San Diego Housing Bubble News and Analysis

I always welcome contrarians to these boards, it keeps everybody honest. I guess in response to your post "I'm holding my breath" You make a very good point that people won't put their living situation on hold but in the case of Southern California there is no choice but to put that on hold or leave, which people are doing in droves. Simply put home prices are not supported by incomes virtually anywhere in the state of California.

Here is what is going to happen, these over priced homes are going to sit on the market as they are now and just sit. The people who have to sell will begin competing against each other in order to close the deal. And you will see and are already seeing the price per sq ft nose dive. Southern California is facing a huge storm of foreclosures because people took out exotic loans banking on continued appreciation of their homes. They gambled and they lost. They can't make their payments and the potential buyers will not take out these loans when they see prices falling. How far this thing tanks, i really don't know. Right now the disparity between what people pay in rent verses the financial cost of owning is too great in face of a falling market. I save over $1k per month renting verse owning (after tax break). Combine that with flat and falling prices, it literally makes no financial sense to own. We are in totally unchartered and untested waters here. I have no problem holding my breath when I'm saving more money.

As for holding your breath I suppose it depends where a person is in the buy-hold-sell decision. The only people who should be sweating are the people who have exposure to losses. At the moment that includes thousands of 2004 and 2005 buyers and anyone who has maxed out their mortgage ATM in the last couple years. Of these people, some are actually smart enough to see how precarious their situations are (hence are sweating); while the others are too dumb to realize how bad their situation already is.

People who currently have no skin in the game have no rational reason to not continue to wait. The market is going down, and the decline isn't that slow. There is no 3-year financial upside to getting in at the moment. If you want to preach the emotional benefits of owning the right to win or lose in the property ladder game then feel free. However, I think your message would be better received on one of the investor/flipper boards out there. Those guys love soft-landing predictions.

I sold my house in anticipation of downturn and would not say that my life is on hold. I don’t like renting but I am living a pretty nice life in a house I could never come close to buying (it is worth double what I could just barely afford). If I bought, my standard of living would decrease because I would have a much smaller house with fewer perks.

If we purchased a house, my monthly expenditures would increase significantly. Plus, I would have to invest most of my money in the house in order to buy it. That money is currently earning a return. If I add together the return I’m getting on my cash (expecting only a modest 5%) plus the difference between what I would pay in my mortgage and what I’m paying in rent, I come up with a number that equals fully one half of our family’s yearly income! The property would HAVE to appreciate at least 5% a year for me to break even.

Further, the added burden of a monstrous mortgage would force me to put my life on hold because I would not be able to afford to do anything but hang out in my cramped living room.

On a separate note, a friend was just offered a great job in Orange County. The couple really wanted to take the job as they would love to live in proximity to the ocean and really like SoCal. However, even though the money was better than other job offers they received, they reluctantly turned the job down in favor of a less expensive location. Not only are people moving away, they are also deciding not come here at all.

I, too, welcome contrarian points of view. Especially ones with a decent argument behind them. The view expressed above is "don't hold your breath." Which I take to mean, "prices won't fall that much." But the only supporting evidence that I see behind this particular view (and of course could be missing something, correct me if I am) is that "There are people that won’t put their living situation on hold and wish to move into something different or need to make an adjustment to their mortgage. It happens everyday and it’s a factor that will never change." While that is all true, it has very little bearing on what's coming next. The same thing has been true during every real estate bust in history. Yet there have been busts. Big ones.

If you have other reasons why you think prices won't fall much, I'd be interested to hear them.

Submitted by PD
"...even though the money was better than other job offers they received, they reluctantly turned the job down in favor of a less expensive location. Not only are people moving away, they are also deciding not come here at all."

This has been going on for several years. I have many friends who have been offered positions here in CA with salaries that would make most people salivate, but these are intelligent people and not fools, they look at the whole picture and just say no.
I had never put this together with the numbers of people who are leaving.

