The street shots in this youtube were taken a week ago, and added to remind folks what the weather is usually like, instead of the torrential downpour we’ve been having the last few days.
The rain isn’t stopping people from looking at houses though:
Next up is a ‘RE State of the Union’ report.
Are any of you familliar with mello roos?This seems like the ultimate scam to get around prop. 13.Looked at some houses and some have like 3000.00/ year in mello roos.Do most new developments have this ripoff charge?
looks like Carlsbad is about to get dumped on today
While I find Mello Roos to be offensive, nobody is forcing anybody to buy a house with those fees attached. Mello Roos isn’t so much a way around Prop 13 as it is forcing the buyers in these new communities to pay for their freeway exits, roads, schools, etc. Which ultimately makes sense. I, personally, would never buy into a Mello Roos and/or HOA community but those who want in shouldn’t sit there and complain about the fees.
Like all things, people want stuff and they don’t want to pay for it.
People are not willing to pay as much for a property that has Mello Roos. Buyers factor it in. If you notice, communities with high Mello Roos seem to have lower overall values compared to communities without Mello Roos.
I’m terrible at math. How do you figure how much more house you could buy if you didn’t have to pay HOA + Mello Roos? For example, if I’m shopping for a 550K house, one with $0 HOA/MR and another with $200/mo HOA + MR, how much would you detract from the latter house’s value?
Banks take note…
PUT MORE PROPERTIES ON THE MARKET! BUYERS WANT THEM.
Evict the deadbeats and start turning a profit again.
If you figure roughly $600/mo per $100,000 of mortgage, a $200 HOA/MR would decrease the home’s value about $33,333.
A lot of areas have high hoa’s plus mello roos.I guess during the boom no one cared but people are noticing now.A fool and his money are soon parted.
I agree with you shadash, volumes would be easily absorbed. I assume the banks understand this too, so I wonder: what are the banks afraid of? I think they are afraid of price destabilization. Slow trickle works much better if your goal is to stay solvent. I’m sure they’ve studied what happens to price when the supply curve shifts to the right. Buyer frenzy becomes less intense, prices don’t get bid up. Simple as that. Not that I’m happy about it.
I also wonder: why are the banks not trying to move aggressively ahead of the expiration of the Fed support, the Treasury support and the Agency support (FHA)? You would think the first mover would be at a huge advantage because they could freeride on the artificial supply constraint and the artificial demand support. This leads me to conclude that its not the individual banks decision, its a coordinated effort by our policy makers.
But of course, this is all conjecture on my part.
IRE has it right. I use 100k = 500-600/mo in my model. I have also observed what Localboy said. For example, 4S ranch p/sqft in MR areas are lower than similar homes in surrounding neighborhoods that have no MR. It gets priced in. Although, I’m not sure this was true during the bubble years. From my observations, high MR areas have seen much larger price declines (all else equal).
duncbdunc,
wouldn’t the key then be to buy somewhere with high Mello Roos that are set to expire before you plan to sell and reap the reward of having been amongst the owners who paid them off?
“wouldn’t the key then be to buy somewhere with high Mello Roos that are set to expire before you plan to sell and reap the reward of having been amongst the owners who paid them off?”
I’m not sure if you’ll be able to find places that meet those criteria. The duration of the bonds is apparently typically 20-25 years, and the big boom of development was really in the last decade. Moreover, it’s plausible that people who vote in property taxes for themselves once are likely to do it again so I’d expect that the ones that do end tend to fade out rather than cut off.
I would echo what Nate TG said. Most MR neighborhoods I look at were built > 2003.
Also, I wouldn’t expect the market to incorporate a big discount if MR were about to expire. I think people are sophisticated enough to differentiate a house that has 20 years of MR left over one with 1yr remaining.
Mello Roos is actually a huge windfall to landowners/developers (not the builders).
When a builder buys raw land, he used to have to pay to install infrastructure, roads, drag sewer/utilities around, etc.
