FHA low down payment buyers and cash investors dominate Southern California housing market – Not a healthy market when over 63 percent of sales come from these two groups. Move up sellers unable to shift because of negative equity.

The Southern California housing market had its lowest number of sales in February in three years.  This does not highlight the slowdown accurately since in February of 2008 the market was in complete free fall with the credit markets frozen.  The current market is damaged and the only reason it even looks remotely okay is the large number of investors buying lower end properties.  There is no large scale evidence of foreigners buying up expensive properties across the Southland and many people fail to see this simply because they know of a few examples or tiny regions where demand has always been high.  But what of the bigger areas like Culver City, Pasadena, Huntington Beach, or other mid-tier areas that are correcting?  One aspect many forget is that unlike many consumer items like food, technology, cars, or items that have global demand housing has to be consumed by the local community.  If you are local you need to pay your mortgage with wages from typically a local job.  If you plan on being an investor, your renters will come from the local area and they will only be able to pay what local area incomes support.  A car or food can be sold globally to the highest bidder regardless of local wages (we are seeing this especially with food and oil).  Housing is area specific and many have over played their assumption of what Californians make.

Investors dominating Southern California

socal investors purchase homes

Source:  DQ News

Last month was a record month for absentee buyers.  Over 26 percent of all homes purchased in California last month came from this group.  To play more to the point that these people are not scooping up $750,000 homes in prime areas the median price paid by these investors was $198,000.  In other words they are scooping these places up for lower priced investments.  Speaking to many people including active investors they are planning on using these homes as cash flow investments.  More to the point, 31.7 percent of all buyers last month paid all cash for SoCal home purchases.  Southern California housing is seeing a continuing trend of investors buying up lower priced homes.  I spoke with someone that bought a $150,000 home in the Inland Empire that will likely rent for $1,000 per month because of the area.  This is how he breaks it down:

$150,000 investment on home

$12,000 in gross rents per year

That looks like an 8 percent annual return.  Not bad right?  But it doesn’t really work that way with investment properties.  First, you will have vacancy rates especially in areas like the Inland Empire where unemployment is sky high.  Take a look at unemployment in this region of California:

unemployment inland empire

Not that California overall is in better shape with a 12.4 percent unemployment rate but this region has an unemployment rate close to 15 percent.  So investors need to factor in a high vacancy rate and this will cut into your profits.  Some are astute investors but many are first time investors.  Some will need to rely on property managers (there goes another 8 to 10 percent off your profits).  Did we forget about taxes and insurance?  Fixing the place up and repairs?  Most investors realize that each year 35 to 45 percent of your potential income is eaten up by these expenses depending on how good of a property manager you are or hire.  So run that figure again:

$12,000 gross rents x .45 percent in expenses =$5,400

Net operating income   =             $6,600

Now your annual rate of return is down to 4.4 percent.  Not bad in this current market but certainly not 8 percent.  And this is actual work unlike a passive bond or annuity.  I own rental property and I think some people think that because of this blog, that I somehow don’t even have any interest in real estate.  My entire perception on housing is that it has to reflect local area incomes.  I think many of these investors in the Inland Empire for example will do okay.  But nothing spectacular.  Also, you are reaching a point where local area families would be better off just buying the place instead of renting.  As I discussed in a previous post the Inland Empire depends on cheap oil for their economy since many drive into Orange County and Los Angeles County for work.  What if oil prices stay elevated or move higher?  This is my major concern for this area.

Either way, the market right now in Southern California is dominated by the lower end investor.  Here is a breakdown of last month home sales in the region:

socal sales by type feb 2011

Let us do a narrative for the above gathered data.  36 percent of home sales were foreclosure resales.  These are dominating the market because of the lower priced investor demand.  Over 31 percent purchased with all cash and 26 percent were absentee meaning a likely investor.  Keep in mind many of these can cross over with one another.  For example, you can have an absentee, all cash buyer, who bought a short sale (or foreclosure).  On the other end you also have FHA insured buyers going after 32 percent of all sales.  This is likely your first time buyer here.  Again, this shows a lack of down payment ability since they are going with FHA with higher rates and PMI instead of a likely cheaper conventional mortgage.  Jumbo loans which would reflect a healthy expensive move up market are only 15 percent of all sales and only 7 percent of buyers purchased with an ARM.  I guess that Alt-A and option ARM fiasco has left a bad taste in the mouths of many.  Plus, you would be an idiot to buy with an ARM in this market with interest rates at a historically low price thanks to the massive intervention by the Federal Reserve.  There is no doubt the rate will go up, it is only a question of when.    