The remarks about people leaving and deciding not to come are so true, and there is a recent thread on this called "Should Young People Leave California." Still interesting for those of you who are not young anymore!

Bottom line is that if you are well educated and are a doctor, lawyer, engineer etc. you can make it work in San Diego, especially if you are married and your wife/husband have a well paying job, and especially as home prices continue to fall. On the other hand, if like most people you are in a lower paid profession like teaching, social work, policing, fire fighting, many business fields etc. it is going to be difficult, especially if you are young and haven't bought yet.

What is clearly happening is that these young, middle class, often college educated people who have not yet bought and are not in lucrative careers are leaving. San Diego is going to become a land divided between an upper class and a lower class to serve them with little in between. It's why Lou Dobbs called his new book The War on the Middle Class.

Thankfully, the escape valve is that there are hundreds of great cities out there where a middle class family can own a great home and live the good life. I plan to move to one of them! My wife and I are late 20s, early 30s, have two children, both college graduates and even have some equity from a previous home but still can't afford the life we want here.

I agree with LA Renter. Personally, I have no choice but to "wait on the sidelines," is the line I hear so much lately. Of course I sit there, I was priced out of the market years ago.

As far as not "holding my breath," as Pasadena Broker cautions...

From what I see at http://thehousingbubbleblog.com/?p=1670 today, It's the sellers in that condition, not the buyers.

Quoted:

“‘We consider it a success story,’ Shelly Taylor said Friday. ‘We paid the closing costs and met some other demands, too, but that’s really what you have to do. We were holding our breath there,’ she said, as the home competed with six others for sale nearby in the neighborhood.”

Renting is not putting your life on hold. Consider that most buyers only live in their houses less than 5 years. That sounds like speculating with ownership to me.

The key is not owning or renting but affording a lifestyle that bring you pleasure and rewards. If you rent a nice house that's affordable and invest the savings, then you're building on your future.

What does it matter if the landlord owns the house or the bank owns the house? From the inhabitants' perspective, it's their net worth that counts.

The argument that not buying is "holding your breath" is not holding water to me.

Yeah, it's the sellers who are "holding their breath" right now. :)

PS: I own a house but that's only because I bought it many years ago. I would rent rather than buy today.

Pasadena Broker, you might be right but you'll have to provide a reason. Just saying "Don't hold your breath" won't cut it. What do you think of the YOY declines in many So Cal areas?

We can either hold our breath or drown in debt. I'd rather hold my breath, thank you. Do you have any other data samples or arguments aside from a biased viewpoint of a 20-year industry veteran? I am still waiting for more compelling arguments from you and others in your industry as to why I should not wait to purchase a home. Now that's something I won't hold my breath for.

This guy makes a good point. Houses are comming down a little on the whole, and a huge amount for the "screwed". I have seen a few houses in the past couple of months come down $100 thousand and they were gone in a couple of days. But the listings are not climbing higher, they have come down a little, sales and a lot of expired listing I expect http://www.benengebreth.org/housingtrack.... I have friends that didn't buy in the 90's and kept saying not for $200,000, not for $300,000,(and they could afford it) and now its out of the question for everyone who isn't a doctor and a lawyer. Now that they have made 500 thousand for their landlords', not to mention what they are paying in rent,(close to 2000) now the rents are on the rise so that the landlord's can make their payments and the forecloser's are gonna send folks into the rental market, which occupancy is at like 95%. www.realfacts.com/7262006.html
It may not come down to the levels folks are thinking here. "Don't hold your breath" like my neighbors did.

Yes, exactly. We renters have no choice but to sit it out. Our household income is just above the median and we cannot come close to affording a house in this town, fixer-upper or not. I would assume that prices will drop until people can afford them again. It's as if the average price of a car went from $20,000 to $60,000 in the last 10 years. I'm not going to buy a $60,000 Hyundai either. I spent some time talking to a bank employee last night whose job it is to "help people hold onto their homes" who are on the verge of foreclosure. He says the numbers of people in over their heads due to the last few years of irresponsible lending (my words)are huge. I'm a little nervous what the next few years will bring but my partner and I hope that we will eventually be able to afford a small fixer-upper house in San Diego. But if three years from now, a 1950s run-down cottage in Normal Heights is still over $300,000, we can always move to another state.