When they place a Mello Roos/CFD bond on the site the builder’s out of pocket cost to fully complete/finish each lot drops by $50,000-$100,000+/lot (its paid by the CFD/MR bond $$$…read: wall street funds).
Thus, builders will then pay the developer a higher residual dirt value than they would have paid since their out of pocket ‘improvement costs’ go down by the financed amount of the CFD/MR.
Say a $300k home could support a $25k unentitled/raw lot value. since I don’t have to pay $50,000 of the total improvements (I let the homeowner pay it form me via his tax bill) I might offer up to $75k/lot (original $25k + $50k of MR/CFD funds) and still have the same net economics/profits.
Typically, we’d put a MR/CFD on our riverside subdivisions worth $80k/lot of improvements, and we’d capture about 70% of that amount in a higher land sale (with 30% extra for the builder for his risk). ALL PROFIT
Easy money for developers. We thank you homeowners for financing our projects without wanting to share in our profits…beautiful.
And in the meantime, municipalities were raising development fees from 20K/lot to 80K/lot in some areas of CA. Everyone was taking a piece of the action.
So nice to see a measured response to Jim’s video. A year back, if Jim used words like “frenzy” or “buyers are going to have to battle”, all you would hear is a bunch of denialists on this site angrily telling Jim how he was WRONG and how its a DEAD CAT BOUNCE and how the buyers will leave soon enough…
I guess denial can only take you so far.
How long to the next dip in the recession? Or do you believe a 10K+ Dow is here to stay?
Is it a deadcat bounce if the Dow drops to 8000 in the next year?
Anybody have any hard facts on strategic defaults in CA / SD?
There have been plenty of angry bearish comments lately, Orb, but the majority I see get deleted. Jim also asked people to keep the discussions constructive, via video no less, and that has changed the tone a bit. Although from your comment it seems like a measured response is the last thing you want.
Look at the markets during any recession; it isn’t a straight line to the bottom followed by a constant incline. There are plenty of bounces on the way there, as well as on the way back up.
Buyers in a frenzy isn’t necessarily a sign of a healthy market, and it absolutely doesn’t imply a rational one.
I for one am glad Jim is informing us of the frenzied climate and the buyers fighting it out. His comments have kept me from wasting my time trying to go out and buy right now. In the mean time it’s been fun window shopping and seeing a ’66 out on the open road.
clearfund,
Thanks for your wonderful insight into mello roos.I figured somone was making it pretty good on this mello roos deal.Seems like a lot of money for homeowners to pay.As long as prices are on the upswing it must work for them.
orb,
Buyers are “frenzying” when houses are being listed at more reasonable amounts.
Greedy sellers aren’t getting their number.
It makes sense to try and outbid the lowest priced quality property because that’s where you want to live. It doesn’t make sense to outbid a property just because you think prices will go up in the near future.
Jim’s comments were aimed very much to the near term. I don’t think anyone can reasonably argue that the market will be anything but hot for the next few months. Maybe it’s a dead cat bounce, maybe it isn’t. We’ll find out.
For reference near Houston and Dallas there are municipal utility districts that sell bonds to put in the water and sewer systems. This then results in taxes on the property. Eventually there the large city annexes the properties and the bonds go into the cities much larger pot. Of course your property tax assesment can go up 10% a year in TX so taxes will rise anyway. When annexed you wait several years until the roads are completed/upgraded to handle the new traffic as well.
Qualified buyers are on the hunt for price, location and quality. Inventory is the challenge for those want to complete the process soon. Just keep looking and follow your instinct.
Jimbo:
What’s happening with Jon Mann’s Neptune Ave bank theft? Listing says no longer active, was there a final sale price?
Just marked pending on Monday, after 24 days on market. They probably got close.
Buyers are “frenzying” when houses are being listed at more reasonable amounts.
And a year ago, everybody thought they were going to find huge oceanfront properties for a buck fifty when things hit bottom.
Now, paying $900K for an average 3000sf property in Carlsbad sounds “reasonable” to a lot of people. Shrug.