San Diego Housing Bubble News and Analysis

Couple of questions:
What is your tax bracket? Higher income folks get clear tax breaks for owning vs. renting.
How much down can you muster? A key reason to buy for real estate now to either live in or invest in is the dreadful return on your money everywhere else.

Tax bracket is 28%...low six figure income. I COULD come up with 450k, but don't know if that is the best thing for me to do since interest rates are so low. Would be nice to lock in a really low rate and hang onto some cash in the event that interest rates or other opportunities rise to put the cash I have to work. I plan on putting about 200k-300k down, but it all really depends upon the situation and the price of the house.

If I had to, I could put more money down in order to get the deal done if I find something I really like. I also like living way below my means so that I can save money...have lived that way all my life and I like that security. Unfortunately, living that way does not really give me a great tax advantage. Would like to take advantage of some tax break but not to the point that I am stretched.

Thoughts appreciated.

Mercedes things are really tough to predict right now because of the slush factor. I have coined that term because things are slushy to me and nothing really seems to be as it is. We have talked alot about the subsidized market through mechanisms such as squeezing inventory, govt incentives for homebuyers, and low interest rates. No way those things are going to abate. My money is that our esteemed leaders will follow up with another buyers incentive. I think it is a foolhearty waste of my tax dollars but that doesn't matter. Conversely I do not see unemployment abating however I think it will flatten out. Still I know ALOT of good friends out of work. Plenty of engineers out of work right now. Lots of foreclosures coming as well but it seems like the govt and wall st have developed a methodology of being able to trickle inventory out. Can that continue?

So this post is a rerun of course.

Where you are looking factors into the equation. Your price range is in the think of where ALOT of other people are looking. Going back to your question, and applying it to say PQ. Will PQ drop back to where it was 9 months ago? Will it go lower? I think the answer can be yes to both HOWEVER not under current conditions. If mortgage rates are at 9% then yes it can happen.

For sure do not overestimate the cash factor. As many cash deals as there have been on the market, overall they are still a VERY small percentage. There was another post about cash buyers or flippers swooping in on the market if prices go lower. I could not disagree more. That activity is happening here and now. About flippers, the ones that do it seriously, the big boys that are backed by serious investment money do not buy homes from realtors on the MLS. They buy them in bulk and they buy them at the trustee sales. There are people who buy homes for cash. Yes. We sold a condo in Kearny Mesa last month for cash and the couple that bought it were an Asian couple in LA who had purchased 4 already. Still though, if you look at stats of closed sales, especially 400-500k detached homes, no way are cash deals a large component.

Anyways, sorry I cannot give you the majority of the depreciation answer. I will say yes but ONLY if interest rates can be kept tolerable and honestly I just do not see how that can happen. However to me that will not happen for awhile yet. There is still the fact that our creditors have to finally say ENOUGH TO AMERICAN DEBT!

Thanks SD Realtor...

I have been patiently waiting as I fully expected there would be a lot of inventory coming on-line soon, not to mention the option arm resets expected to start in earnest over the next two years. I have been trying to weigh the amount of money "wasted" renting with the potential loss of equity if home prices depreciate substantially from here.

Up until this point it has been a "no-brainer"...I have been much better off renting. However, things have certainly leveled off. Will there be another leg down? Is there really shadow inventory out there, and even if there is, how will it be released and what effect (if any) will it have on prices? (All rhetorical questions of course)

One more question if you don't mind. At what price point does the competition narrow substantially? 600-650K, or is it higher than that?

Thanks again...

Hi Mercedes

Unfortunately I do not have many good answers for you...

Will there be another leg down?

Yes I think there will be. I don't think it will happen as soon as everyone wants it to happen. If you go back at previous posts there were lots of "tsunami" and tidal wave predictions for 2009. Fundamentally those could have been right but the market is subsidized so poof, they could not have been more wrong. So I think we need to let the string play out and then yes you could see the leg down you are hoping for.

Is there shadow inventory out there?

Yes... however many people like to toss around shadow inventory and think every zip code has tons of it. That is a fallacy and a big mistake. Is there alot of shadow inventory? Yes. Is there more of it in Spring Valley then Penasquitos? Yes absolutely.

How will it be released?

Could not tell you. Honestly to this day I do not even know the rate of release right now. I think there is an underestimation of bulk purchases, and of PPIP purchases however in no way do those activities soak up all the bank held properties. However there are so many defaults out there and future foreclosures that I cannot estimate how they will be released, how they will be hidden, held or whatever.