In other words, investors are buying what they perceive to be cheap properties for cash flow and first time buyers are gravitating to FHA insured loans because they have a hard time mustering a 20 percent down payment.  Contrary to the propaganda that comes out from the real estate industry most of these first time buyers do not have sizeable down payments.  The median down payment for an FHA buyer is 3.5 percent, the absolute minimum.

Keep in mind there is nothing normal about this market.  If we run the numbers, 32 percent FHA insured buyers and 31 percent all cash buyers, historically a low percent of the market we now have 63 percent of all sales in SoCal from these odd groups!  The two typically small groups that make up sales now dominate the market.  The low end and little money crowd.  A healthy market is when you have people selling homes and moving to other homes.  Right now it looks like this:

sales breakdown socal

Obviously if you buy a home with all cash you did not take out an FHA insured loan.  This is not a healthy market and with the number of underwater homeowners, you can expect the low end to dominate for years to come and many areas will be dragged lower because this is obviously what the market can support.  Just take a look at the foreclosure timeline:

foreclosure-timeline-california

What this tells you is that banks still have no idea how to move the shadow inventory.  They have learned how to move the lower end stuff in the Inland Empire but in mid-tier markets the trickle is now finally starting to show.  This housing bubble took a decade to build and will likely take a decade to fizzle out.  After all, prices peaked in 2007 so you can count this as being year four in the correction.  And sales did plunge and if weren’t for FHA insured loans and investors this would have been the lowest sales month ever:

socal home sales per month

This trend of investors is likely to last as money moves off the sidelines but with a median price of $198,000 it certainly isn’t moving to the mid-tier markets.  In other words, prices in many Southern California cities will be coming down to reality at some point simply to reflect local area incomes.

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45 Responses to “FHA low down payment buyers and cash investors dominate Southern California housing market – Not a healthy market when over 63 percent of sales come from these two groups. Move up sellers unable to shift because of negative equity.”

  • http://www.nytimes.com/2011/03/17/science/17plume.html

    “A United Nations forecast of the possible movement of the radioactive plume coming from crippled Japanese reactors shows it churning across the Pacific, and touching the Aleutian Islands on Thursday before hitting Southern California late Friday. ”

    Not good….

  • So lets lay off more workers and reduce pay! That should do wonders for propping up the value of ones home…..o wait….

  • Nice post doc!

    Not only will you be facing short term repairs, but also long term ones.

    If you can only expect 4.4% from a real estate investment and US 30 year bonds are yielding 4.4% (src: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/), why would I want to invest in higher risk investment that does not yield a higher return and requires additional work? I’m in no way suggesting that you invest in treasuries. I’m just using them as an example of an investment that in the past has been fairly safe and requires no additional work.

    • The one upside is that you can sell the property later if you want. As a former landlord I can attest that the stress/time spent on dealing with a rental property can be excruciating. I sold close to the peak and enjoyed that tho. I’d consider doing it again, but in this market there are so many unknowns and no “sure things” so making that investment decision is pretty tough. Of course that applies to everything these days – what a mess!

    • Well, in 30 years with a 30 year Treasury, you get your original principal back, that’s the best case scenario. The difference with real estate is that the value of the home may increase over those 30 years so you’ve 1) paid your debt down 2) enjoyed cash flows 3) maintained the property and still 4) realize a significant gain.

      I see why a lot of people are doing it. We’ll see how it works. 30 years is a nice timeline for something like that to work out. I have a hunch though that a lot of these people have a 3-5 year timeline in their head as they’ve been conditioned by 30 years of declining interest rates along with fantastic demographics, economic growth, and faith in housing as a long-term can’t lose investment. Those tailwinds are not with us and if anything they are more headwinds in anything but very long-term.

