Wayne: Are you sorry you sold your condo?

[jkarolyi]

Back in August 2004 you sold your condo and moved into a rental as mentioned in this thread:

Time to sell in Cali?

Everyone talks about doing it, but you're the only person I know of with the guts who actually did it! Just wondering if 14 months later you regret cashing out and renting. What are condos in your old neighborhood selling for now? I don't know how the coastal market is, but here in smog central (Riverside area), housing prices continue to boom.

I'm about to make the leap to sell and rent back. I bought a 3br 1500 sq. ft. condo exactly 2 years ago for $145K (a real bargain even then), and they are now selling for $300K. I do have a 5.1% 30-year loan...that is hard to give up.

An "investor" I know will buy my place for $299K and sign a lease with me for 1 year for a reasonable market rent. He says "I'll make 20% at least in one year!" Somehow I doubt it.

$150K in tax free cash is hard to pass up, plus I have another $50K in equity. I really want a house in about a year and hope to pick up a foreclosure which should be in good supply by then. $300K for a crappy condo choking in smog is just insane.

[tabs]

The CRASH is COMING. The smell is in the air..

[jkarolyi]

>The CRASH is COMING. The smell is in the air..

That's what I heard three years ago, yet the market has stayed red hot.

[RickM]

The point is that this bubble burst has be "predicted" for quite some time...and it still hasn't happened.

[jyl]

So was the stock market crash of 2000.

[RickM]

I think we've been through this before..........

[john_colasante]

You should absolutely sell and rent now. Your condo isn't "worth" $300K. More like what you paid for it.

[TerryBPP]

I sold my condo for %75 more than I paid for it 8 months ago fearing the crash was coming. Now I could sell it for %150. Should I have waited? Its a gamble I wasn't willing to take.

Fortunately the house I bought with the cash from the condo has gone up %40.

[nostatic]

I friend put his house in the valley on the market last week. Had 3 offers the first day all over asking. This is on a $1.2M home (ie a small one )

I know some places have slowed, but others seem to be plenty strong...

[JavaBrewer]

Terry, you could have kept the condo, rented it, and sold it today for that extra gain. Like you said that would have been risky and admittedly I probably would have done what you did and sold.

The cooling off has started in SD. Expect to see drops over the next couple years. How much of a drop depends on the foreclosure market in light of the many adjustable loans that have been written. Folks who planned to stay put should not be affected unless the jobs/economy take a huge dive and they are forced out.

[TerryBPP]

Originally posted by dmoolenaar


How much of a drop depends on the foreclosure market in light of the many adjustable loans that have been written. Folks who planned to stay put should not be affected unless the jobs/economy take a huge dive and they are forced out.

I fell into this intrest only mortgage thing. I technically have 2 mortgages. One for %85 of the value and another for %15. This keeps me from paying mortgage insurance.

My first (%85) is fixed at %5.25 for 5 yrs. I don't plan to be in my new house for any longer than that, so no big deal.

The second (%15) is vairable, which scares the hell out of me. I mulled this over for a week before I commited to it. I figure if the rates sky rocket I can always pay it off, but it will hurt. I also have an option to pay off the principal if I choose, which I doubt I ever will.

I live in a pretty prestegous area so I highly doubt that the value will drop below what I paid. I just have to get out before that fixed goes vairable or refinance.

[jyl]

Originally posted by SoCal911SC
Why would interest rates be raised in the face of a declining housing market and corresponding declining GDP?

The nightmare scenario is weak economic growth plus high inflation aka stagflation. Rising energy prices raise the risk of that scenario, since energy is an input cost for most industries and also can crowd out other consumer spending. Flashback to the nasty late '70s. The current Fed has made it clear that their first priority is to head off/stamp out inflation, even at the cost of slower economic growth. Central banks are inflation hawks at the core.

Add the Fed's worry about a housing price bubble. Greenspan has sent mixed messages about this. He denied that national housing price bubbles were possible. Then he warned explicitly about "froth" in housing markets. Recently, he has said that even if the Fed detects an asset price bubble, it can't do anything. Confusing? Plus we don't know the view of the next Fed Chairman (aka Bush's personal loan officer or some other Texas crony). But there is some risk that the Fed will actively try to deflate the housing market.

Add the ballooning federal deficit. In theory, if the federal government needs to sell more and more debt, it needs to offer buyers a higher interest rate. All other factors being equal, of course.

