Optimism and Positive Thinking

NEW -> Contingent Buyer Assistance Program
awgee_IHB

awgee_IHB

New member
About two years ago, in an interview with a newspaper that I remember as "The Florida Sentinel", Sir John Templeton said that he thought residential real estate prices would depreciate 90% from their peak. On first reading his prediction, it sounds extreme and impossible, but if you are looking forward to purchasing a great home for a great price, Sir John sounds like an optimist and positive thinker.
 
awgee,





In inflation adjusted terms, we could see a huge drop. A 50% decline over 7 years with the stealth inflation the FED has been engineering will feel like a 90% decline. Although... 90%... even I am not that bearish (or optimistic depending on your perspective)
 
Yeah, I guess you have to look at the past and consider real or nominal dollars.



I have no idea how much prices will decline, nor do I have any idea how to project such a percentage, but it was Sir John's prediction. It is extreme, but the knight does have a history of good financial calls. I think Buffett was calling for a 50% decline? Either way looks very optimistic to me. And they call us real estate bears. I don't get it, because real estate is my favorite asset class and I look forward to the day I purchase a great property for a great price.
 
<p>Count me in as a "crash optimist". Short term, I'm bearish on the economy (housing, credit contraction, Iraq, monetary imbalances, peak oil) but I know that recession facilitates a shaking-off of malinvestment in an economy and promotes a regression to the mean.</p>

<p>The US has a TON of malinvestment to shake-off.</p>
 
oc_fliptrack - It seems unusual that anyone would bring up credit contraction, monetary imbalances, peak oil, or thr financial effects of the Iraq war. If I bring up any of those topics in day to day conversation, folks look at me quizically and wonder why I would have any concerns. It seems either they are unaware of the possible effects or think the government will take care of it.
 
Short sales and foreclosures are going full force. This means buying opportunities for great properties at great price. When this trend reverts I will let you know.
 
Nir - Thanks for your input, but I disagree that this means a buying opportunities at great prices.

The short sales and foreclosures are not going full force. They have just started. RE prices have inflated far beyond any recognition of sanity or affordability. Probabilites are that re prices will depreciate much, much farther in a downward direction and if one buys a property now, they will probably find out that they could have purchased the same property for much less in a few years. The best opportunity right now is to rent and wait to purchase for much less money later. The best opportunity to buy will be when interest rates are up, loan standards are very tight, and most folks think of a home as a place to live, rather than an appreciating asset to withdraw equity from for lifestyle improvement or as a asset to cash out for retirement.
 
<p>awgee,</p>

<p>You might be right with your future prediction as anything is possible. You may want to watch the rent rate trend to more accurately predicting future home prices though.</p>

<p>Lately, my rent v.s. buy calculation has shown a break even point at 20% down, factoring in the tax write-offs. Therefore, my potential clients are actually beginning to lean toward buying. </p>

<p>As 100% financing is just about a thing of the past, I do not expect risky inventory of homes added to the pipeline. It is unclear to me how long would it take to flush out the defaulting ones. I am just guessing within the next 12 months.</p>
 
<em>"Lately, my rent v.s. buy calculation has shown a break even point at 20% down, factoring in the tax write-offs. Therefore, my potential clients are actually beginning to lean toward buying. "</em>





Maybe with 50% down, and if you don't need a return on that 50%.
 
<p>I'm a crash optimist in that the rental property market will become positive cashflow again with 20-30% down. I am talking about a four unit building not a SFR so I am not doing a rent vs. buy calculation. Too many people bought rental properties on appreciation alone and took the negative cashflow and depreciation as a write off. Unless you are in a high income bracket this makes absolutely no sense. They will sell in a desperate manner once they realize this and that the value has gone down. </p>

<p>NODs are up for the 15 business days of this month which is 10% higher than last month. June and July should go higher when people eat through their tax return money. The foreclosures have not been deals yet but they are improving since the banks are getting tired of adding to their real estate portfolio. I have seen a few sell below the opening bid amount. Builders still have inventory to unload and they own a lot of land and they will drop prices to move it. </p>

<p>100% financing is not a thing of the past and it is still available with stated income and for first time homebuyers. Credit restrictions make a tougher to qualifiy for but it is still available. If you are not a first time home buyer it is much easier to get. </p>

