Cold Hard Numbers
In my second blatant attempt today to boost traffic while one of my pet issues is before the blogosphere, while posts from the mighty Instapundit is fresh on the subject, and David Bernstein of The Volokh Conspiracy and Bill Quick of Daily Pundit also having spoken, here is a letter I've been sending out for a couple months to select prospects (minus the marketing stuff):
I have just recently attended a talk by Gregory Smith, the county assessor, on the future of home values in San Diego. He expects prices to continue to rise by 5-10% per year, citing scarcity as the reason. Basically, too few homes are being built, so we are in a situation with excess demand and not enough supply.
Now, public officials of the county of San Diego have an incentive to want prices to continue to rise. I tried to ask him a question about any other factors holding the price up, and he was unable to produce any.
Unfortunately for this point of view, high demand and scarce supply has a long history in the San Diego area. This has been a constant of the market, rather than a variable, since the late 1970s. Even during the last downturn, the problem was not a lack of interested buyers, the problem was that they couldn't afford the prices when interest rates went up. Sellers had a choice of selling at the prices people were able to qualify for or not at all. Many chose the latter option, it paid off in spades when interest rates fell and prices started rising again. Those in situations where waiting was not an option had no choice but to sell at lower prices.
The fact is that only 9% of the people can afford to purchase a home in San Diego. Even for wealthy investors who put $100,000 down on a $500,000 home with the intent of renting it out, their monthly cash requirements are $2528 to cover a 6.5% loan, plus approximately $500 per month to cover basic property taxes and then insurance, maintenance, etcetera on the property. Unless rents are well in excess of $3000 per month, which they are not, this amounts to investing $100,000 only to have to invest more every month in hopes that the market rise will eventually reimburse you. I agree with every respectable real estate investing guide that negative cash flow on an investment property is a recipe for disaster. This current situation in real estate has many parallels to the dot com investing bubble of several years ago.
Furthermore, we have many people who obtained short-term financing in the last several years, loans that must be refinanced within the next eighteen months, and will not be able to obtain terms that are as good or allow their adjustable rate loans to adjust. Either way, they are facing higher payments - payments that many are unlikely to be able to make. They will either sell voluntarily for what they can get, or involuntarily as the lender liquidates a nonperforming loan.
Even though long term rates are still remarkably affordable, short term financing, particularly on a "Stated Income" basis has become more prevalent for purchases, especially for beginning buyers, and these have risen enough to slow the market greatly. We are starting to see indications of a buyers market now. Homes are taking much longer to sell, and buyers are getting much more leverage on their offers. When longer term rates return to their historical margins above short, the effect will multiply. It doesn't take a genius - only a calculator - to know that when owner occupied rates go from 5.5% to 6.5%, somebody who could afford a $400,000 loan at 5.5% can only afford $359,000 at 6.5% (this difference is magnified for those willing to take interest only loans).
What does this mean to you, a homeowner? If you intend to hold onto your home for many years, I am confident that the market will eventually make good any short term correction. On the other hand, now is the time to secure the long term financing that enables you to hold onto the property profitably, while the high price of comparable properties helps your equity picture. (omitted text here)
If you are in a situation where you know that you are going to need to sell within the next few years, the time to act is definitely now, lest you lose more of your precious built-up equity to the short-term vagaries of the market. This market is going to get much worse for sellers before it gets better. (omitted text here)
And if you're looking to move to a larger house soon, the time to act is now to leverage the market! Sell while the market is still high, knowing that when prices recede later, the money you get from the sale will help you buy more house for less! (omitted text here)
UPDATE: This article has been updated here
Categories
Real EstateThe Book on Mortgages Everyone Should Have
What Consumers Need To Know About Mortgages
The Book on Buying Real Estate Everyone Should Have
What Consumers Need To Know About Buying Real Estate
Buy My Science Fiction and Fantasy Novels!
