I found a neat little income property calculator:

http://www.goodmortgage.com/Calc_investment_property.htm

Keep in mind that the calculator assumes 100% occupancy.  I had been a landlord for about 6-7 years and can tell you that you should probably assume 1 month vacancy out of the year.

I’m bullish on Irvine Real Estate for the long term.  There are many people who’d like to buy here, and as soon as the properties are more affordable, I think it’s going to get very competitive here on the next up-cycle.

I closed some of those loans at 17 1/2 %.  The people would hold their pens over the note, and not want to sign.  They knew what they were getting into.  On the fixed rate loans, not too many were foreclosed, because the prices were so low, and virtually all of the 80s buyers made money.
See?  A positive statement..  About the past!
I would really like to be bullish, because that would mean my mtg broker buddies (honest) would still be down the hall feeding me closing busness, and I could stop doing so much litigation, which I hate, and instead be doing real estate, which I love.
Unfortunately the buddies have found other jobs, and will just be working on weekends, til their lease runs out.
I feel like somebody died.
I am not a pessimistic person by nature.  It’s just that we have a perfect storm of financial awfulness, not bearing down on us, but right here and right now.  If you want to buy, you just put your blinders on, negotiate your best deal, and intend to stay there for the next 10 years and you will do just fine.

NIR,

Your bruises should have healed by now. I think you have had a long enough break from IHB.

Since you have been around, you know things are not black and white.  I know you know.  Too much manipulations going on from the ABOVE (I am not talking about the press at all here).

I agree, things are not always black and white. I think that is the reason why there has not been a reasonable discussion. In a sense, bears are black, and bulls are white. Each of them have their position, and stick to it. There would be more color, if both sides were to open their minds.

On the blog their is a poster, Familyguy, who has had some interesting discussions with me, and IR. He has been very open-minded, and I have seen many of his points. We don’t always agree, but at least he has backed up his opinions with facts. So, it is very possible to have a reasonable discussion with people of the opposite opinion.

On a somewhat bullish note, it looks as if NODs might have ebbed a little this month. Still, they are bad, but if the trend continues it could be a good sign.

XML,

"I will organize my thoughts, so as not to provide too easy of a target, and do a new post beggining in the 1980’s cycle with interest rates in the 17-18% range and extreamly tight financing enviornment.
Would you believe that people did buy homes, if they could get financing, at those rates? They did and the builders came up with the ever popular 3,2,1, buydowns to ease the pain. The demand was there and a way was found to meet it."
Yes, I believe that people bought homes, even with those crazy rates. It would be great if you would start a discussion on this.

I have data going back to the early 90s, and I can tell you, that the sales volume in the last quarter was the worst Q3 in 30+ years. The foreclosure to sales ratio, was as high as the peak in 96. And, it looks like this quarter is going to be even worse. This is the type of stuff I love. I am an ubernerdy data junkie.

I do not like being a bear, as I am an optimistic person.

graphrix,
I have always been bullish on real estate for LONG TERM HOLDING ONLY.  Even when the market was super hot, I would not even consider flipping properties; why?, the market can change very quickly.
The housing market is so confusing to people.  A house is a home for family to enjoy and to grow in.  But a house can also be a  commodity for investor to trade.  It gets confusing and almost impossible when folks try to get the best of both worlds.  Example:  best house in best location with lowest cost. 
Good thing the easy credit period is contained to about 18 months or so.  $650K loan limit. 
 

My first mortgage ever (1990) was an 11% 30-yr fixed with FHA.   11% !!  I do recall after I bought, the rates went up dramatically to that 17% range.
Man, can you imagine THAT reset ? 

