Hello, and welcome to blog talk radio with Rich Toscano!
For a reference point, everyone knows his blog: http://piggington.com/
Here is a link to one of his more-recent articles that we’ll be discussing tonight:
http://piggington.com/shambling_towards_affordability_november_2011
Click here to listen to the show (starting with a blast from Billy Zoom):
http://www.blogtalkradio.com/jim-the-realtor/2012/01/24/real-estate-with-jim-the-realtor
You two are NOT describing a healthy housing market.
Given that Rich has charted the relative affordability and rates are historically low, why are the vital signs still so weak?
To what do you attribute such buyer sensitivity?
More… You both focus on SD, but what are your thoughts on the national market.
Even more… the prevalence of cash offers, high downs, etc. suggests the market belongs almost entirely to the strong hands. Thoughts?
Somewhat of a disconnect there, though.
If demand is there but not supply, why are less-than-ideal homes sitting? Where are the people that would normally get those? Typically a significant demand/supply imbalance would raise prices.
Are you sure demand isn’t a mile wide and an inch deep?
p.s.: “tj” is my normal optimistic self, whereas “the bear” is that part of me I discovered back in 2003 when I woke up to what was happening.
Another good show, Jim. Too bad your rabid followers are all phone-shy! 🙂
Thanks for participating!
It works fine to take questions off the blog or by email, so I need to encourage people to speak up in whatever form is most comfortable for them.
Brief highlights:
A. The normal San Diego price/per-capita-income ratio is around 8, and currently we’re at 7.3.
B. The overshoot is around 10% now, and hard to say how much more if any.
C. Jim went on and on with reasons why the overshoot could be muted: Low rates, low supply, people are getting antsy due to age, seller reluctane to lower price, and foreclosure spigot appears to be turned down/off.
D. Rich bought a house (closed last week) and felt some of the same things over buyers feel – especially that when a good one gets served up, you have to act quickly, and decisively.
E. Jim mentioned this listing as a great example of the resiliency in the CV market – it sold for virtually the same price in 2005 AND 2006 as it listed for today:
http://www.sdlookup.com/MLS-120004152-5680_Willowmere_Ln_San_Diego_CA_92130
Jim thinks that with the current low inventory of homes around this area, the seller is likely to get his price, or close.
F. In reaction to tj’s question above, Jim thought that the weaker vital signs might improve in 6-12 months. But with such low supply the sales could drop further, and could sway statistics unduly (up or down).
G. Rich thought that once rates go up, it could spur fence-sitters to buy.
H. Jim didn’t say it, but he was thinking that sellers will be very reluctant to lower their price just because rates went up.
Jim,
Something occurred to me while reflecting on the show tonight.
During the bubble people were obviously sensitive to rates, not prices; it was all about the payment. Well, now I believe we have just the opposite — people are sensitive to prices, not rates. Your observations bear that out.
The implications go much further, though. This would mean that a rate increase would not spur buying, just foster an even greater wait-and-see attitude as people wait for a reaction.
The “strong hands” that are buying now are those that you guys discussed — buyers purchasing quality long-term residences (or investors). They’re price-sensitive too, but feel they have the means to weather any future declines.
People will get off the fence now that Rich has a bought a house.
#9 TJ – My view is that people are still highly ‘payment sensitive’. Its only that, in the absence of the appreciation component in a purchase people (and lenders) are looking to reduce the % of income dedicated to their housing pmts thus keeping a lid on pricing and enthusiasm.
If your house is rising in value, you’d be willing to pay more each month (say 50% of income), but w/o that increase people are moving back to historical income ratios in the low 30% range. This is partly personal and lender induced medicine.
Thus, my thoughts are that this is, in large part, the cause of the slow downward pressure on willingness to jump in at higher prices.
When things change, price momentum turns positive across the board, banks will loosen the income ratio test, and it will feed on itself again. Not so right now.
ps: JTR – I haven’t listened to this blog radio yet, but I applaud you for pushing the boundaries and your comfort zone. Impressive putting yourself out there even further.
Bravo.
It will be interesting to see what happens when rates go up. There’s so many things going on in the housing market that aren’t typical. You have investors buying up cheap property like crazy because it yields better than 30 year bonds but what happens if those investors decide to liquidate or reduce real estate exposure and get back into bonds when rates go up. Does that keep a lid on a low end market? If it does can that effect the mid tier market with a lack of move up buyers.
It was a great show Jim. Thanks.
It looks like a full time job just updating your site and informing the public.
I dont think the rates are going up anytime soon. We are in a typically Japanese scenario and I think we will see lower and lower interest rates while prices will continue to stagnate/decline.
I know this sounds crazy, but we might see interest rates below or at 2% in the near future.
It looks like a full time job just updating your site and informing the public.
My intent is to demonstrate my devotion to assiting my clients.
I leave enough out here in the public so potential new clients see that I can contribute substantially to their cause, and hire me to help them.
This is the tip of the iceberg.
clearfund,
I’m still pushing for you to be a guest for one of Jim’s future shows. What say you two??
Just curious, if the graphs took into consideration:
1) Mello – which seems to be norm for any new communities now.
2) HOA payments – which seems to be decently increasing.
3) Master assosication fees- Absolutely nothing. Just a cable bill.
4) Property Tax – It is standard %. But it becomes bigger with the cost $$$ of house.
Here is question for all those in the know..
I am looking at a house that sold for 1.6m in 2002 and at that time had 16k / year property taxes.
Now the taxes are 19k/year and the house is for sale for 1.3m.
What taxes will I be paying if I buy the property now for 1.3m?
Will it be the current 19k/year or they will automatically adjust to the new sales price or 13k/year?
Thanks
Auto-adjust in California.
Are you in San Diego?
You mentioned previously that it looks like this is a full time job to produce the blog, but so we are clear – I am a realtor by trade and use the blog to demonstrate my abilities.
If you are in San Diego, did you, or are you, considering having me be your agent?
#17 Raj – Yes, those charts reflect sale values, which are a result of each individual factoring in all the items you mentioned in their perception of price.
#17 – No on the first 3, yes on 4 (property tax).
Clearfund & Rich t,
Mello + HOA + Master assoc. fee for a new community are (4s/delsur) approx. 500+ 200 + 75 =775. In some parts of the country where weather sucks, this money buys a home of 200K :).
If those numbers are not taken into consideration, then monthly pmt/Income graphs are off.
BTW best part of Mello is , it is 40Yrs , with an possibility of 5 additional years, with at most 2% increase per year and start date : build out completion of the community ( possibly around 2015).
Raj, for one thing, there’s always been HOA so I just don’t see it changing enough to impact the historical ratio. (If anything, if HOA rose with inflation and home prices rose faster than inflation, the HOA proportion would shrink). Mello Roos is newer I guess but I think this represents a very small portion of resale single family homes and I doubt it moves the dial very much at all.
However, as I said on the radio show, these graphs are just a ballpark to give you an idea of the general state of the market. You”d have to analyze each property, including MR etc, on its own merits.
Whoa! Hold the phone. Rich bought a house??!!
Okay. I admit since I bought mine, I have not been visiting my favorite real estate sites of late. Finally had a chance to catch up w/Jim’s and stumble upon the Radio Blog. So cool! But I read that Rich bought a house?
CONGRATS, RICH!!