Economics

Price A House Low And It Will Go

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How can the real estate market be hot at the bottom of Southern California? Jim the Realtor Klinge has no explanation, but he sees the evidence. One place closed above asking. Another went for a million greenbacks at auction. San Diego County buyers are so eager that even blackhearted Jim has been called out for being too optimistic.

Jim gives thanks for the Home Buyer Tax Credit, and also says that these are cash deals. I don't think it's literally true that in every case the buyer writes a check for the whole amount or brings a suitcase full of money to settlement—just as it is not literally true that banks aren't lending at all these days.

However, if many first-time buyers are putting down a large amount of cash, we could be seeing the too-long-deferred triumph of the bubble sitters. They rented or backseat-surfed through maddening years of Flip This House. Now the smart shoppers are taking the gold bars out of their wheel wells and fulfilling the real American dream, of buying a reasonably priced house with ready money. You may believe, as I do, that the market still wants to give back a non-trivial portion of its currently appraised value. But owning your home, I'm told, has rewards that go beyond personal finance, so Excelsior to the bargain hunters.

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  1. But owning your home, I’m told, has rewards that go beyond personal finance

    I can get drunk as ass and piss off my back porch. America, fuck yeah!

  2. Gah, tag fail.

  3. Owning is great, but property taxes blow. Even if you “own” your home (I don’t yet, 26 years left on the mortgage), you still pay property taxes out the ass. Moreso if you are in a decent school district.

    1. Moreso if you are in a decent school district.

      Moreso, even more, if you live in a large poor city with terrible schools, like Baltimore, where the city government basically acts as a jobs program.

  4. Good recovery with the “America, fuck yeah!” comment, Sage. I might have held that tag fail against you. 😉

  5. Property taxes do suck, but we’ve always figured that into our payments when we bought a place (we’re in our third house). It’s well worth it, IMO, to have a place that’s yours.

    Thanks, Naga. I’ll raise my bottle to you this weekend.

  6. I’m a bubble sitter, and I finally put an offer in for a property today. I don’t know if prices are still going down, but I figure it’s time. And I put a full 20% percent down.

  7. Excelsior

    Ya! Ya! Ya!

  8. So, now, only people who can afford to purchase a house are in the market?

    That’s one way to reduce foreclosures.

  9. I heard a succinct comment on the LA radio here a few months back from a local real estate expert: “The wrong people own houses.” The cash flush customers Jim is talking about proves that.

    Here in LA, there are still some barriers to getting the right people to own houses. (I mean people who can actually afford one).

    I’m not sure Jim is right about the tax credit. The $8000 tax credit only applies to buyers who earn less than $70,000 per year. It fades away as the buyer’s income approaches $100,000. CA has a high cost of living and high incomes to match. CA has a lot two income households with blue collar and office workers that don’t qualify for the tax credit. There are potential CA buyers who earn $100,000 or more waiting for the tax credit to expire so the housing prices drop further.

    The recent home buyers might find out that they did not get a such good deal after all.

    Another problem is the combination of Prop 13 and high property taxes. I rent a Prop 13 house in LA county. If I purchased the house I live in (I can afford it) I would pay more in property tax than I pay in rent.

  10. I own a home in San Diego so I’m biased, but I think we’re doing pretty well because of a few factors:

    – We’ve historically been undervalued. Sure, maybe not at the peak of the bubble, but go back 20 years and compare San Diego real estate values to L.A. or S.F.
    – Our economy is going strong. We’ve got a strong tech(bio, gene, electronics, software, defense) base that’s growing everyday.
    – We’re built-out. We’re running out of flat land in San Diego. The remaining areas are either too far out or un-developable.
    – Great weather. The summer just ended and I’m looking at 70 degree temps for the next 9 months.
    – We’re a border town.

    1. – We’re a border town.

      That’s big plus. If Obamacare takes effect San Diego residents will have easy access the hospitals and other health care facilities that will spring up in north Mexico.

      1. Medical Wolfman Jacks providing cross-border service to overregulated Americans. What a thought. Stan Ridgway should come back with “Mexican Hospital.”

        1. “I’m in a Mexican hospital.”

          The syllables match “I’m on a Mexican radio.”, but the placing a heavy accent on the first syllable of hospital is a bit awkward.

  11. I have an interesting observation about the home credit. I see a lot of yard sign advertisements from brokers in the lower income areas pushing the home credit angle. Adverse selection with respect to home sales part deux anyone?

  12. Chipoltlaway.

  13. So doesn’t this prove how markets are great? People who have been prudent and patient are now seeing the rewards of that strategy. They are also providing support to the overall market and forming a base under prices. What’s not to like?

  14. People who have been prudent and patient are now seeing the rewards of that strategy. They are also providing support to the overall market and forming a base under prices.

    I wish that would happen with gold. It’s way out of reach for me now.