It is all a shell game now Mercedes.

At what price does the competition narrow substantially?

This is SUPER dependent on the neighborhood and the subject property. I cannot overstate that okay? It really really varies... Sorry for being vague but it is what it is. Give me some zip codes to work with and I may be able to help. However even in those zips there will be super desired properties and super UNDESIRED places.

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I cannot tell you if renting fits your needs or not. That depends on you and your family. I think if it is ONLY financial waiting another few years may be advantageous.

Thanks SD realtor,

Actually the first 3 questions were rhetorical and I didn't expect you to answer.

As for the last question related to price point and competition, you have a good point. I have been looking in 92120 (mostly Del Cerro), 92124, 92122, 92126 (certain areas), 92131, and 92129.

Lurker here too - same stats as mercedes, except with slightly less for down payment, so I guess we are competition eh? Haha. Do you work in Sorrento Mesa too?

92126, 92129, 92131, 92122

I see my name in the original post but I'm not a pro, far from it, my expertise and life's work has nothing to do with real estate or economics. I merely learned this stuff online and what I have learned is confined to a very small area, the one I live in. Fundamentals are pretty universal, math works everywhere. I don't like the math in the upper tier of the San Diego market, but after living vicariously through others for a few years on this site, I couldn't guarantee you that it will get all that much better. I have a feeling that the market has found it's spot and should chug along for a while without any wild swings either way. Some of the S.D. market has defied logic during the worst economic times of our lives, it has just as much chance of continuing that trend as it does of instantly reversing it.

But you are different, you have a big cash position. For you, higher interest rates would be a good thing, it will minimize the competition. I do think raes will move higher over time, if it were my money I'd wait to see if that bet plays out (actually if it were me I'd move to my hood, pay cash and never make a mortgage payment again, and still keep money in the bank, but I digress). I do think rates move higher in the next year, if you find the house you love this winter and can afford it, I won't stop you, affordability and biting off less than you can chew is my favorite plan. But if you find the market frustrates you, with that much cash, you can sit it out a bit and just see what happens, nobody will get priced out before March 2010, winter always sucks for r/e and I highly doubt rates will go lower. Keep a watchfull eye on employment, if we string together a few good months just consider the fuse lit. You are in a an enviable position, you can act in an hour and r/e moves much slower.

Don't put it all down, keep some reserves, it will help you sleep. Don't overleverage, stay with the lifestyle you are comfortable with, your health will thank you. Living below one's means benefits the mind, body and soul.

Mercedes and Seaward you guys are not alone in the zips you have mentioned and the price points as well.

I think that 92122, 92124, and 92131 have the potentially the highest probability of price reductions in the next 1-2 years out simply because of the current median prices in those areas.

92126 is a bit tougher of a play. The 300k 1200 sf 92126 seems to have hit a support level that is not just consisting of purchases by owner occupants but also of investors as well. So I think it will be challending to see that having alot of play left in to the downside but I suppose anything could happen with an inventory flood.

92129 is crazytown right now. I can see it going back down again but even in the hard slide of late 08 it seemed to find support levels in the high 400s and mid 500s depending on which part of 92129 you were looking in. There are some really strong elementary schools down off of Black Mountain Road that draw alot of homeshoppers there.

Other areas you guys may want to consider could be 92119 or 92124 as well. A little lower price but also lower desired may be 92123.

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I know I am not giving you answers you crave though. I know you really want to know will it be worthwhile to wait. Can I promise you a 15% decline in a year or two? I cannot. I wish I could. If there was not wizard of barney frank I would be more confident. If the market were not manipulate and if the government was not controlled by Wall St I would say yes. Surely unemployment and distress would cause one to say this is a no brainer. I still say that your best bet is a hope of China shutting down the credit pipeline causing interest rate shock. Sorry for not being able to give you a for sure... Maybe in a few months things will trend in a more clear direction. Sounds like you both have some time which is good. Lets see how things look in the spring.

Thanks for the helpful advice. I was looking at Bay Park, Bay Ho, and parts of Clairemont as well. A little older and worse school districts, but doesn't matter for me with no kids in the picture for at least 5 years or so. Mira Mesa looks like a pretty attractive option... correct me if I am wrong, but the competition doesn't seem as stiff there, possibly due to the perception of the neighborhood?

