GoFuckYourself.com - Adult Webmaster Forum - View Single Post - California Real Estate Prices...People Leaving In Droves

colpanic · 11-27-2004, 02:41 PM

Supply and demand is a big part of the high cost of living, but we are still going to see a bubble burst here in San Diego shortly. Prices aren't going to fall by half or anything, but the glory days of 25-30% returns/year are over.

Heres why.

a) It is *so* much cheaper to rent here than it is to buy. If the problem was purely supply and demand, apartment prices would be through the roof as well.

b) Interest only loans. Everyone here buys property because they can get 25-30% returns in a year. Since most people can't actually afford the payments on a normal 500k mortgage, everyone buys adjustable rate mortgages that are interest only. (read: they don't pay off any of the principle during the first 10 years or so). This works out for people right now, because rates are so low, and with a 25% profit/year they can refinance.

Iinterest only loans are going to cause a flood of the market for a little while when interest rates rise... Since a lot of people are already stretching their budgets to pay the bills, and people are flipping properties.. as soon as the rates rise,peoples payments are going to skyrocket and they will have to sell.

That will, in turn burn a lot of flippers, who rely on the fact they can sell a house before they have to start paying interest on the loans.

Basically, the market isn't going to crash, but it will slow to a crawl for a little while, and then go flat for a few years.

I want to buy a place here myself, but I'm going to hold off for a bit until they hysteria dies down. If you want to figure out if you should buy a place, see if it makes sense for you to buy if you only gained 2-5% per year for the next 5 years. If so, you are probably safe from any crash.

my .02

11-27-2004, 02:41 PM
colpanic Confirmed User Join Date: May 2004 Location: San Diego, CA Posts: 1,007	Supply and demand is a big part of the high cost of living, but we are still going to see a bubble burst here in San Diego shortly. Prices aren't going to fall by half or anything, but the glory days of 25-30% returns/year are over. Heres why. a) It is so much cheaper to rent here than it is to buy. If the problem was purely supply and demand, apartment prices would be through the roof as well. b) Interest only loans. Everyone here buys property because they can get 25-30% returns in a year. Since most people can't actually afford the payments on a normal 500k mortgage, everyone buys adjustable rate mortgages that are interest only. (read: they don't pay off any of the principle during the first 10 years or so). This works out for people right now, because rates are so low, and with a 25% profit/year they can refinance. Iinterest only loans are going to cause a flood of the market for a little while when interest rates rise... Since a lot of people are already stretching their budgets to pay the bills, and people are flipping properties.. as soon as the rates rise,peoples payments are going to skyrocket and they will have to sell. That will, in turn burn a lot of flippers, who rely on the fact they can sell a house before they have to start paying interest on the loans. Basically, the market isn't going to crash, but it will slow to a crawl for a little while, and then go flat for a few years. I want to buy a place here myself, but I'm going to hold off for a bit until they hysteria dies down. If you want to figure out if you should buy a place, see if it makes sense for you to buy if you only gained 2-5% per year for the next 5 years. If so, you are probably safe from any crash. my .02 __________________ I like ducks.