<p>Irvine rental prices are up 6.9% on a sqft basis where as homes sold are down over 8.5%. There is a long way to catch up. Less rentals are on the market but wait until the summer and see what happens. If you were to draw a trend line rental prices look weak and sporadic and could go into a down trend. Home prices clearly have a down trend line. If you were to look at it the same way as a stock you would short or but puts on homes because it has breached all resistance levels. Rentals you may have a hedge set up since the trend isn't clear. </p>

<p>All in all I am optimistic that reality will return to Irvine and OC in that more people will be able to afford a home. I do not know why RE bulls think that is a bad thing when it would generate more sales. Considering we are at sales levels not seen since 93 and 95 with the population growth and weak but non-RE related employment growth making the sales numbers even worse, you would think they would be screaming for lower prices. I guess you just have to shoot yourself in the foot first to realize it really does hurt. </p>

<p> </p>
 
<p><em>It seems unusual that anyone would bring up credit contraction, monetary imbalances, peak oil, or thr financial effects of the Iraq war. If I bring up any of those topics in day to day conversation, folks look at me quizically and wonder why I would have any concerns. It seems either they are unaware of the possible effects or think the government will take care of it.</em> </p>

<p>If the present uptrend in global oil demand and the downtrend in oil production continues, peak oil is going to be <strong>front and center </strong>on housing crash blogs within twelve to eighteen months. That stuff in Talega is gonna wind-up going for pennies on the dollar. 250cc motorcycle anyone?</p>

<p>Hey, the title is "optimism and positive thinking" and motorcycles are fun!</p>

<p>Speaking of oil, I just changed the oil in my hoopty. Last oil change was over T-giving weekend -- I finally clicked over 3000 miles and did the dirty deed. Or so I thought. When I went to record the oil change in the maintenance log, I realized that I'd driven only 2000 miles. Since Thanksgiving. No, I didn't split the mileage commuting or running errands on a motorcycle. Score one for Irvine and having everything you need within a 4-mile radius. Peak oil might just be the best thing to ever happen to Irvine housing valuations.</p>
 
bix - I would guess that it would be almost impossible to know what specific properties will be short sale in the future, because we can't know anyone's future behavior.<p>

But, that said, since discovering this blog, through the other posters, I have also discovered the NOD list through the OC recorders office, foreclosure.com, and redfin which shows the previous sale.<p>



Nir - Breakeven at 20%? Do you realize that very few if none of the posters in here are stupid? And we all have calculators.<p>

Tax savings due to depreciation on rental property are only defered until time of sale, not relieved. And they are not even defered for high income tax payers for whom re is not their occupation. And tax savings are always discounted into the price of a property.
 
<p>awgee,</p>

<p>Please keep in mind I am in the business of meeting and getting to know people on a daily basis. Do you think I would read people wrong?</p>

<p>I do not think you posters are less than intelligent; on the contrary, I think you guys are too intelligent, therefore, you tend to complicate things much too often. I bet you have all the fancy financial calculators and softwares. You also are highly educated folks. </p>

<p>My calculation is meaningless unless it it validated by the buyer or by buyer's financial adviser/accountant.</p>

<p>I want to be direct for once that I think you (many of you) lack the guidance to make the right move in real estate. I meant this in the sincere way, not to put anyone down. I hope you do not get offended. </p>

<p>graphrix,</p>

<p>While I do like to see folks not having to slave for the monthly mortgage, the housing price is controlled by SELLERS and BUYERS collectively - no one else. The housing payment, of course, is also depends on the money market.</p>

<p>You could never can predict the market.</p>

<p>Comfortable payment comes with time through planning. You pay your dues at the beginning! Folks who bought in 1999 with 10% equity is now seeing their equity grows to 70%. The payment stay the same; but I bet, it feels very little now. And this is true whether home price is up or down.</p>

<p>When home prices drop, sellers resist selling, and buyers resist paying the current asking. Buyers even move the price target lower (almost like a moving target). As the result, sales volume drop, like what we are in now. My job is the hardest.</p>

<p>When home prices is up, sellers want to sell, buyers rush in to buy. Then sales volumes increase, like what we saw in 2000-2006. My job was a piece of cake.</p>
 
<p>NIR - I am sorry but what are you trying to address in my post? Only thing I got from you is that there are no buyers. Like me I am not buying until it makes sense and right now it doesn't make sense. I am optimistic that prices will drop. I am I making a prediction? Yes. Will I be right? Probably it always goes back to fundamentals.</p>

