All Forum Posts by: Account Closed

and what does all this tell you?

This does seem like quite a coincidence though... just when prices graze the 2007 bubble pop level... you read about 5 consecutive months of pending sales decline? Sounds like a coincidence?

http://tiny.cc/PendSalesDecline

 oh no you didn't... doesn't your profile say you are in Walnut Creek? Where someone just lost some money due to the market there? 

 So, if this list is correct... it sounds like you just made my case for me.

 Different in Los Angeles?

Some investors are allergic to negative cash flow markets.... no one gets faulted for that (except of course your path intersects with the passionate appreciation speculator). Using cash only when investing usually does have its opportunity cost but there is often when cash only can make sense. Casino's can often be like a drug... but of course, some take risk just for the thrill of it...

 Money makes money but there is a difference with making money with the money you have (able to lend) and making money with the money you dont have (borrowing). If the markets aren't lending, the guy with the money can still make money, the guy without, doesnt.

Usually....the choice the investor faces is... "do I invest $100,000 cash in one property or use the $100,000 to buy 5 properties by putting down $20,000 each and financing the balance"?

In both cases, the $100,000 is used up. With the leverage route, the investor was simply speculating, betting, gambling or whatever term you feel comfortable with, that market would go up or just betting on more cash flow per unit.

The key difference is, although you spent $100,000 in both instances, you have $0 debt the cash route but $400,000 debt the leverage route ($80,000 * 5). Still, $0 cash.

So what is the net effect? If markets tank, you get stuck with either just your $100,000 property and $0 debt. Other case, you stuck with $0 cash and $400,000 in debt. 

Which then is riskier?

Sure they have a supply problem... but speculation is not the only factor.. review the definition by the way... first is demand. When demand drastically exceeds supply, prices detaches and escalates.

Just about most LA investors I talk to, cite that their primary objective for investing in LA to be speculation on appreciation... its already a negative cash flow market for the CF investor. So supply is not the only problem... speculation and irrational exuberance are also primary factors. 

Funny you used the word least affordable metro... some I have talked to right here on BP feel its actually a myth...

A housing bubble is a run-up in housing prices fueled by demand, speculation and exuberance. ... Speculators enter the market, further driving demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts. 

If this is the definition of a housing bubble according to investopedia.... LA may be heading into some serious trouble.

Median LA housing price    = $685,000 (zillow avg. of median home value & median listing price)

Income required to qualify = $125,000 (0% down, 4.5% mortgage)

Income required to qualify = $118,000 (5% down, 4.5% mortgage)

Median LA household income = $54,000 (argue accuracy of data with census bureau)

How much home can a household buy with $54,000 = $260,000 

Primary factor driving LA prices = Speculation (may also argue demand)

Anyone want to guess where this is going?

I mean, just a guess.