      We also haven’t had a functioning housing market since 2007 and even then it was on its last leg posting better numbers but gasping for breath. Tough to gauge things right now other than completely unhealthy with a facade that is quickly cracking. Hell, even if the economy was doing steadily better it wouldn’t save this broken market, no less with all the risks in Middle East, Europe, Japan crisis, inflation/stagflation etc….

      • RE value might go DOWN too. The govt will repay you the full value of the bond, they have a printing press. Bond is also more liquid than a thrashed house.

      • If you are without a job for awhile though the Treasury bonds could be cashed in if need be (possibly at a loss but nonetheless) and you could move for work. The mortgage would still need paying jobs or no jobs. So unless your really have the cash to not only make the mortgage but have at least 6 months (and really much more than that is probably wise)of mortgage payments in an emergency fund it’s not so wise. Or unless you can pay the mortgage on one spouses income or your job is untouchable.

    • The Treasury rate is fixed for 30 years, whereas you can expect (on average) the net rental income on a house to grow with inflation. If you can get 4 percent plus inflation that’s not too bad, expecially compared with inflation indexed Treasuries paying about 1 % plus inflation.

      Here in Oakland, CA you’d get between 2-4% net all cash right now. Prices are absolutely ridiculous from an investment standpoint in nice neighborhoods netting about 2%, and are better in poor negihborhoods but at around 4% not at all worth the challenges of this rental market.

      It’s amazing: A $1M house here rents for about $3500, for annual $42k, minus a month rent for average turnover is $38.5k, minus property taxes of $14k, insurance of $2.5k, and expenses of even 1/2%, 5k, gets you down to $17k, for a 1.7% return on an all cash purchase!!!

      • Wow, who would have ever thought anyone would be excited on a possible ROI of 1.7%? And only needing to lock up a million in cash to get it, with a decent chance/risk that you wouldn’t get that principle back in full in 10 or even 20 years. Never mind maintenance and upkeep which will run more than .5% of the cost a year, no doubt.

    • It’s the after tax return where a rental shines. Those expenses are tax write offs and someone who invests time, sweat and tears in a rental should reap rewards over time. Add an extra repayment – buy a programmed HP calculator to see which impact that has at the end of the mortgage cycle when most of the payment goes to the principle. Then see your equity build up.
      As scary as RE is these days, the 30 years T-Bonds are in for a major bloodbath thanks to the inverse relationship of interest rates vs bond price. A 2 % hike would wipe out the return for many years.

    • Assuming you pull leverage on your $150K investment, DHB mentions nothing of mortgage interest deductions, the fact that you are essentially using some one else’s money for your investment, the only downside risk is foreclosure (your credit and downpayment), and that you could realistically offset you downpayment within one year if the value of the home just tracks inflation. What other investment has so many upsides with such a limited downside?

  • You would have to be a complete idiot to go chasing homes that are on the market.
    Prices are still inflated, by any measure that you choose.
    Government cutbacks will mean more lay offs in the public, and private sector.
    $4.00 a gallon gas is going to drag us back into recession.
    NO ONE has a “safe ” job today.
    Sit back and let some fool buy a house today. A year from now, you will be glad you did.

  • Optimistically, 2011 is suppose to be a down year and 2012 an up year and 2012 should end up where 2011 started. In other words, 2 lost years. Put your money in the stock market. The Fed is backing the stock market, and it goes up(but not straight up, it is like Magic Mountain roller coasters).

    • Thanks but NO THANKS

      Thanks for the advice John CPA JD, but if YOU want to be a fool and put your money into stocks, be my guest. Go for it! Are you a former Enron accountant?

      • No, Enron’s CPA firm were dishonest and were killed(lost their license). I bought into the S&P 500 Index fund at 1038 last June, now it is close to 1300. The Fed is doing things to make the market go up so people will feel good about themselves and go out and spend and etc. The real estate market for the next two years will be a disaster. We only have hope beyond that.