    1. I thought that too and bought some shares in a small gold producing mine. They have rocketed up with the price of gold in the couple of months I have owned them. They were bought purely as a hedge against inflation. High risk, yes. But if they go to zero, it won’t kill my portfolio.

  15. Adam S|10.7.09 @ 10:23PM|#
    So doesn’t this prove how markets are great? People who have been prudent and patient are now seeing the rewards of that strategy. They are also providing support to the overall market and forming a base under prices. What’s not to like?

    Were that it so. Instead, we lost 20% of whatever downpayment we had saved, and are lucky to have jobs, and very lucky if we haven’t had a pay cut, 401k freeze, etc. Oh, and houses are merely down to where they were, what, five years ago? They are still expensive by historical standards…just not as absurdly expensive as 2006. Oh yeah, and that 100% of GDP debt that our generation gets to be the first to eat…

    I wouldn’t say things are so peachy for the 20 and 30-somethings that are the vast majority of new buyers.

    1. How did you lose the down payment? In decreased value of your property? In inflation? In the stockmarket? In a bank collapse? I would say that the fact that you are both still employed and on the same salary puts you ahead of a *lot* of other people.

      I guess it also depends on where the in country you are talking about. My understanding is that not everywhere has the same issues as California, Arizona or Florida.

    2. Instead, we lost 20% of whatever downpayment we had saved…

      Chad, you used the “we” word twice without finishing a sentence.

      -2.

  16. A few hours ago I was listening to some socialists arguing that capitalism is bad because it “resets itself by devaluing things”.

    1. Bad for people that have a lot of stuff that loses value.

      Not so bad for people who don’t have stuff but want to buy it.

      In other words, what the fuck are they talking about? If they are socialists, they should be PRO lower prices.

      Welcome to the bold new future of pro-corporate leftists whose mission is to defend the property values of the bourgeois. WHAT THE FUCK?

      1. Nerdy fat bearded socialist guy (not Michael Moore) was including workers as part of the things that are devalued. I still don’t see how that is necessarily a bad thing.

        1. Kay, I suppose he means that capitalism is bad because prices go up and down.

          I further suppose he means that all prices and wages should remain fixed, permanently.

          Moreover, I guess he will insist that consumers never change their tastes and new technologies never be invented.

          So in this new world of “change” nothing will ever change, so that nothing will ever change in value.

    2. Socialism does the same thing. The “reset” in assets is just generally the other direction.

  17. Which sounds like it fits Chav’s fucked up feeling that he is entitled to things costing what he wants them to. Fuck off Chav.

    1. Much like the French farmers who think they are entitled for milk prices to be what they think they should be, or the UAW workers who think they are entitled to get paid more than the company is making.

      Oh those evil consum … er … disembidies market forces that have no relationship to consumers, whatsoever!

    2. I am not “entitled” to a home.

      I am merely predicting that prices will drop until new buyers can afford them with 20% down and 30-year fixed. The market is temporarily being propped up by the tax credit. Expect awful numbers come New Years’s.

      Anyone who actually has cash (and didn’t lose too much, and didn’t lose their job, and is pretty certain about their job, etc) and is debating whether to buy a home in the near future has probably already done so, or is scrambling to get it done by December first.

  18. disembodied.

  19. No matter how you spell it, market forces are very embodied. They’re embodied in the customers, whose happiness must be the sole concern of every worker. Buy my Foundations of Success technology and learn why hatred of your customer is never a Foundation of Success?.

    1. Yes. I think the problem with leftists is that they don’t get the fact that market forces are a reflection of consumer demand, and hence human values. They see them as alien, disembodied forces that affect people’s livelihoods capriciously, utterly unconnected to the possible fact that the person’s livelihood might be producing something that nobody wants.

      1. This letter in the today’s WaPo captures this mindset quite well, as in, they just don’t fucking get it:

        “Free-Market Flaws

        In an interview [Outlook, Oct. 4] Peter Schiff ducked the issue on health care. He implied that if the health-care industry had a truly free market, as exists for Lasik eye surgery, then costs would fall across the board. He failed to address the fact that a prerequisite for a free market is the consumer’s ability to say, “No, I won’t buy that.”

        Lasik is unnecessary — it is nothing more than cosmetic surgery — and consumers are free to decline if the price or conditions warrant. The same is not true for dialysis, or setting a broken bone, or many other medical procedures. If you can’t say no, you’re not in a free market. And if it is not a free market, then free market orthodoxy won’t fix it.

        NEIL BILLINGS

        Fairfax”

        Comprehension FAIL, Neil.

  20. Whoever suggested the movie “Versus” in the zombie thread owes me two hours of my life back.

  21. What the fuck is Chad talking about? Really, even Tony makes more sense.

  22. I had 65,000 in the bank. Just put most of it into a house last month. We just closed.

    Course I just lost my job a week ago. So that sucks. Hopefully I can keep it.

