Our reader Stormin sent in this link to a guy who he has followed for years and says he is solid:
http://dailytradealert.com/2013/04/24/you-still-havent-missed-out-on-this-incredible-opportunity/
Here is an excerpt:
“I believe house prices in America will soar beyond what anyone can imagine.”
He’s not putting a price or percentage on it, so take it with a grain of salt.
But when we are already seeing local prices getting back to – or above – the peak levels, it does make you scratch your head.
How high could our local real estate prices go?
Here is my wild guess.
In boom years, home appreciation averages around 1% per month – and in the craziest year of all, 2003, prices went up 2% per month (I’m using round numbers).
This year will be our 2003, and NSDCC detached homes will see rampant appreciation at our current pace – let’s call it 2% per month.
Amazingly, today’s cash buyers don’t seem to care about recent sales, and don’t mind paying wildly above comps – and I see it everywhere. This will contribute greatly to the 2% per month appreciation this year.
We need to satisfy the demand of all the rich people first – they are at the front of the line, and until they get all the real estate they can handle, the financed buyers will have to wait around.
But we should hit a point in June/July where it becomes obvious that the market is totally out of control. The evidence will be the glut forming of over-priced turkeys whose owners still think we’re in the selling season and their lucky sale is right around the corner so they refuse to lower their price.
The ego of cash buyers will start demanding better deals, and when spoiled sellers don’t comply, it will open the door for financed buyers who will jump at the chance to get in the game. Hence, the 2% per month lasts all year as more financed deals filter in.
Once we get into 2014, the Fed starts backing off the QE-Forever, and banks will start rasiing mortgage rates whether the market demands it or not.
Financed buyers go crazy at the thought of losing their bragging rights around the barbeque about getting the lowest rate, and the frenzy stays hot for another year – but at the 1% per month rate because it is already built on top of the previous year’s 2% per month.
By the time we get to 2015, exhaustion is setting in – both physically and financially – and more sellers are rushing to market. Let’s cut it back to 0.5% per month.
2013 = 24%
2014 = 12%
2015 = 6%
Total = 42% above 2012 pricing.
That’s the maximum – is that beyond what anyone could imagine?
I’d be surprised because I’ve never seen the next bubble show up in the same asset class as the previous bubble but who knows. I have seen plenty of bubbles where there’s a temporary surge in prices after it’s burst only to see it go lower than the previous bottom. Of course I don’t expect to see that here but that’s probably about equal odds to a 42% increase in the next 3 years.
With so much cash in play, it’s all psychological now. Once the cash clears out, the fundamentals will play a bigger role.
It’s like Fantasyland now, and not in a good way.
The stock market is currently hitting all-time highs. Those paper profits make investors feel wealthy. Real estate looks cheap with Google selling at over $800 a share.
Another DOW 36000 Apple 1000 type. Yawn.
#1 The rich buying for their own residences is a small and fickle market.
#2 Anyone buying for investment is ultimately constrained by cap rates.
#3 The regular residence buyer is limited by affordability. Keep in mind that $400psf at 3.5% is the same payment as $220psf at 8.5% (which was the average rate back in 2000).
Nationally much further growth in prices will require substantial gains in jobs and incomes which so far aren’t happening. Locally? NCSD has more affluent buyers than homes available, so it can continue higher as long as supply remains constrained.
mom and pop dont trust wall street. They want to buy tangible assets.
Look at the tax benis of real estate too. Live in the house for 2 of past 5 years and you are tax free on a sale.
You dont have to trust anyone’s accounting either.
Between the Fed destroying your ability to live off your savings and the casino atmosphere around Wall Street, no surprise that mom and pop dig the tangible assets.
It could be the main reason driving the real estate market right now.
Who is buying? I get 1-2 of these types of emails per week:
Seeking Class B and C Multifamily Properties
We’ll Purchase Approximately 10,000 Units in 2012-2013
Phoenix Multifamily Group, LLC (“PMG”) acquires, renovates, stabilizes, and resells Class B and C multifamily properties of 100 units and larger in select US markets. Projects of interest to PMG are 15 to 40 years old, in need of moderate to substantial renovation, and have the potential for a significant increase in rents and occupancy when they are brought to a performance level similar to other comparable multifamily properties in their respective submarkets.