Anyway, this is just rambling, but what you described is not impossible . . .

[turbo6bar]

Dude from Pimco believes Median House prices follow Federal monetary policy.

Contrarian Bond Pimp Bill Gross

"...I think it�s pretty clear that real housing prices have peaked on average four to six quarters after the central bank first raises interest rates and following what appears to be 200 basis points of short-term rate hikes."

The Fed began raising rates in July 04, so we are very close to the peak in housing prices. Based on housing inventories in the hottest regions, we may very well be at or past the peak.

jkarolyi, what is market rent for your condo? What is your current outlay (mortgage, taxes, insurance, association fees)? If the two are wildly off, it's time to sell.

I find it reassuring that at least many acknowledge there is a bubble in housing. This time last year folks continued the mantra that housing could not go down... they aren't making any more land, everyone wants to live in _______ (insert your town here), it's different this time.

Housing starts have been around two million units per year. US population is growing by ~three million per year (via birth and illegal/legal immigration). Stuffing 3 to a home, you will need one million new homes per year. What happens to the other 1 million homes?

[jyl]

Guess I should read before I ramble, eh?

[Rodeo]

Originally posted by SoCal911SC
***
That suggests that "Housing Crash = Interest rates driven up."
****

I'm no economist, but I see it the other way around. Long term rates go up = Housing Crash.

New buyers will be shut out with even a 2-3 point jump, since that makes current financing costs maybe 30-50% higher. Then people with adjustable loans will get squeezed on their payments, prices will go down because of fewer qualified buyers, people will walk away from their now high rate loans since the loans are more than their property is worth, prices go down further, etc. etc.

I think in the next 3-5 years CASH IS KING.

[turbo6bar]

Originally posted by SoCal911SC
no, I'm interested in what you think on this.

would you agree with my last post?

I do agree with you to some extent. If the market goes really bad south, the FED will be in a hard place. Their primary goal seems to be controlling inflation. It seems, if faced with a crashing RE market or inflation, the Fed would address inflation (continue rate hikes). Of course, there is a good possibility a crashing RE market will eliminate inflation. On the flip side, does the Federal Reserve have enough room to lower rates and ease the blow?

If consumers stop buying, will not inflation be contained?
Recent home equity lending

"...home equity lending at banks has slowed from a peak rate of $2 billion to $3 billion a week to "a trickle" of $100 million in the past several weeks, according to a Citigroup report."

[Bob's Flat-Six]

I've seen real estate reverse in So Cal before in 1990 to about 1996.
It was a slow process unlike a stock market crash. The high prices of 1989/90 took several years to hit bottom in around 1995/96, With several events contributing.
About a 27% drop on my home at the time. Real estates at that time was way undervalued IMO in this area.

Then prices seemed to be stable for just a year or so, and then started a slow climb in about 1998, And then taking off in 2001 or so.
Back then (early 90's) People seemed more effected by wars / disasters etc. tightening up their purse strings. I'm not seeing that so much now, if at all.

The economy in this area of SoCal has changed so much in the last ten years or so It's harder to predict. It seems more resilient than it used to be.

I think there is still plenty of demand for So Cal property in the better areas. It might slow and have little dips but a big crash I don't see happening.

Just my opinion.

[turbo6bar]

Northern Virginia Market Report

I am finally seeing some sales vs inventory numbers. In this region, inventories are climbing at a brisk pace, and sales are off the Sept 04 pace. Despite the climb in inventories, median prices are still strong. However, I think it is just a matter of time. Notice the climb in prices from 2001 to 2005. In some counties, prices have gone up 100%.

[jkarolyi]

>In some counties, prices have gone up 100%.

That's nothing...Riverside county (where I live) is in the top 4 nationwide for increase in property values. The 2BR condo I bought in 2001 for $62K (another foreclosure, needed $10K remodeling) and sold for $120K in 2003 is now selling for $220K. The 3BR condos where I live now were selling for $100K in 2001 and are now selling for $300K! 300% in 4 years = total insanity!!! This is in one of the ugliest, smoggiest cities in the nation.

I'm going to pull the trigger and do the deal. If after my year lease is up there aren't any foreclosures to buy, I'll pack up and move back to NC or TN where you can buy a real house for my $200,000 cash!

[turbo6bar]

I doubt you will see a lot of foreclosures in one years time, but it is possible given the large number of ARMs readjusting in 2006.

Based on the appreciation numbers, I think the overall odds for success are very good.