    • Well, that is optimistic. And reflective of that CNBC article today. But given all of the REO’s coming on the market now, and continuing for years to come, that’s a bit hard to see. Not to mention all of the people who are sidelined with underwater homes, or damaged credit.

      As far as the stock market goes, that’s held together by duct tape and bailing wire, and lots of Fed printing. Notice how much it tanked yesterday, all because the carry trade died? People were looking at a major crash today, since there were going to be a lot of margin calls this morning. Fortunately the G7 intervened. But honestly, these interventions are starting to get more drastic.

  • That makes perfect sense. Because of all the short sales, regular buyers w/ skin in the game (has 20% down) will break out of contract if process takes more than 5-6 months during which the RE market value consistently drops.

    Cash buyers close short sales cuz they close quickly (bypassing lender requirements). FHA buyers has the patience to sit 6+ months to close short sales cuz, lets face it, they’re idiots. I wonder if theres a relationship between people that can’t save versus their IQ?

    I follow about 30 properties any given time, and notice, 3 out of 4 properties listed as “Sale Pending” on redfin falls out of contract and reverts back to “For Sale”. Those are mostly none-cash, none-FHA buyers that monitors the market and bail after market drops cuz short sales take too long.

  • Magical LIttle Leprechauns

    Word has it that America is very shortly going to be invaded by million of Leprechauns carrying bags of gold. They will drive housing prices up into the stratosphere, so go out now and buy YOUR home while it’s still cheap!

  • I have to agree with you Doc that many investors and especially first time investors don’t know what they are getting into when they decide to buy rental/income properties. A lot of people have a false perception based on all of those Carleton Sheets and Tony Wu infomercials. Buy income property and your renters send you a check every month. If only the world worked that way, LOL.

    Income properties in Chicago have declined significantly. So much that now unlike before (2001 to 2007) one can actually make positive cash flow after I crunch all of the numbers. But not so fast. After factoring in all of the other costs like vacancy, a dead beat tenant, basic repairs, long term maintenance, etc… Those initial numbers don’t look so good.

    A big cost of owning properties one should consider is basic repairs and long term maintenance costs. Even if you make positive cash flow, consider those two costs and deduct them and then crunch your numbers again to figure out your actual yield or return on investment.

    So far things look good from people who are waiting on the sidelines. I believe rental properties will decline further and it will be great for people who were patient.

  • Price declines aside, many people don’t want to buy as they feel their incomes aren’t secure. How secure are the incomes of an investor’s tenants? What happens if/when the government decides to contribute less $ towards section 8?

    I wouldn’t invest in rentals at 150x rent. Maybe at 80x…maybe not.

  • While this is intended mostly for Marina, from yesterday’s post, it’s also meant for everyone who’s wondering WTF is going on. It explains a number of things indirectly; like why your politician no longer votes as promised, or (IMO) why your sons and daughters are slated to be drafted and sent off to war in the next 10 years.

    Marina said she was a Social Studies teacher who taught American Government. Sorry,Marina, no you don’t. What you are teaching is propaganda. Here’s the real course in American Government, its history, and how it works:

    She also explained that Economics and how the Federal Reserve works. Again, I have to respectfully disagree. Unless you are teaching this, you are leading your students astray. But I will grant that you are training them to get conned, like many of their parents were with Housing.

    http://www.youtube.com/watch?v=l37RhdFGVsM

    This is the best explanation of the big picture and how things work that I have seen.

    • Sorry for the typos. That should be:

      “She also explained that Economics and how the Federal Reserve is taught”

    • Hey Questor–why so hostile? You’d might like me. You certainly can’t out-cynical me. Really. Me, a rah rah propagandaist? Please. Believe it or not, I did my undergraduate degree working with one of the last remaining reputable Marxist economists. I labored for several years as an intern for a European judge prosecuting anti-trust cases for the EU. I did my M.A. and Ph.D research on international finance structures. And not because I wanted to go work for the Fed or the IMF. I don’t know who you THINK I am, but I’m not some bimbo who can be “educated” by a fine but somewhat facile youtube clip posted by somebody who read Howard Zinn last week and got fired up.

