Comments on: High on Hyland

By: Corntrollio

Corntrollio — Wed, 26 Mar 2008 20:36:34 +0000

COLA = cost of living adjustment. I was just thinking rents tend to be higher in places like LA than in “flyover territory” (a term which I’d never heard until I moved to CA — not used as much on the east coast). But the reason I thought I’d mention it is that my buddy in Indiana is thinking about selling his condo since he’s moving out of state, and he considered renting it at around 115 GRM, but probably won’t do it.

By: SavedbyGrace

SavedbyGrace — Wed, 26 Mar 2008 14:48:51 +0000

Congrats on the little one

By: SavedbyGrace

SavedbyGrace — Wed, 26 Mar 2008 14:47:11 +0000

What are COLA cities?

I tend to think of GRM 100 being what cash flow investors are willing to pay. Rent savers likely jump in much sooner than that.

By: IdiotBoy

IdiotBoy — Wed, 26 Mar 2008 07:31:42 +0000

Just had a kid and figure we’ll be busting at the seams if we’re lucky enough to have another sometime in 2009. In other words, the usual. But for that, I’d probably wait until 2010.

I’ve enjoyed the discussion as well. Keep up the good work. Just because I don’t always agree doesn’t mean I’m not a fan…

By: AKR

AKR — Wed, 26 Mar 2008 06:37:40 +0000

I guess this recession will be short and mild as the fed is again lowering the interest rate. Hopefully this time banks invest the cheap money wisely so that it won’t flow into the equity market.

By: Corntrollio

Corntrollio — Wed, 26 Mar 2008 04:06:35 +0000

I tend to like 180 as a GRM, because in less desirable and lower COLA cities, the GRM is more like 100.

By: SavedbyGrace

SavedbyGrace — Wed, 26 Mar 2008 03:03:36 +0000

Yay for engineers!

Goodluck on the house hunt If you don’t find something you like, you can always rent a house or condo in the Arcadia school district. That will get your kids in school and give you more time to look for that special property at the right price.

By: AClover

AClover — Wed, 26 Mar 2008 02:07:22 +0000

I am an engineer with 15+ years working experience. I am actively hunting for a house in Arcadia and plan to buy one before August since my children need to enroll before school starts. All info I got regarding to those properties are from my agent since we were interested in those properties, but not satisfied with the listing price though:-)

By: SavedbyGrace

SavedbyGrace — Wed, 26 Mar 2008 00:22:15 +0000

Well said! If you buy within your means and don’t buy as an investment, it doesn’t really matter what the GRM is. May I ask about the reasons behind the mid-2009 deadline to buy?

No one knows for sure what will happen as things unfold so all we can do is speculate. Thank you for the discussion. Sounds weird, but I enjoyed it.

By: IdiotBoy

IdiotBoy — Wed, 26 Mar 2008 00:11:35 +0000

No argument here that prices in SoCal will fall precipitously– but only because they rose so precipitously during the boom. I did see the Case-Schiller index, and I expect that this time next year we’ll see a very similar report, and that ultimately we’ll see nominal losses of at least 35% from the 2006 peak, and real losses at 45% or more. Basically, home prices won’t stabilize until they revert to prices implied by the “natural” appreciation rate since the last time prices were rational in SoCal. And there’s a non-trivial chance that we’ll overshoot on the downside much as we did on the upside.

But as a relatively near-term buyer (latest would be mid-2009) with a long-term outlook for my next home, I’m not particularly interested in trying to call a market bottom. Once I see prices get back down to something approximating “fair,” I’m going to jump back in. To me, “fair” is significantly north of a GRM of 180 for all the reasons I’ve articulated in prior posts. Moreover, my modestly optimistic belief that the diversity of the SoCal economy will blunt the impact of the coming recession makes me skeptical that we’ll have the kind of economic dislocation that could lead to a true depression in housing values, which I would define as prices dropping substantially below “fair” value (i.e., the situation in which we found ourselves in 1995).

As for my modest faith in the LA economy– the two industries that will bear the brunt of the coming recession are real estate and financial services. Most of the jobs that will be lost in real estate have already been lost (see, Irvine). The financial sector jobs are being lost literally right now, but SoCal’s exposure is nothing compared to that of NYC, Chicago and SF.

This is all, admittedly, pretty squishy– it’s not like I have graphs and regressions to back any of this up– but my gut is telling me that early 2003 price-levels are the bottom, and that we’ll get there in late 2010.

May your helpful blog live long enough to point back to this post and make a liar of me if/when future history proves me wrong.