Graphrix & NIR
Both long term holding and "flipping" have benifits with flipping having more negatives. One might be called investing and the other speculating. Speculating has more downside risks and I don’t like to hear "flippers" complaining if they take a hit. Thats why it is speculation. You can make a  decent profit in a short time with high risks or hold for a long period with the odds in your favor, including tax laws.
My humble feeling is that people should not speculate with their primary homes. That is part of what has brought us to this mess. The old idea of paying off or reducing a mortgage seems to have lost favor with most people. A house should be a "home" first and then if one has the ability to invest or speculate then they aren’t betting their families well being if things go wrong.
Too many people considered their primary residence to be an investment and are now whinning when they can’t survive the down period. Time tends to heal the market for those who can hold on. An example is a home that I purchased in 1989 for $309,000, at the top of the market, that fell 30% in value. In 1994 I had the appraised value reduced $100,000 which saved me approximatly $1,000 per year. Several homes in the tract were forclosed on and I used those for comps with the assessor. It was adjusted to $220,000.
It was a 360 degree ocean view home on a single loaded street so it was considered to be a prime location. I sold it in early 2000 for $500,00 and a model match sold for 1.2 million in 2005. I would estimate the value today at $850 to $900K. That story should help people realize that all properties can take a hit but if you have the holding power you should be on the up side in the long run based on inflation and market improvement.. Orange County declared BK in 1994 which was really the darkest period of that cycle. I had an adjustable  rate loan at the time and my payments went down for 5 years and with reduced taxes I was a happy camper since equity loss did not affect me. The tax laws changed during that period allowing me to sell with no tax event so again time helped out.
Just one guy’s opinion that buying at the top of the market and having an adjustable loan is not the end of the world if you are in for the long term.
 
Enjoy!
 
 
 

This was a very strange bubble.  I had two Southern California landlords:

1) 80+ years old.  Purchased house for 350k in 1991.  Cash out refied to 900k loan balance in 2005.  She spent all of that money on get rich quick scams.  Was losing somewhere on the order of $3k/month on cash flow.  She told me she thinks her house is appreciating 2% per year.  She is in a neg am so she pays 1.25% and defers 7% per year and is near the recast of 1.2x the $900,000 original loan balance.  She does not have a for sale sign on this property.  Last I heard she was facing foreclosure on her primary residence.  She will probably lose this house as well.

2) 30ish years old.  Purchased house for 580k in 2003.  He is a realtor with no listings so is now fixing computers.  Losing $1.5k/month on cash flow.  He is considering buying investment properties in AZ.

Maybe I’m strange but investing to earn negative cash flow WITH a negative amortization mortgage seems rather risky to me.  You need quite a lot of appreciation to make your returns remotely palatable over the long term.  I think most of us have seen strange transactions like people buying a house for $800,000 and immediately listing it for rent at $1650 per month.  With declining house prices we will see which "investors" are naked when this tide goes out.

xsocal:

I agree completely.  If you can afford a place and want to live there, there is never a bad time to buy.  The problem is….....most of the people we are hearing about could never afford thier homes after the recasts.

Also, there is a problem with what you get for your dollar/mo. renting vs buying.

I have been trolling the slums of Coto and found several 1M - 1.2M homes there that are availible to lease at $3200-3600 a month.  Those metrics square with my Orange neighborhood where homes are around $1800-2100 for SFR at the 500K-650K range. 

It’s scary when you start considering that I could lease a way nicer home in Coto for less money than I could buy a “ordinary” home in Orange.  Interesting times indeed.

At the peak of the market, what was the ratio of rent:own on SFH?  Do you remember or have a guess?

 
No_vaseline
I understand what you are saying about today’s rental market. Most homes in SoCal purschased since 1999 do not pencil as rentals especially if they were refied or HELOC’d.
There also seems to be an upper limit for what renters will pay and there are few people who pay above $3000-$3500 per month unless it is a really special home or location. Big tract homes in master communities aren’t that special.  Also the HOA dues really eat into the cash flow since most of the better areas have $200-$500 per month costs plus high taxes including Mello-Roos.
These people were betting on appreciation vs cash flow. I have never believed in negative cash flow and calling it an investment. Being the simple country boy that I am, my poor accounting methods tell me that at the end of the month or year I should have received more money than I spent without having to sell the asset and deal with the tax event.The neg cash flow crowd are "speculators" and only win if they get out quick before the carry, in after tax dollars, exceed the after tax profit.
I have no hard data on the ratio of own/vs rents for SFR’s at during that period. I rented the home I spoke about above ( at a net positive cash flow) in 1998 and sold it in mid 2000 as my time period for the $250,000 non tax gain was nearing the end. Interest rates were near 8% so I was sure we were at the top of market. It doubled in value in the next 5 years so there is my attempt to time the market. You don’t know the top or bottem of markets except in hindsite.
I can make the following statement that someone may want to challenge: I have never bought at the wrong time-but have sold at the wrong time.
I do have a few other stories to back this up.
 
