ago
Reply to  sdsurfer

sdsurfer wrote:I would think
[quote=sdsurfer]I would think the investors steer clear of the shorts because they do not want to wait? Cash makes nothing sitting in the bank, but they need it liquid to show proof of funds.[/quote]
Not based on my experience. I’ve see all cash offer on SS as well.