  • Someone has to do it at some point. And then the newspaper will have to write an article about it, and after a time the social stigma will start to disappear. What am I talking about? I’m talking about multiple families living under the same roof, purchasing the house together. Using their combined incomes to get into a house. Probably it will take at least three incomes, maybe four, to afford a home in the future. So the American dream will simply shift a bit. Multiple families, not related to each other, may the only viable option. McMansions could easily house several families. The future of housing looks to me to be very…. uncomfortable.

    • There is no society on Earth in which unrelated families ever lived amicably together in the same household, and I don’t think we’ll ever see this happen with the mainstream population. Rather, more people will live in multi-family dwellings, known as “apartment buildings” or “condos”, and more people will be lifelong renters. SF houses will be smaller, with fewer amenities than we’ve become accustomed to, and smaller lots. Most people will probably occupy far less space, but there are many ways to live much smaller and much more cheaply without resorting to communal living with unrelated families. I believe most people would rather live in a tent than do that.

  • A 4% rate of return based on the hope that the tenant will pay you every month in this down economy is not worth the gamble. House prices are still too high to buy houses all out even for $150,000 in the Inland Empire.

  • How about natural gas? It is very close to its all time low because of “abundant” supply. Two things, no more nuc energy and gasoline moving higher. Trucking will eventually switch to gas and power plants will use more gas. If gas goes from $4.00 to just $8.00 most gas stocks will triple. This could happen in a year. But, say it takes 30 years, compare that return to rental property. You did not mention increases in property taxes, which are sure to come. That can really eat into that fabulous 4% return. As you succintly said, real estate is all local, but gas is a world wide commodity.

    • you are right about gas , the price in the us is 1/3 of what the Japanese and Koreans are paying for their LNG, why is all this money being thrown at farmers to produce expensive ethanol when a few liquification plants can convert this glut of gas into something your car can run on at less than 1/3 the price of gasoline and there is 200 years worth …..

      If people could fill their cars up at 1/3 the cost, why house prices may even go up …..

  • Probably NEVER been a tougher time than now to calculate when and at what PRICE POINT to acquire more rental properties; let’s look at some UNprecedented factors that need to be quantified and crunched:

    1) Recent “hurrah” (mini-bubble) of multi-family building in certain parts of the country, i.e. more speculators grabbing the little remaining credit, and betting it on the scenario that foreclosed squatters will be downsizing into rental flats, and they want to have the newest accommodations.

    2) GLUT of new, never-closed-on, never-lived-in CONDOS which the developer is left holding the bag on, and will thus convert to RENTALS. Happening left and right. The few legit buyer/owners are PISSED.

    3) Falling prices on EXISTING rental props, same as the rest of the market–catch a falling chainsaw, anyone?

    4) Continuing downward pressure on rents, as people “double-up” in a tough economy. I’m seeing plenty of this in So-Fla, e.g. 2 peeps living in studios that had ALWAYS had single tenants; overflow parking in front of apt. buildings that historically had plenty of parking; Boomers w/ Gen X/Y adult children moving back in, etc.

    Can anyone attest that CoreLogic–or some other paid subscription service–can provide the necessary data, in a timely manner?

  • The point about gas getting expensive assumes static image of the Inland Empire area. Much of Inland Empire didn’t even exist 10 years ago. The next step for Inland Empire is businesses moving in. This is how it went in Orange County. Don’t forget, 25 years ago Orange County was nothing but a bunch of pastures with cows on it and lots of orange trees. Business people are not idiots. Orange County real estate is expensive now, wages there are higher because locals have to pay for $700,000 homes. In Inland Empire, there is now a huge educated workforce that can afford to work for less. It’s naive to think that businesses will not move there, just because they like being in Orange County? I don’t think so. This is a natural way things develop with every new market, and especially now where driving down cost of business is imperative for many. Inland Empire is huge. Some parts of it will be the new Orange County, most notably the Murrieta and Temecula areas. It takes some studying of history to come to this conclusion. For Orange County natives (say who lived there for more than 30 years), this is an easy one. The Murrieta/Temecula area is following in the same footsteps and in my opinion will become the next hot spot of Southern California.