Enjoy!
 
 

So, you’ve never bought a home you couldn’t afford after the recasts?  Sounds like you can do the seminar tour!  You and Donald and….......

I grew up on a farm near Fresno.  Heck, until 2001 I worked for one.  Funny how those cash flow equations work…....

I can see paying a permium to “own” but not double.  To me, that’s nuts.

xlm - It is a fallacy to think that one must know the exact top and bottom to time market and profit from that timing.  One must only recognize the trend which is much easier.

NV

You are correct about not buying homes I can’t afford. The only adjustable mtg I have had was on the home described above and then it was a 7.5% payment cap adjusted to LIBOR with no prepay or any of the big resets. It was in a period of decreasing rates so it went down. I do not do cash out refi’s.

I do believe in principle reduction and have never been caught up in the high leverage trap. You might call me a bit conservative!!!  LOL. I have a saying that goes: Pigs get fat-Hogs get bucthered!  It keeps me grounded.

Just one guys opinion of investing.

Enjoy!

xlm,
I owned several properties in 1994 so I do know how painful it was to see all your equity disappeared; however, there were advantages moving forward such as lowered property tax bills and loweved payments as interest rate were dropping.
I tried to time the market for years; however, bought properties only when I found something I like and when I am financially able, regardless of the market.  Turned out, the worst-timed-bought properties were the big winners.  And vice versa.  Go figure.
Base on my personal experience, I never would advise anyone it’s a good or bad time to buy or sell.

Bishie
Where in AZ is your landlord looking? 
Investing with a neg am and neg cash flow is almost up there with paying the mortage with a credit card. That is somewhere around 25-30% interest.
 
Awgee
I agree with you on trends. I didn’t mean that I was intentially trying for the top. I do get the feeling from reading some re blogs ( not this one) that many people are looking for the very bottom to buy. If so they will probably miss it.  I sold a home in south OC near the beach and closed in May. I missed the top but sure missed the bottom.  I prefer to leave potential profit on the table rather than hard equity.
 
Enjoy!

xsocal,
I for one am not looking for the top or the bottom.  I just looking for "affordable", "reasonable", and "no need to eat Top Ramen for the next 10 years."

At the peak of the market, what was the ratio of rent:own on SFH? Do you remember or have a guess?
 
I would guess a 2 to 1 and even higher for the more "exclusive" areas.  Not fun, not fun at all, its taken me alot of time and mistakes to finally lean some of the hard lessons about buying and selling rental property.  But I do agree, in the long run most homes are safe, but you must ,"stay the course".  That is the hardest part for the "instant gradification" generation.
Remember I said the best investment to do sometimes is to "save".  If anything it gives you at least time to think about what you’re going to do.
-bix

Is this a reason to be bullish?
Idea of Jumbo-Loan Guarantee Is Floated
http://online.wsj.com/article/SB119455499562686966.html?mod=googlenews_wsj
As an alternative to lifting that $417,000 cap, Mr. Bernanke offered a surprise answer to questions on Capitol Hill. He suggested that Congress could consider allowing the companies, known as "government sponsored enterprises," buy mortgages of as much as $1 million from lenders, pay the government a fee for guaranteeing them and then turn them into securities to be sold to investors.
"That would be, I think, of some assistance to the mortgage market," the Fed chairman said. "From the federal government’s point of view, it would be taking on some credit risk, which you may or may not be willing to do." He added, "It would be a good idea to make the GSEs ultimately responsible for some, any excess losses, or some part of excess losses, relative to the premiums that are paid."

Corporate welfare, pure and simple.

Interesting post on the Jumbo-Loan idea from la land blog (http://latimesblogs.latimes.com/laland/2007/11/bernankes-big-i.html#comments) posted below
Freddie and Fannie can raise their loan limits to heaven for all I care. Raising the GSE’s loan limits will be a minor cushion to the crash. The bottom line is affordability of the house.
It’s math time class:

Purchase price: $1,200,000

Amount of loan: $960,000 (20% down, which will be a requirement for these loans. How many people have $240,000 lying around?)

