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Posts: 2,123
Reply with quote  #1 
There is a chart which pictorially shows the extent of housing recovery for various cities across the US.

For some reason they don't include San Diego.  (This chart seems really familiar and I think I've seen it before, not sure where.)

It seems to me that an accurate prediction of what happened to the housing market would have focused on the following:

1. We always knew that coastal markets recover first.   There were factors that were going to act as headwinds to reaching some semblance of a real recovery and investing in those markets would have made more sense.  Oddly, Riverside/San Bernardino where Bruce Norris typically invests lags considerably on this chart.

2. Zillow has a metric they are calling market health which they define as:

"The Market Health Index illustrates the current health of a region's housing market relative to other markets across the country. The Market Health Index is based on up to 10 metrics including those capturing the past and projected evolution of home values, the prevalence of foreclosures, foreclosure re-sales, negative equity and delinquency, as well as whether homes are currently selling faster or slower than in the past."

The odd thing is that Riverside county ranks as 6.1 out of 10, san bernardino county 7.0 out of 10, which is another way of saying they never fully recovered.   Los Angeles ranks at 7.3, orange county at 8.3, san diego at 8.8.  In a normal market, Riverside County was a great place to be---in this market it turned out be not at all great.

Fresno county ranks 5.2 out of 10,  Tulare county ranks 6.9 out of 10.  Even worse look at some of the even further inland counties: Imperial County ranks 5.6 out of 10, Kings County ranks 4.6 out of 10.

3. The other factor that seems predictive (at least in California, not elsewhere) is north vs south.  Everything north seems to have appreciated considerably. Santa Clara county ranks at 9.9 (as I'm sure alot of the Bay area would rank). But even the outlying Northern Counties had a spillover efffect:San Joaquin County (where Stockton is) has a score of 8.8, Sacramento county is 7.8 out of 10, Sonoma County 7.8 out of 10,  Napa county is 8.9 out of 10.  But it's arguable that the appreciation stops at Mendocino County which scores 5.6 out of 10.

So the following factors appear  also to have been important:
1) General economic activity especially helped by major us companies like those in Silicon Valley and Amazon.
2) Foreign buyers, especially the Chinese and Canadians.   In fact, right now there is a global bubble caused by foreign buyers in major cities throughout the world, but closer to home places like Toronto, Vancouver, etc.  If you look at the list I would think that foreign buyers not only contributed to the Bay Area, but also Seattle and I would even argue Orange County.
3) There is another group of cities like Austin, Denver, Nashville, Charlotte, Raleigh, etc---and these cities I would argue had lower priced homes in an area which was especially attractive to millenial home buyers, not to mention the higher migration and attractive economic and job prospects.  (This factor doesn't really help most cities in California which are very pricey.)  All of these cities have universities, decent mass transit and walkability /bikeability factors, nightlife, as well as having a "vibe" attractive to the younger generation.  (This last was mentioned by a CAR economist).

Given we had this really weird market where regular market forces inside real estate were sidelined and/or dramatically modified we would have been better off focusing on these type of factors.   

The odd thing is that Bruce Norris was caught buying in one of the counties that recovered least (Riverside county), though I don't blame him for that given how complex the housing picture became will all the government interference, hedge funds, etc etc.

The other odd thing: I think up until the last minute Bruce was probably committed to toughing things out in the Inland Empire and not go out of state.  He bought his lots in Leesburg, Florida very late (Was it first quarter of 2015?)---probably just before the curtain went down in terms of investing in Florida in general, although I haven't researched it.  It's kind of astonishing that a market timing expert would have his strategy emerge at the last minute--though that appears to be what happened.

By 20/20 hindsight it seems like a very wise move, but it came very late in the game.
Although it was a far better move than the one he adopted by going to Texas----in his view, he wasn't assuming he was going to earn any appreciation, just stand pat----though now he believes this was a mistake.  I think that's right---going out of state is a pain and if you can't even look forward to appreciation----probably not going to be a great deal.  Landing in another volatile market was really a longshot---one that developed very late in the game.  (I think because Florida was a judicial foreclosure state the crash  was delayed compared to trustee deed states like California---so Bruce got lucky on that.  But he was smart enough to recognize it when it came his way, so I would give him credit for that).

I'm not suggesting Bruce was clueless---a buy and hold strategy for  cash flowing portfolio wouldn't have been a bad outcome---but I do think he got lucky in many ways.  I think the hardest part of this kind of strategy was accepting the fact that California may not necessarily be the best choice for real estate investments going forward---it's a reluctance that I would share, actually.  There aren't too many investors who, when approaching retirement age are simply going to change coasts----that takes a certain amount of courage.

The other weird thing right is how flat all the markets are in California, namely (in terms of future % appreciation for the next year by Zillow----none of them really very high).  The advantage in hanging around doesn't seem to be very great in terms of most of the counties in California.

Are there any other factors that in retrospect would appear to have been really determinative of the outcome (rather than the usual factors everyone normally cites)?


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Reply with quote  #2 
Originally Posted by larrywww

The other weird thing right is how flat all the markets are in California, namely (in terms of future % appreciation for the next year by Zillow----none of them really very high).  The advantage in hanging around doesn't seem to be very great in terms of most of the counties in California.

It looks like Zillow predicts 3.3% for the next year.

If correct the big gains have been realized for a while. Where does Zillow see the biggest gains coming?


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Posts: 2,123
Reply with quote  #3 

I'm not saying that the market is crashing or anything, but a 3.3%  return isn't huge, right?
Bruce's question is whether in light of the appreciation already experienced the remaining equity is an investment or a speculation.   Even in a normal market an investor doesn't try to get 100% of the profit---it isn't wise to get too greedy.   Also, managing  properties is a pain even under the best of circumstances---so for me exiting a little early isn't really that much of a sacrifice.

In light of the aboves post, San Diego was a coastal county so it didn't receive the stunted appreciation experienced by the inland counties, it had something alot closer to a normal recovery (even if not that).  If one compares San Diego and Orange County to the Bay Area (the very definition of a bubble), then in both Santa Clara and San Francisco counties the healthiness of the market is 9.8 or 10 out of 10, the %  delinquent is 0.3% or 0.4% (whereas San Diego is at 0.6%) and those with negative equity are, respectively 2.7% or santa Clara county and 3.3% for San Francisco county (whereas San Diego is 6.4%)

By any slide rule those certainly seem like very healthy numbers, even if a crash isn't imminent.  If you think you have desireable inventory to keep and you have a buy and hold strategy---then you might keep it.  But Bruce's sudden move is an indication that this decision might be overruled if you find a better way.

The way I would look at it is whether you want to risk the rewards gained for the small digit appreciation they are predicting.  That is a personal question, but one that I don't find difficult to answer, unless you have a substantial reason for sticking around.

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