One flaw in your argument is the line:

"Which brings me to this point: At some point in your life, you will purchase real estate"

You act like purchasing houses in S. Cal at these prices is compulsory, and is required for living. That is obviously not true. I don't have to pay $1 million for a fixer in Poway. I just don't. Worst case, I can simply move to a non-bubble area and buy a better house than the Poway one for about $350k. I've done it before, so I know I can live very comfortably in a less expensive area.

I've owned various real estate from 1993-2006. I am all cashed out now, and what I've discovered is the rather obvious fact that I don't have to buy again. I can sit on cash indefinietly, or I can buy tomorrow. But it is my choice what to do, no one is going to cause me to take on a big financial commitment out of fear that I "have to" buy real estate again.

I'm not too concerned about those who will be foreclosed on pushing up rents...

They will be living in campgrounds or moving back in with "Mom and Dad" (assuming the parents are solvent, of course)....NOT competing with me for 2500 sqft. SFR's in nice areas....who in their right mind would rent to someone who has just been foreclosed on?!?!?

Yawn....let the collapse continue...

Anyone heard any arguments for a 'squeeze' in the market - the period of time when rental rates are shooting up but home prices have not yet reached attractive levels? Not only will home prices still be unaffordable and also unattractive due to the continuing decline, but rentals - the safety valve for those who can't buy - will also be out of reach. I'm not sure if this is valid or not, but this notion of a 'squeeze' period just occurred to me this morning. As an example, I was looking at homes in San Marcos today and 600k is still too much for me. I also checked out rentals and homes that would have been 2200/Mo last year are now 2500/Mo.

We all saw people saying housing was too expensive to buy in the 90's @200k then 300k and so on. We all thought it was. One of my neighbors that rents had said to me, "I don't wanna buy a house, all the costs for upkeep,etc..." Now he has been living in his house that was worth 130k when he moved there, been upkeeping it on his own, owner does nothing, pays higher rent every year and his landlord is 500k richer, they have always talked about moving somewhere else where its cheaper. They never do. I don't expect they will. No one can afford to survive at these prices if they continue,(which they are not) but everyone in San Diego moving away from the beaches, weather and family, etc. is I think highly unlikely. Personal wealth will not be sustained just by sitting on it. So we will always pay more for paradise...or you can move, but most of us will buy eventually, and try to build the american dream . Income will eventually get higher, rents will go up and houses will come down. How much is the question NOBODY KNOWS for sure...they never new how high they would go, and no one can predict how low. Ebb and flow.......

Off track, but isn't it a shame that "kids" in this generation worry about buying realestate. I didn't think about it until I had a kid! My nepew was 19(works for his Dad and makes 70k a year) bought a condo in Santee last year,275k and got married and had a kid...his sister is going to grad school in AZ(cause its cheaper) and she and her boyfriend are going to try to buy....its the American Dream kidz on the fast track!

I grew up in Brentwood/West Los Angeles in a home that my parents bought for $37,500 in 1959. My mother cried after signing the mortgage because it seemed like so much debt. When a large local property was subdivided and developed in the mid 1960's I remember going over to look at the new houses with my parents who were saying "Nobody is ever going to pay one hundred thousand dollars for a house."

When they retired in the mid-eighties they sold their home for $750k to a man who remodelled it and sold it for $1.1 million.

OK, where am I going with this?

Yes, buying California real estate, holding on to it and watching it appreciate has been the single most important thing my parents or I ever did.

That said, I think the folks on this board have it right. People who sold in 2004-5 and ran away with the cash have done themselves and their families a huge favor. They are someday going to be compared to those who sold stocks before the 1929 crash.

I apreciate the civility of the broker from Pasadena, but telling people "Don't hold your breath" is an easy thing for someone to do when they profit on transactions.

