Say What?

I’ve kept a close eye on the rise and fall of the housing boom for the past few years. During that time I’ve heard all sorts of opinions and stories from renters, homeowners, coworkers, relatives, realtors, brokers and even random strangers. For the past many years it was mostly the usual “buy now before you get priced out forever” and how “real estate is the best and safest investment you can make” crap. I’ll never understand how anyone can believe that load of bull, but that’s another discussion.

Even after the initial subprime and credit crunch blowout last year, I was still coming across fairly optimistic outlooks from most people. For a while I was starting to wonder if I’m over-reacting. No one I spoke to seem to understand where I was coming from, what I was talking about and looked at me like I’m from the Looney Tunes whenever I mentioned anything about a major housing crash. I asked myself, how can this be?

It can’t be…at least not for long. As the dull winter gave way to the spring real estate kick-off season, people are starting to turn the corner and realize US housing isn’t going to make a summer come-back. Sure the media spread news of foreclosure numbers, slowing economy and volatile stock market reactions, but nothing hits home more than watching your neighbors’ house sit on the market for months on end. Once people start seeing For-Sale signs going up (and not coming down) in their own community, the ever-popular argument of “not in my area” gets thrown out the window. They can lie to themselves and others all they want, but that doesn’t change the fact that prices are falling all across the country.

The psychology of the market can be very powerful. It takes a long time for people to accept what is happening, but once they have accepted and understood the market conditions, it takes a strong hold on them and their money. All of a sudden real estate goes from one end of the spectrum to the other. People who were on the fence are now on the sidelines and people who have their hand caught in the cookie jar are trying to get out as fast as possible.

In my opinion, we’re at the tipping point in terms of a psychological shift in the SGV market. The conversations have changed regardless of whether you’re at the office water cooler or in line at the drugstore. People are finally realizing the magnitude and depth of the mess we’re in. Is that consistent with the encounters in your daily life? I’d appreciate it if you share with us what you’ve heard and how the people around you feel about the housing market in your particular neighborhood and area.

21 thoughts on “Say What?”

  1. I too have noticed the gradual shift in psychology in regards to the state of the SGV real estate market. General conversations (and emails among my peers) have changed from “you gonna buy a home yet?” to “heres a graph of the subprime, alt-a, prime loan reset schedule”. My own mother, a housewife with limited financial education, is beginning to realize the fact that I may not be priced out of this market any longer since my wife sold our arcadia home in mid 2005. Of course, the folks that believe a turnaround is coming later this year are the local real estate agents and a handful of homeowners whom I personally know. Wish them luck…

    SavedByGrace or TheArcadian,
    Not sure if there will be a legality issue with my request, but would you be able to pull the loan info on the following property? http://www.redfin.com/stingray/do/printable-listing?listing-id=1658008
    The address is 1864 Sharon Place, San Marino.

    My wife and I plan on purchasing a home within the next 3 years, and we were wondering what types of loans have most folks used within the san marino, arcadia, south pas area. Thanks in advance.

  2. most the people I talk to are conservatively optimistic about the situation… they answer with the stock boilerplate hyperbole about globalization and employment #’s, blah blah blah.

    When I counter about affordability, they usually counter exactly the way you describe it. I am a doom and gloomer or negative nancy.

    One individual I met this weekend, called himself realistic. He stated, things are going to get real bad, and real good for others, but that is why you call it a correction. I pressed him, and he shockingly, came out with some sound economic theory. His background was medical, and he compared this to a virus outbreak, pointed to all the charts etc, compared them to blood counts, compared all the fed stuff and gov’t plans to medical treatment, and that things are just going to return to where things were before the virus took over.

    He agreed with me, that we are only seeing the sniffles so far, and that the real outbreak will happen in about 3 to 6 months… or even longer.

  3. It’s funny that you post at this time. Over the weekend we went to a b-day party for a kid that use to be in my son’s kindergarten class in Pasadena but they bought a house and moved to Arcadia a few months ago. They paid around $900K for a very nice house on a huge lot south of the mall. They said they had been looking for over a year in Arcadia, South Pas and La Canada and they considered RE in Arcadia to have some “value” vs. the other two cities because you can get much more “house” in Arcadia. They’re not too concern about the price of the house because they have three small kids and they plan to stay put for at least 18 years. So there are people buying and finding value is all a relative thing.

  4. phantom, thought I could help you out…but no info is avail for properties on Sharon Pl on Propertyshark…

    I did find the last sales info, though. Current owners paid 605,000 in Oct ’03. They have a Monterey Pk mailing address.

  5. Puckhead… I have a very similiar story, one of my friends, incidentally is a Commerical Real Estate Developer, looked around and did the math.

    However, he didn’t think of the house he lived in as an investment, but rather stated, you have to live somewhere. His scenario is with kids, you have two choices. Good school district or private school, and he picked good school district.

  6. SGV,
    Thanks for the info. Do you mind if I emailed you in the future if I have property loan questions?

    puckhead,
    I understand where your friend is coming from. I have two kids who are school-bound in about a year. However, my wife and I opted to rent instead of purchasing. Renting is simply much less costly at the moment, and our two kids can’t tell the difference.