<p>awgee - You are right the depreciation is just deferred until time of sale and not only that but it is on the structure "cost" and not the land "cost". It is a nice break if it lowers your tax bracket that year. This is why 1031 exchanges are so popular. You just keep deferring the taxes to your kids if you have any. You can also take a loss as a deduction as long as you "actively" manage the property. Again this would be a nice break if it lowers your tax bracket. Now the problem is most people do not understand this or are not in a tax bracket for this to make any sense. They will also have a nice surprise from the IRS when they do sell. I am sure the IRS will send them a print out from the dictionary on the definition of deferred. I am glad I am not one of those people.</p>
 
<p>Awgee Wrote:</p>

<p><em>bix - I would guess that it would be almost impossible to know what specific properties will be short sale in the future, because we can't know anyone's future behavior. </em></p>

<p><em>But, that said, since discovering this blog, through the other posters, I have also discovered the NOD list through the OC recorders office, foreclosure.com, and redfin which shows the previous sale. </em></p>

<p>Thanks! Now how do I access the NOD list? </p>

<p>As Nir mentioned, it is all what the buyer is willing to withstand. Buyers aren't always rational as evidenced by the 60+% overvaluation of the properties. Now that prices are going down, they find they overpaid. As a engineer, I always try to look into the future and see what is happening, this was an EASY to forecast. I can wait a little bit and in the meantime I'm packing away ALOT to just purchase my home when the time comes. Anyways good luck</p>

<p>-bix</p>
 
<p>biscuit,</p>

<p>Short sale process starts way before lender file NOD and ends before lender files NOS. </p>

<p>One way to get the list at no cost is from your RE agent or title officer for homes that lenders already filed NODs.</p>

<p>Your RE agent can tell you homes that are on the market for short sale before NODs even filed. Example, in the Woodbury neighborhood, here is example of a couple of short sales: MLS #S479901, #S472277.</p>

<p>graphrix, </p>

<p>Yes, I was responding to your post. You are correct about there are no buyers of the type "wishy-washsy". When price was going up, these folks can be convinced to buy, now I just throw in the towel.</p>

<p>I am working with 2 groups of buyers. The first one is the type of buyers who are buying homes that they truly love. They are closing escrow no matter what; even if home does not appraised! Then another group of buyer who are buying because they believe in real estate.</p>

<p> </p>
 
<p>Bix - <a href="http://cr.ocgov.com/grantorgrantee/searchDocumentName.asp">http://cr.ocgov.com/grantorgrantee/searchDocumentName.asp</a> select notice of default for category and the lastest date the slow county has posted and you have the names of the people in default. Crappy thing is you need to be able to search the name or document number to find the property. I am trying to find something that is free and where you will not be bothered by a sales person.</p>

<p>NIR - So where do you put me? Am I wishy washy? I own my home, so I do not need another one and own an investment property. I don't want to be greedy but I would like to buy at least two or three more investment properties. They have to be cashflow positive by actual rents not market and in decent areas. Very few have sold and many have lingered on the market for many many months because the price makes absolutely no sense. Seriously the cap rate is pratically negative. So what do you advice do you have? I am being sincere and I do want to hear what you think.</p>
 
<p>graphrix - You may already know this, but allowable depreciation is not relieved by inheritance in the same manner as capital gains. When the inheritor of real property sells an inherited property, tax must be paid on the recaptured allowable depreciation. Most folks don't know this and even those who do, don't often recapture depreciation on inherited real property.</p>

<p> </p>

<p>Nir - No fancy calculator or software. Just a regular $10 calculator and any mortgage website which allows payment calculation will show there is no property in Irvine which comes close to break even with 20% down.</p>
 
Been lurking here for a couple months. I am very pessimistic.

Own my own business and have saved enough to buy with a 6 figure down.

But buying in Irvine right now it would seem to be like catching a falling knife.

I see all those homes off SandCanyon and Irvine BL still empty since I moved

To Irvine in Sept 06. Seems like more people are moving out where I am renting.

Quail Ridge. In fact I would guess its maybe 60% occupied.

The only thing I really notice is the huge influx of Chinese residents.



To own a unit like I rent would cost me almost double what I am paying.

How could anyone but the Irvine Company make money on newer rental property ?
 
You must log in or register to reply here.
Back
Top