    • But, but… the robust commercial development you cite in past decades in OC occurred during a STRONG PROLONGED UP-TREND in the economy, i.e. pretty low risk, no-brainer stuff. With employers not even hiring, where do they now get the impetus to just pick up and move operations? There’s probably inadequate EXISTING CRE to rent in the IE, and few are in the mood to build their own. Besides, they would still be “stuck” in the grossly MISmanaged Peoples’ Republik of Kah-lee-foh-nia (*attempted Ah-nold inflection*), and the ENORMOUS DEFICIT hanging over the state, like the proverbial Sword of Damocles.

      Now if you want to posit that significant business ventures will LEAVE CALIFORNIA ENTIRELY, I’d say… YEP! But your implied incentives to simply move one county over do not seem powerful enough to overcome the negative headwinds now in control. I’m not personally familiar with the IE, but from all my reading, it was simply one big empty (and windy, and dusty) AVAILABLE lot, and the spec-builder “heroin” addicts got WAY ahead of things in their zeal to slap up stick-and-stucco boxes… using “undocumented” labor, nach.

      Sure, small-scale support businesses (petrol stations, strip malls, etc.) may have partially caught up, but I’d MONITOR THE HEALTH of those small Mom & Pop ventures before I went on to predict that Lockheed or Intel is going to relo to the IE. ;’) Better yet, monitor whether REITs are purchasing lots with the size and zoning that would suggest serious industrial/commercial activity.

      • I agree that California is not the friendliest place for business. No doubt about that, in fact it’s probably the worst one. As for Inland Empire itself, only time will tell. You make some good points. I would bet IE will fare better than most counties, even in the economic downturn. This particular downturn may involve dollar devaluation and extreme belt tightening which should work in favor of built-up yet under-priced IE. But again, time will tell.

    • If this were true, that the IE is going to fill with high tech companies, then Mississippi would be the wealthest state in the US and Haiti the wealthest country in the world.

  • The good thing is that there is an infinite amount of virtual money. Unfotunately, there are a finite amount of goods (almost an infinite amount of 3-rd world labor). As Maddoff showed, there is an break point to an exponential function. All the corrupt investment banks, hedge funds, Fed and Treasury can’t keep this going forever. Everything will be fine until it isn’t. Manhattan is like a killer shark–if it stops drinking the blood of the rest of us it will die.

  • The macro issue with Calif RE investors is that they have been living off a combination of tax breaks/inflation/asset bubbles to offset negative cash flow. The economic environment now and in the future trends towards less tax breaks , reduced wages and income due to tech productivity impacting labor from office staff to scientists. Many of these investor homes are older and will require more basic maintenance while tax write offs are available its still cash out of pocket. If current RE trends continue then most if not all investors will be underwater relative to their purchased price, whether cash or leveraged facing higher maintenance cost combined with a rental community that sees reduced wages and jobs is far different macro market then what has transpired over the past 40 years.

  • I am trying to sort this out too. i wanted to buy in Marin County but i love this blog, read it all the time. I am thinking, take the money, buy condos somewhere where it’s cheaper to own than rent, also diversify natural disaster risk…
    then take the rental money and rent a nice place here… at least 3g a month. At least.

    but with $400 k to invest… maybe the rental income would return 3G net/net?

    anyone doing this? where are they looking?

    i do own a little rental property already so yes it’s tough sometimes. but i paid all cash and my return is still like at least 5% net net.

    i agree treasuries could be toast really soon with all this printing, i’d like to have something tangible to show for it.

    any thoughts?
    many thanks…

  • ps prices in Marin county while going down are still out of this world! at least $800 k for something liveable. 4 br, nice area, etc.

  • Agree with Chris Wagner about risk on 30 year bonds.