Buying a place cash sounds very tempting, but I can't deal with the commute to Temecula and condos in town don't have yards sadly.

Wow, just pump up the already inflated ego's and expect great responses.

Seaward...I work in Serra Mesa, 92123. Guess we are competition, but don't worry, I'm a pushover.

SD Realtor...thanks for your perspective. I will continue to look, but have decided not to jump into anything unless/until I find something I really like. Will be looking daily this winter.

I am not convinced that all this government intervention will (in the end) save our economy, but that remains to be seen. At some point these banks have to start taking possession of these homes and ultimatley dispose of them some how. Very interesting thread right now about people living in homes for a long time and not making their payments, thus providing extra cash flow to do other things with. Eventually that has to stop. As far as interest rates, Geither came out with news that they would be lengthing bond maturities which should steepen the yield curve and cause interest rates to tick up a bit (we shall see).

Temeculaguy, I read your forum with interest when you bought your house. I think you have a pretty interesting perspective on the SD market too, as you were the one who argued that there will be a floor under certain areas. That got me to thinking and start looking. Temecula would be too far of a commute, but the idea of having no house payment is tempting.

Anyway, thanks for info...I'll keep you posted.

Mercedes I honestly don't see how you can go wrong by waiting. There really is no rush, keep building up a cash pile.

Seaward, Mira Mesa gets a bad wrap mostly from people who do not live there. I know alot of folks that live there and they enjoy it and didn't have to spend every last penny on a home. There is pretty stiff competition though due to lower prices.

Again, no rush to do anything. Keep your head up and watch things. Do what works for you and waiting a year or two never hurts. Just build up cash.

Yeah I never minded Mira Mesa. There are nicer parts too if you need that kind of house. Guess I will save and look, but interest rates are just ugh ... 1.3%.

Real easy....

If you have cash now is NOT THE TIME to buy houses when interest rates are low....

Go study the 1970's stagflation model. History always repeats itself usually in 25 and 70 year cycles.

The govie is going to keep printing money and stealing our money and redistributing to the most pressing fires (extend Unemployment bennies, more tax incentives to buy houses, health care, stupid wars, more cash for BS programs (appliances are next), GMAC Financial needs a third bailout today, states are BK and will play their hand against the federal to get money for police and fire or they will tell them to bring in the national guard and pay for it themselves, pensions funds and municipal bond bailouts, on and on an on). It is all coming down home to roost not to mention the CRE explosion that will be here in the next 6 months.....

More debt and more risk to the debt investor means, go visit the 1980's charts for interest rates and when we get to EVEN 10% the housing market by a mathematical certainty will drop another 35%. I don't care if you live in La Jolla or El Centro.

Buy with CASH when rates are HIGH my friend. Good luck to you, and don't get greedy or impatient.

Hi seer,
If only it were as simple as "Buy with CASH when rates are HIGH". But how do you get a real rate of return on that cash for the next x years if rates stay low?

I guess your advice on buying houses is a little like Buffet's on buying stocks: "Buy low, sell high".

Real easy....

TB :-)

Here's the historical median home price reported by the census bureau: http://www.census.gov/hhes/www/housing/c....

Here's the historical mortgage rates:
http://www.mortgagenewsdaily.com/mortgag...
http://www.freddiemac.com/pmms/pmms30.htm

If you buy a median house in the 70s, by the 80s, the house doubled (adjusted for inflation). All the while, mortgage rates doubled.

When and where to buy a home is tough to predict. Due to the massive amounts of money the fed has printed,that will hit the market at some point,I think that we are in for a period of high inflation in about 18-24 months. Probably in the range of 12 to 15%. How that will effect home prices probably will depend on the job market, which is probably going to get worse before it gets better. More jobs= more people with money to buy a house. More unemployed (despite the inflation) = a soft housing market and lower home prices despite inflation. As many have pointed out, the amount of foreclosures is artificially low so recent home bidding wars may cease if/when the pre-forclosure homes finally do hit the market, which may further lower home prices. If the pre-foreclosures do not hit the market, home prices may continue to creep up. Balancing all of these factors is difficult. I think that if someone is in a position of long term financial secuirity,ie a good/secure job, locking in a home at a reasonable recession price in the next 12 months at a fixed 30 year mortgage will probably make you look like a real estate guru in 6-10 years. I just bought a class A office condo for my office at $177/sq ft on a major road because I believe that now is a great time to buy foreclosed commercial real estate.Good luck.