  23. However, if many first-time buyers are putting down a large amount of cash, we could be seeing the too-long-deferred triumph of the bubble sitters.

    You mean bubble busters, not bubble sitters. The sitter is supposed to take care of things while you’re gone.

    Er, no, the bubble’s already busted (except for Chad who doesn’t count anyway). So it must be the busted bubble cleaners. Or something.

    I mean THOSE people who are now buying HOUSES. Whoever they, their very own selves that they are, may be. Okay?

    If SoCal picks up I might not come out too bad in the end. We bought our house here in AZ about five years ago, just before real estate went really insane. I’ve been afraid that the bottom of the market was going to be somewhere below what we paid, thereby wiping out the down payment we made along with the little bit of principle we’ve paid since.

    If southern California picks up, then there’s hope that AZ will soon follow. Lots of buyers here are California refugees looking for a lower cost of living.

    Of course they also seem to bring California liberal attitudes with them so in a few years, we’re going to convert Arizona into California Jr. But I prefer not to think about that.

  24. You can’t understate how competitive the real estate market is in the area right now, especially in the 200k and under category.

    My sister, who rented through the bubble, is finally looking for a house for her small family. She’s been looking in the 150k-200k range in Temecula and Hemet and putting in bids 10-20k over the asking price on literally dozens of houses. Every single house has had multiple offers and all of them ended up selling well over the asking price. Someone is out there buying the damn things.

    1. It’s insanely hot right now. There are almost no private sellers, except for short sales, flippers, and the occasional probate sale. The banks are holding back foreclosing on properties (people can go up to two years without making a payment before the bank actually takes the house back), so there aren’t nearly enough REOs (bank-owned) houses to go around. So supply is microscopic.

      This wasn’t the case back in May when I bought. There was plenty of supply then. Not any more.

    2. When the system finally crashes from the Insane debt that the Obamanites are piling up we will finally see the real world again.
      Tell me if this makes sense to anyone.
      When you add up the Builders cost, Material cost, and a fair profit, that is what a House is worth….Period. It is not worth one – two or three hundred thousand more than that—-EVER.
      I believe that a lot of Bankers should be in prison for the crap that they along with our elected crooks pulled off….

  25. What’s a million get you in CA? 1200 square feet or so?

    1. Depends. I bought a foreclosed house in Riverside in May. It’s 4 bedrooms, 2 baths, 3 car garage, 1,750 sq ft, .2 acres of land, single story, corner lot. I paid $150,000. The last guy paid $400,000.

      But in, say, Irvine, $150,000 will get you a 1 bedroom 500 sq ft condo.

  26. I close on a foreclosed property on the 21st. I looked at the same property a little over 2 years ago. I am getting it at a 58% price reduction.

    The day my offer was accepted the bank got another, better, offer but we’d locked in. When I started the inspection two interested people swung by to see if I was showing it (ha)… One said she was planning on making an offer on it later that week.

  27. …the real American dream, of buying a reasonably priced house…

    As a southern California resident, I can tell you that homes here are still a long way from being reasonably priced. People are buying in now because prices seem low compared to 2 or 3 years ago, but they are still far out of line with median incomes.

  28. lower end home prices will quit being comeptitive soon as the millions of homes in shadow inventory start to hit the market. Plus let’s not forget all the Alt A, and option ARM’s that are just starting to reset.

    Yes banks have been deliberatly holding back homes to try and artifically inflate prices, but they have carrying costs, and can only do so for so long.

    But the liberals should be happy, when the market is done, we will finally have affordable housing again !

  29. We’re currently looking for homes in San Diego and have been in the trenches trying to get one. It’s nasty. First I would say it is only the low-low end homes that are being eaten up quickly. Which for San Diego is anything under $300K. If we could afford say $50K more then we would not be in this problem. Another issue, San Diego has a lot of military whose pockets are buldging from combat bonuses, govt backed loans, housing allowances, and the tax credit. Next whoever said you need 20% down is full of shit. The majority of these home are bought with FHA loans with next to nothing down. Fourth, banks are withholding releasing their low end home to the market because they don’t want their current selection of low end homes to devalue. Fifth, I would say most people are trading down, again raising demand on the low end. Finally lastly I will agree with your point, there are people who have waited to buy a home who are now just doing it, but they do not represent a majority of the market.

  30. I live in the L.A area in CA. I Purchased my house in April I got it for a 1990’s price. many homes in my area are still going for 500k but my wife and I could only afford around 300k. we started putting bids in August of ’08 we finally found a fixer for 225k we spent some of what we saved around 10k to fix it up new carpet fixed the broken windows mainly little things the only big purchase were kitchen cabinets. The key to getting a good deal is patience and don’t look for the house with hardwood floors and granite counter tops. Add those things later you’ll spend a lot less and it will be exactly what you wanted because you picked it out.Oh and the best part is I’m less than 5 miles from the beach.

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