  7. Hey,

    Has there been an increase in crime in the Arcadia/Monrovia area over the past 18 months?

    Opinion poll?

    Thanks

  8. Phantom,

    We are unable to provide that info but I brought up your property while speaking to an associate of mine (she does residential lending on the side). It looks like the owners had put up a 50%+ downpayment on this house.

  9. $605k paid in 10/2003 and still asking $1.3m in 4/2008 for no apparent improvement done to it. WTF.

  10. Smart and right thing to do.

    If you are not trapped in the home ownership or have not made tons of free home equity from the 2002-2006 run up, it is a no brainer to rent in a “good school” district instead of buying now. You can rent a 2000 sf 3/2/2 at $2500/month while the listings still go for over $1 m.

    The market is crashing back to “fundamentals”. Be patient.

  11. mm hmm. Here in San Marino and N San Gabriel there seems to be more reported break-ins…during the day when the folks are home, too. One elderly lady in San Marino was recently approached by someone saying his dog got in to her back yard, so she let him in to get the dog…then he tied her up and robbed her. San Gabriel police sent notices that men were knocking on doors and pushing their way in…Also heard of a recent open house in Pasadena that got hit (went thru upstairs drawers and such, took jewelery). Not sure though if it is an increase, or just more aware lately…

  12. “They’re not too concern about the price of the house because they have three small kids and they plan to stay put for at least 18 years.”

    One would think having a family with 3 kids would make you more cautious. Although they may plan to stay for 18 years no one can be certain of their job or other life events that may come up. In which case they should always be prudent in your purchases, not find value relative to yesterday.

  13. Phantom600rr,
    I don’t know what type of loans most folks used within San Marino, but I do know the buyers have been put down a lot as down payment, sometimes, as high as 75%. This couple who are buying a 2 mil house in San Marino was only going to borrow 500K, which is well within the limit of the “new” confirming limit of 729,000. Because of the #1 school district, San Marino immunes to the housing crisis you have been hearing everywhere else: we are still seeing multiple offers on the houses well above 1.6 mil.

  14. Its like the Iraq war – at the onset people literally wanted to stone you if you opposed it. But it slowly (too slowly) unraveled, and before we knew it public opinion swayed completely towards the opposite direction.

    For the housing crisis, I think the general public is only beginning to wake up. Its going to take a bit more time for the average American to realize just how serious this shit storm will become. Throw all the Credit Suisse graphs or Case Shiller data that you want at ’em, its never enough until the writing is on the wall.

    What frustrates me about our citizenry is truly how uninformed we are. The average American hears the news but rarely listens. There are too few of us who are detail-oriented or care enough to get the straight facts. I can’t tell you how many times these past months I have spoken with educated people who told me they were worried about Obama because he’s a Muslim. Troubling on so many levels.

    If a large number of Americans can’t get their facts straight when it comes to electing their next president, then I presume its going to take a while before we’re all on the same page about falling home prices.

    On a related note, does anybody know if commercial property will follow the same trajectory as residential property? I am a business owner that is looking to purchase commercial warehouse space when my lease ends in a few years?

  15. tracker,

    Commercial property will not be hit as hard as residential due to the nature of commercial financing. Most lenders base their financing on property cashflow (i.e. potential leasing rate). So unless an area experiences sudden high vacancy for commercial property and therefore driving down rents, I don’t see prices coming down at the rate residential property is.

    BUT because all lenders (both residential and commercial) have tightened up their lending standards, we are definitely seeing a lot of downward pressure on commercial real estate values.

  16. Let’s say in 2010 the house’s market value is at $700k (22% decrease). From 2008, not only did they pay $200k too much, over the next 18 years they would have paid an additional $45,000 in additional property taxes (200k x 18yrs x 1.25%). After 18 years, they would have also paid more in homeowners insurance and mortgage interest on that $720k 7% jumbo loan. Maybe they could catch a little break if they can qualify to refinance to a conforming.

    It’s sounds as though it was worth it to them for whatever reason they wanted or needed to buy now. I respect that if they are truly in a sound financial position to be able to afford it. It also makes sense if they had been or were going to be soon paying for private school for three kids ($12k tuition x 3 kids = $36k per year). And, I’m all for more property tax money that can go toward the Arcadia Schools!

    Personally, Sean’s got it right for me. I’m brown bagging my lunch and thanking God for my job every day. I think I’ve even talked my spouse into staying put in our little place with our kids for a couple of years. Paying less for a house means we can hopefully retire sooner 🙂

  17. And what happens when foreclosures drop the price so much that banks holding the bag unload them to “Section 8s”, i.e. welfare bums? An article today in MSN News (Money section) mentioned that’s starting to happen. Add in conversions to Mexiflopper “clown houses” and/or McMansion crack houses and KFI’s mention of squatter “how to do it” websites, the next 18 years could be interesting for a family with 3 kids stuck in their house.

  18. “buy now before you get priced out forever…”

    i.e. Housing Armageddon: Don’t get Left Behind!!!

  19. I find it interesting that now the tables have turned to “Sell Now or get left behind holding a bagful of debt and the fastest depreciating asset on the market.”

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