Monthly principal and interest (30yr fixed @ 6%): $5755

Monthly Property Tax @ 1%: $1000

Insurance: ~$200

HOA and maintenance: Let’s just say it’s free to make it simple.

Monthly nut: $6955.

Monthly income needed to qualify (let’s be generous and use 32% of gross for housing): $22,000 per month.
Raise your hand if you make close to $240,000 annually. Where do I sign up?

You know sometimes I hate myself for being ethical….
Wow, when are these people actually going to find a GOOD idea.
-bix

A couple bull arguments repurposed from Lansner’s blog:

1) Would anyone like to entertain the possibility that we may be approaching the bottom? First, lets talk about what the bottom means. To me it means things stop getting WORSE. Here’s what is does not mean: instant return to 20% YOY appreciation (or even 2% appreciation for that matter).
Here is a case that the decline is DECELERATING. Look at Lee’s (self-admitted) deceptive posting of the median SFR’s. Prices have been stable for a month. Foreclosure activity has been flat for a couple of months. Inventory levels are declining (thought much of this should be seasonal). Also, if you compare this downturn versus the 1990’s — the shakeout has occurred MUCH MORE RAPIDLY. SO maybe the bottom will be found more rapidly as well.
Lastly — all of the talking heads state its going to keep getting worse. Not just the typical Blowhards like Peter Schiff, but the entire investment community. The contrarian in me is screeming BUY! (FYI the rest of me is still a sissy and won’t).
1 last thing. When we do reach the bottom (whether its now of 5 years from now) I believe the median will CONTINUE to DECLINE even after prices start to increase. As the PLANKTON need to return before the big fish can start to get fat again.

2)Take a look at the last “crash”:
Year Home Pr % Chg.

1980 $99,550 N/A

1981 $107,710 8.2%

1982 $111,800 3.8%

1983 $114,370 2.3%

1984 $114,260 -0.1%

1985 $119,860 4.9%

1986 $133,640 11.5%

1987 $142,060 6.3%

1988 $168,200 18.4%

1989 $196,120 16.6%

1990 $193,770 -1.2%

1991 $200,660 3.6%

1992 $197,030 -1.8%

1993 $188,240 -4.5%

1994 $185,010 -1.7%

1995 $178,160 -3.7%

1996 $177,270 -0.5%

1997 $186,490 5.2%

1998 $200,100 7.3%

1999 $217,510 8.7%

2000 $241,350 11.0%

2001 $262,350 8.7%

2002 $316,130 20.5%

2003 $371,520 17.5%

2004 $450,770 21.3%

2005 $522,670 16.0%

2006 $556,640 6.5%
The median home price in CA wend down from $200,660 in 1991 to $177,270 in 1996 - an 11.7 percent decline over five years. Some around here have stated that this amount of decline has “already happened”. Let’s say, for sake of argument, that this is true. This is probably due to better access to information for buyers, and sellers have had to reduce prices more rapidly than before.
The bottom is already here.

The argument against the one above is that graphs and past trends aren’t always exactly the same.  The key questions would be, what happened, and why did it happen?  What is happening now, and why is it happening now?
If you read Greenspan’s book, it quickly  becomes apparent that it’s not precisely the same pattern over time.  The decades before him and under him each had their own forces at work, which caused rather different symptoms (ex. deflation?  high inflation?  stagflation?).  There are certain underlying prinicples as to what affects what, but the end result is not exactly the same every time as the causes aren’t exactly the same every time.
If it was that easy to predict housing (or stock for that matter) prices, then everyone who went out and bought a  $50 tracking program would be rich ....

Just because *you* can’t afford a home doesn’t mean other people can’t.  People that buy million dollar homes don’t live paycheck to paycheck.  lol.

“Prices have been stable for a month. Foreclosure activity has been flat for a couple of months. Inventory levels are declining “

Am I the only person who doubts any of the above statements?

“People that buy million dollar homes don’t live paycheck to paycheck.  lol.“Oh?  Really?