PMG is currently seeking to purchase approximately 10,000 units in the over the next eighteen to twenty-four months. We have a broad network of institutional and private capital partners and have the debt and equity capital ready to execute smoothly and rapidly on our property purchases.
1.) Class: Class B and C
2.) Type: Garden Apartments with Pitched Roofs
3.) Size: 100-plus units per property with portfolios welcome
4.) Condition: In need of $1K to $15K per unit in renovation
5.) Occupancy: Any occupancy from 0% up, but underperforming the submarket
6.) Markets: Review our markets of interest
7.) Additional: Note purchases to gain control of the collateral are fine
If you are aware of on or off-market properties or non-performing notes collateralized by properties that you believe are a match to our acquisition criteria, we’d like to talk with you. All brokers will be protected. We’re happy to sign a confidentiality agreement and fee agreement in advance of any property discussions. We pay a 3% buyer’s broker fee.
For additional information about Phoenix Multifamily Group, LLC, please click here.
Market is pretty hot, but hard to say it’s a bubble yet.
There’s a lot of cash bouncing around with people looking for investment options. Of course, the NCCSD is doing a lot better than most other parts of the county and country.
That PPSF chart shows 4 major moves over the past 2 years – 2 up and 2 down. My outright guess is that the next few years will also have some sizable moves up and down.
In terms of stability and retention of value I think CV will remain king because it is so coveted, not only by domestics but by the international/Asian buyers. If you want to buy there you will have to compete with them whereas if you look in some other areas there may be less competition. The CV effect has overflowed into RP and RB over the years and those areas could be sticky too.
The question is will SD move along toward a SanFran peninsula environment as population grows and inventory does not/cannot, or are we over-valued and due for another big pullback. I sure can’t say but I do know there is alot of money already in this town and alot that wants in so I would not be holding out for any bargains on a quality coastal property worth owning.
Thanks dacounselor, good to see you again!
Agreed, bargains are for dreamers, today all you can hope for is to win one close to the coast, and if it’s a decent home and location it’ll be over list price.
If you do get a break on price, it will be on an inferior propertythat even the lousy agents won’t touch.
The difficulty of getting a good buy is compounded by the inexperienced and/or lousy agents who tell their buyers to pay over-list on all properties whether they deserve it or not.
Another factor to consider with these cash buyers.
If they are retirees – which makes sense with 77 million baby boomers – San Diego should really make out nice, because the rich ones will come here.
Where else in the U.S. is better to retire if you have enough dough to be able to live anywhere? Heck, bring the grandkids with you!
I think that the one variable that is hard to factor is the influence of private equity. Big money private equity firms have gotten in to the flip game in a huge way.
However, these are firms that buy everything below list – it’s just not their business model to pay 15% over asking.
In some locals across the country, I understand that they have been up to 20-30% of demand.
What happens when that demand exits the market; at the same time the Fed is ending purchases of MBS; and the MBS market has to absorb risk on all the new regulations designed to protect homeowners at the cost of making foreclosure more difficult?
Do we then go from one perfect storm to another?
Probably no where unless prop 13 gets repealed.
Hopefully in 2014 or 15 USD will lose reserve currency status and then hyperinflation will come. Home price will go south.
Huh? if there’s hyperinflation, prices for everything will rise including homes. How would the US lose reserve currency status? Which currency is even traded in the same volume? And which currency would you buy instead? the Euro? bitcoin?
The Coast closer to the city is also on fire. I was recently able to purchase a home from a neighbor before he hired a realtor and put it on the market. Subsequently, I’ve seen multiple other listing in 92106 (Pt Loma) and 92107 (Ocean Beach) go over asking with multiple bids. In particular, the under $500k market is scorching. Everything is snapped up immediately. It’s 2003 all over again.