By the way, I am not a real estate professional of any kind, just a middle class guy sharing his personal, possibly deluded opinions.

JS

LOL "Don't hold your breath". Sorry folks all this reminds me of is a HH post on Craigslist forum. Post some data or something at least.

You are not being real clear. What would you like statistics on? I can give you links with stats on both sides of the fence...I am on the fence should I stay or should I go....I am positive of one thing I am not sure what is best!

WOW, you guys really reacted to that post. Must have hit a sore spot.

Pasadena Broker, you are fairly eloquent, that's nice. Whats not nice is that you have presented an argument devoid of any data, even anecdotal evidence.

So many times over the last few years people from the other side of the tracks have come here and posted basically the exact same argument. They NEVER provide any evidence. I am sure that SOMEONE was buying RE even in december of 1929, but not alot of people.

I'd hate to loose your eloquence (on this board), but you have to add some substance, or next time I post, I will lose mine.

We make predictions and we argue over them, and yes these are all subject to re-discussion. Emotion plays no place in my discussion of RE, except insofar as it explains the stupidity of crowds.

Ultimately Pasadena Broker, you have missed the point badly. We aren't here to market time, and most of us despite flippant predictions don't claim to be waiting for the absolute bottom. Nobody knows where that is. What we are doing is waiting and communicating about the cyclic nature of the most expensive asset most of us will ever buy. Bouncing ideas, testing theories and sharing information.

Please provide evidence that we are holding our breath.
Please provide statistics that show why RE isn't going down.
Please join our group constructively.

(Holding breath)

Josh

No one can provide data that isn't there.
Realestate prices ARE going down. That is a fact, sales ARE down, that is a fact.www.benengebreth.org/housingtracker
However, folks on this site tend to PREDICT that its going to be for umteen years and until price declines go over 50% and then some. In my humble opinion THAT is beyond reality.
There is some data/information out there that make SOME seem to think prices may have hit bottom too-which is ridiculous- and housing inventories are at least for now in San Diego declining, albeit time of year, expireds, sales, I don't know, but they are.www.benengebreth.org/housingtracker. So I say I agree don't hold your breath for others to feel the same way you do and give away 100k,(renting won't save you forever it's going up) don't put your chickens in one basket, don't get caught up in the hype, and listen to your mother.

p.s. By the way people who are foreclosed on DO rent. Not every individual who is a landlord checks credit. If you are making 80k you still can afford to rent. You just can't afford to make the payments on your 650k no interest insane loan you got.

Let me get this straight. Home prices have gone up 200, 300 percent in the past few years during the run up, but a 50 percent decline is beyond reality? You sound like a neophyte broker to me with a perennial optimistic attitude. Just what you need to get more clients. Save the rah rah for another site, because this is the real world. Porkman

Pasadena Broker might be a neophyte, and he might be a troll

It's my opinion, and it's your hope. 200 and 300% in the past few years,(more like ten) where did that happen? Show the statics for that. I am a home owner, thinking about moving. I hate the heat, traffic, and the fact my kids won't be able to afford anything here, decent, not a broker. So you are definitely wrong about at LEAST one idea, I am guessing on a whole lot more......good luck

I say this guy is 24 years old, drives a 330i and lives in the basement of his parents tri-level condo in Laguna beach. With no view from the lower level.

I say you are delusional. But thanks. You have to admit there still is no stats to support your delusions.

Somebody put on their crabby pants this morning? Take it easy and take a chill pill.....junior.

Come here when you have something to say that's informative.
Grow up and make some sense before you go attacking other folks for their opinions. No one else cares if you think your funny, find another forum for your juvenile nonsense.

I did not suggest that people who are foreclosed on don't rent...just that they will not be renting in the same nice communities most of us live in...perhaps the landlords in National City don't check credit, I don't know-

Lose your house to foreclosure, though, and you will likely be renting a space from the KOA in Chula Vista, NOT a 4/3 SFR in Bonita.