    Nuveen Urges Brown to Shun Gimmicks Closing $28 Billion California Deficit

    California Governor Jerry Brown will be judged on how he avoids gimmicks, cuts spending and raises more money when he presents a budget to close a $28 billion deficit for the biggest U.S. state borrower, according to bondholders such as Nuveen Asset Management.

    The plan unveiled today will be “an honest budget,” Brown has said, without accounting ploys such as moving the last state payday from one fiscal year to the next, an $800 million device that helped Arnold Schwarzenegger balance the books in 2009.

    “Investors look at those gimmicks as not permanent solutions,” said Paul Brennan of Chicago-based Nuveen, which holds $73 billion of municipal securities including California debt. “They are just one-time things, a shot in the arm that only medicates the patient but doesn’t solve the illness.”

    Brown, a 72-year-old Democrat who was governor from 1975 to 1983, has already warned that his budget will cut deep, a move likely to face opposition from unions that helped elect him. He’s said he won’t raise taxes without voter approval and is widely expected to call for a special election to extend $8 billion in expiring levies.

    Schwarzenegger, who faced similar pushback as he grappled with $100 billion of combined shortfalls in the last three years, relied on several bookkeeping maneuvers to erase deficits that left the state that produces 13 percent of U.S. gross domestic product tied for the worst credit rating in the U.S.

    Gimmicks
    In October, Schwarzenegger and lawmakers helped close a $19 billion gap by simply declaring that they would get more tax revenue than was officially projected. They booked another $2.3 billion by approving the sale and lease-back of 11 state buildings, a move now facing a court challenge.

    California shares with Illinois the lowest credit rating of any state from Moody’s Investors Service. The A1 grade is Moody’s fifth-highest.
    Standard & Poor’s rates California A-, its fourth-lowest level for investment-quality securities.

    • Does anybody seriously belive, reagrdless of rating, that CA will actually default on bonds or otherwise?

      And big-housing-picture-wise I think that the Sky Is Falling crowd usually get overly worked up, and overestimate–whether we are discussing how bad our schools are, how high the oceans will rise, how warm the planet will get, La Raza violently reclaiming CA, or how much lower CA housing must correct to be in line.

      I suspect that we are in a river bed, at least in the mid and upper tiers, for the next 2-5 years, maybe much longer. But I would be surprised if Santa Monica, Ocean park and NOM suddenly drops to $350 or even $450/SF, where it “should be”, and where condos currently sell for in some parts of SaMo.

      I am currently in a depply underwater condo in Marina del Rey (yes, I was worried about being physicaly underwater with the Tsunami warnings!). I have been unable to convince the bank to modify (I’m not in default). They are uninterested in the fact that I can strategically default, and leave the loss to them, here some $250K. All I ask is that they convert my interest rate to 30fix market rate, no principal reduction. The only reason I haven’t bailed out yet, is that I am trying to time a new purchase before my credit gets nuked.

      Is the bottom bottom bottom here? Probably not.AS we’ve read here so many times, there are a ton of factors creating downward pressure. But Will Prime Santa Monica drop another 40% or even 20% I seriously doubt it. And if it does, rates will be much higher, and I will not be eligible for a loan then anyway (Im aware that lower prices are better than lower rates, thanks DHB!) So from my position, now might be a good time to buy that older home in sunset park santa MOnica at 2003 prices. Get a juciy amortizing loan instead of my crap interest only 6.9%, and start building equity, maybe remodel it into a nice place in 5 years.

      Am I just convincing myself here? Is the end really near? It is not. The house is a place to live, and a reasonable store of value and diversification, and maybe a decent investment over the 20+ year view.

      Thoughts??

  • If someone pays 1,200 +Gas and Electricity of rent(in May rent would increased $20 but near where they rent, an apartment is renting for 1250 to 1300 and that person could buy a house and giving 20% down, everything would be around $800 plus utilities bills.NOTE:Wife and Husband works. You see less and less “For rent signage” but still a lot of “For Sale”[fully remodel, sold] signage around the neighborhood. Would you recommend that person to rent or wait until the 2012(like many of my friends are doing because they said in winter of 2012 the housing market would be better) to buy a house? What would you recommend?

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