Buffett says he's going to do it (raise cash and then swoop in). Even the little guy is getting ready to buy houses at pennies on the dollars in 2007 and beyond. I think the guy in this article is spot-on, especially about the 32 year olds with $800,000 loans. My friend is one of 'em.
After making a bundle on Las Vegas real estate, investor Gene Burns has his eye on Southern California, and his reasons may not be good news for local homeowners used to riding a wave of appreciation.
“I'm planning on buying San Diego property when the market goes through the correction that will start in the summer of 2006,” he said. “I think it will crash in 2007.”
The downturn he sees won't be spurred by a failed economy, any slowing in the number of people coming here or a sudden burst of new construction, Burns maintained.
“A lot of 32-year-olds bought a house for $800,000 and they just can't afford it,” he said. “In 2007, their adjustable rate mortgages will start to adjust upward and they won't be able to find that extra $500, $800, $1,000 a month to make the mortgage.”
The Wall Street Journal says there's $1 trillion in adjustable-rate mortgages nationally where the interest rates will rise in the next two years. Burns estimates that between 7 percent and 9 percent of home loans will go into foreclosure.
April 12, 2006
Vultures circling San Diego - good idea?
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17 comments:
Lots of vultures got caught in the tar pits, you know.
alot of money waiting on the sidelines in a bullish thing, not bearish. This is by far the most over-predicted crash.
It probably is a good idea. Which is worse? Astronomically wealthy investors like Buffet buying up properties in foreclosure and emergency sell-off or hundreds of thousands of houses sitting around vacant and decaying. Have you seen Detroit? No thanks! Those vacant houses will ruin the life of the responsible homeowners who live in houses within their means with 30 year fixed-rate mortgages.
My brother-in-law is one of those morons with an adjustable rate mortgage and more house than he can afford. He's 24, just graduated from college 2 years ago, and bought a $600,000 dollar house in a DC suburb a year ago. We we asked him what his rate would adjust to in 3 years he said "I don't know. It doesn't matter, I'll re-fi by then". The genius was earning $52,000 until he got laid off 2 months ago. He's currently working at Olive Garden until he gets the "right job offer". Idiot.
I think the first wave of vultures will get killed. Like buying the nasdaq at 20% off. Then 40% off. Then 50% off.
That's when everyone gave up.
The right time to buy was a shocking 70% off. May be the same with this bubble.
So a $800,000 2-bed condo in San Diego - buy when it gets to $240,000, which sounds still overpriced to me.
Or when rents can get you to positive cash flow.
I find myself in a conundrum in this situation. I am rooting for home prices to come down to their fair valuation. I have no problem with paying the CA coastal premium. Current valuations transcend that premium. Yet when looking at the decline in sales and rising inventories in San Diego I feel a knot developing in my stomach. I believe that 25% to 30% of jobs created in the past several years have been related to RE. Outside of RE related jobs, job growth has been weak throughout the entire state of CA . If San Diego breaks that threshold into falling prices, that means a significant downturn in these jobs. The R word will be floating all over the place by that time. If this scenario is to play out instead being happy that home prices are more affordable now I am going to be worried about keeping my job. Point being don't count on all the people sitting on sidelines to jump in when their sweating layoff notices. Many times that money sitting on the sidelines is the last gasp of the current appreciation cycle, or what some call a "dead cat bounce". I can tell you one thing all eyes are on San Diego.
I dont like the Olive Garden that much. I like Brio, they have them here in FL.
Prices will keep dropping until pos cash flow is relatively common. If herd psychology is a big factor they will drop beyond that point and this would be the time to buy (probably 2010-2012).
I would buy when it makes economic sense, and we’re a long way from that. Capitulation is coming my friends … just hang tight!
800,000 will have to drop to 300,000 or so to make any sense for an investor. Then rent ratio is not even close and at 300,000 in san diego you might not get the rent needed to make it a good investment. It will take years for all of this to come back in line if ever.
LOW MORTGAGE RATES were just history now !!!!
read: Interest rates near four-year high; home loans fall 5.5%
I know things are turning around when my super bullish co-worker has been trying to convince me to buy an "investment property" like he did in Phoenix (we're in San Diego right now) 2 years ago because he was convinced he could sell it for twice as much. Well, wouldn't you know, tax season is here and after selling the property recently he had to pay capital gains, which was almost 50% of the selling price. Let's just say he's no longer bullish on real estate. In fact, I heard the words "what's the point in going through all that headache for a couple thousand dollars".
I cannot believe the crap on this website now!!! Advocating killing people!!! What's wrong with you?
Please monitor this site and clean it up..otherwise you won't have any decent, intelligent commentary left...We will all go elsewhere as you are now undermining the whole re bubble discussion.....
This sounds like another stupid flipper who thinks he can apply his fortune to another market. San Diego will inevitably correct downward at least 20%, but what happens if there's a 5-10 year slide in prices?
The flipper is all about the quick buck, and I doubt this guy could stomach being highly leveraged for more than 2 years waiting for real estate to "turn around".
Hey...If a DEAD HOMELESS man in Tampa CAN OWN 5 houses...Anyone Can! Hoorah
Please monitor this site and clean it up..otherwise you won't have any decent, intelligent commentary left...We will all go elsewhere as you are now undermining the whole re bubble discussion.....
Or you can do like the rest of us an ignore those comments.....
Exactly...
reminds me of the good old newsgroups in the early days of the web....When that got flooded with interruptions from topic busters.
Just ignore...It's been this way for a long time.
Good Blog.
I say let freedom of speech ring on the blogs while it can. Good bad or indifferent, it is the only place where global opinion and experience can be shared. Please bring your experience to the blog and share it with the community. I have noticed that the toxic borderline comments disappear when real information dominates the blogs. It is a sort of intimidation that makes one want to be their best. Control is not what we need. In my opinion it is government control that causes asset bubbles in the first place.
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