Dan Melson Amazon Author Page
Dan Melson Author Page Books2Read
Links to free samples here
The Man From Empire
Man From Empire Books2Read link
A Guardian From Earth
Guardian From Earth Books2Read link
Empire and Earth
Empire and Earth Books2Read link
Working The Trenches
Working the Trenches Books2Read link
Rediscovery 4 novel set
Rediscovery 4 novel set Books2Read link
Preparing The Ground
Preparing the Ground Books2Read link
Building the People
Building the People Books2Read link
Setting The Board
Setting The Board Books2Read link
Moving The Pieces
Moving The Pieces Books2Read link
The Invention of Motherhood
Invention of Motherhood Books2Read link
The Price of Power
Price of Power Books2Read link
The End Of Childhood
The End of Childhood Books2Read link
Measure Of Adulthood
Measure Of Adulthood Books2Read link
The Fountains of Aescalon
The Fountains of Aescalon Books2Read link
The Monad Trap
The Monad Trap Books2Read link
The Gates To Faerie
The Gates To Faerie Books2Read link
Gifts Of The Mother
Gifts Of The Mother Books2Read link
C'mon! I need to pay for this website! If you want to buy or sell Real Estate in San Diego County, or get a loan anywhere in California, contact me! I cover San Diego County in person and all of California via internet, phone, fax, and overnight mail. If you want a loan or need a real estate agent
Professional Contact Information
Questions regarding this website:
dm (at) searchlight crusade (dot) net
(Eliminate the spaces and change parentheticals to the symbols, of course)
Essay Requests
If you don't see an answer to your question, please consider asking me via email. I'll bet money you're not the only one who wants to know!
Requests for reprint rights, same email: dm (at) searchlight crusade (dot) net!
Add this site to Technorati Favorites
Subscribe to Searchlight Crusade
My Links
-
Heavy Lifters
- Instapundit
- Hot Air
- Wizbang
- Victor Davis Hanson
- Q and O L Places I get to as often as I can
- Soldier's Angels
- The Anchoress
- Argghhh!
- Armies of Liberation R
- Asymmetrical Information
- Belmont Club
- Tim Blair
- Eject! Eject! Eject!
- Jihad Watch
- Michelle Malkin
- Neo-neocon
- Powerline
- Protein Wisdom
- Real Clear Politics
- Mark Steyn
- Strategy Page
- Vodkapundit
- Volokh Conspiracy Personal Finance, Economics and Business Sites
- Bloodhound Blog
- Financial Rounds
- Free Money Financea> Other sites I've linked and visit
- Ace of Spades
- Ann Althouse
- The Anti Idiotarian Rottweiler
- Atlas Shrugs
- Professor Bainbridge
- Baldilocks
- Beldar
- Blackfive
- Classical Values
- Coyote Blog
- Daily Pundit
- Drudge Report
- IMAO
- The Jawa Report
- Just One Minute
- Libertarian Leanings
- Liberty Papers
- Normblog
- Patterico's Pontifications
- Right Wing Nut House
- Samizdata
- SCOTUS Blog
- Stop the ACLU
- Unalienable Right Consumer and Research Sites
- Better Business Bureau
- Consumer Reports
- NASD Home
- California Department of Real Estate
- California Licensee Lookup
- California Department of Insurance
- National Association of Insurance Commissioners (NAIC)
- Do Not Call Homepage
- IRS Charities Search
- Internet Fraud Complaint Center
- SEC Home Page
- Stop Mortgage Fraud
- Report Mortgage Fraud Debunking Many so-called Real Estate Gurus
- John T. Reed Worthwhile Web Comics
- Sluggy Freelance
- Day by Day It is site policy to list the main page of every site I reference. Sometimes the real world intervenes and I haven't gotten to it yet, or one falls through the cracks on a long post with multiple references. It is also site policy to list the main page of every site that lists this one on their equivalent roll, as well as the main page of all sites that are members of any of the same groups this site is a member of. Please send me an email with a link to the main page of your site if I've overlooked you (dm at the domain name). For the clue-challenged, note that it is a requirement for your link to appear on every page of your site, just like mine does, and I will not link to spam sites.
Logical failures (straw man, ad hominem, red herring, etcetera) will be pointed out - and I hope you'll point out any such errors I make as well. If there's something you don't understand, ask.
Nonetheless, the idea of comments should be constructive. Aim them at the issue, not the individual. Consider it a challenge to make your criticism constructive. Try to be respectful. Those who make a habit of trollish behavior will be banned.
Leave a comment