San Diego Housing Bubble News and Analysis

We discussed this somewhat.

http://piggington.com/case_saying_bottom

I am surprised Case would say this considering the amount of inventory still out there.

Gotta have knife catchers on the way down. There were plenty of folks that bought CFC and BSC on the way down, there will be plenty who buy "investment" properties on the way down as well.

I've said this before, and I'll probably have to say it many more times this year: "bottom" means different things to different people. I'm willing to bet that the folks on this site concern themselves with the "price bottom", and couldn't care less about the bottom in residential investment, new home construction, new home sales, etc. On the other hand, economists take the opposing view: if construction and sales stabilize, that's what matters most to the economy. Prices sliding a couple more years are not that big of a deal.

So, I think that we'll hear bottom calls starting this year (2008 is likely to be the worst year for residential investment, and 2009 should be better, imho) all the way to 2010 and beyond, when prices will probably bottom out. As long as we're talking about different things, we can all be right :-)

Even IF the bottom is here, how long of a flatline. I seriously doubt the chart is going to be a V

To pick up where that last thread left off

'Sdduuuude nailed
Submitted by CA renter on May 7, 2008 - 10:53pm.

Sdduuuude nailed it.

Investments certainly look good in some areas right now, based on inflated rents. But lots of inventory is being kept off the market by banks and FBs trying to hold on until "the market gets better." What happens to rents and prices when that inventory is finally released onto the market?

A recession/depression is still not being priced in, nor is a decrease in rent or further decay in the lower-end neighborhoods. Crime will rise, rents will fall; and what seems like a good deal today will probably look foolish next year and the year after that.

I still stand by my 2012 bottom, at best. Time will tell.'

-------------------------

Both views can be right in the sense that if you look at what Case is talking about, his focus seems to be on the building industry and he seems to be calling the bottom for new home construction. You can have stabilisation of national new home construction co-exist with nationally measured declining and then stabilizing prices. Though there is so much inventory to get though, some areas are not badly hit by the downturn. What case say does not stop San Diego , Sacremento etc going their own way.

chart

Housing starts

I believe the chart in question is here. And there seem to be a lot of "V"'s there.

Oh, by the way, I've been seeing a more buying activity on the larger scale. Some large investment groups buying up almost finished projects in Riverside County for good discounts. A lot of salivating and $$ signs in eyes by a few people. I know of at least two purchases and they are looking for more.

Presumably, if expressed as starts/ population or starts /housing stock, the current position would look even lower .

Where is the hint for "bottom" on this chart? It could turn back up soon, but so far no sign yet.

That's what I would like to know. What's the impetus? What's going to make people run to buy real estate? People can't even qualify to buy right now. Besides good credit and 20% you have to prove you can make the payments. The bottom - maybe - in real distressed areas.

Also, interest rates will eventually have to go up. If they do, who will qualify to buy all these homes if prices don't further decline? You already have to have great credit, 20% down, prove you can make payments. When - I don't mean if - rates rise, either prices will have to come down or that will be the nail in the coffin.

Also, are we excluding that in a few years we will begin to see the baby boomer inventory start to trickle in?

As per patrick.net:

"Baby boomers retiring. There are 77 million Americans born between 1946-1964. One-third have zero retirement savings. The oldest are 62. The only money they have is equity in a house, so they must sell. "

Multiplepropert..
Please feel free to buy all the properties you can afford, ASAP. Then, post the addresses and prices that you paid so we can have a monthly laugh festival as the values drop and drop and drop and drop, etc etc etc

Case is speaking of the national aggregate market.

That is very different scenario than SD, OC, LA, and Miami.

Been on this site since 2004...no squirming here. I am, however, enjoying reading more and more foolish posts like the op laid out.

Lately, I'm just having a blast reading about all the ongoing suffering of recent buyers (and even not so recent buyers who went through every last dime of their equity) and of those whose lives are dependent on the sale of real estate. Ha.

Not buying this year...not worried about missing a damn thing.

LBC

Basing that call off of cycles that have previously had precedent makes me lose a lot of respect for Case. Almost the entire engine driving the market for the last decade if not more has been easy credit and lower than usual interest rates. Both of those are on their way to being almost totally absent in the near future. Housing starts stats don't have much if any influence on these drivers.

The low rates would have been one thing if it was a 30 yr fixed. It was the teaser 2 year rates. Allowed people to buy double the house. And houses doubled in price.

Thanks for the reality check NSR. His comment was for the US not So cal. Other parts of the country have affordability while we do not. While volume seems to be bottoming out on a Y-O-Y basis to some extent, I dont think anyone around hear is calling for a bottom in prices with a straight face.

Furthermore, if you look at the bottom in 1991 in housing starts, resale prices didnt bottom here until around 1995. Thus the chart may actually support the price bottom between 2010 to 2012 that so many of us have been calling for the last 2 years.

Just looking at the chart surveyor posted. The "V" shaped recovery there (in housing starts) occurred in 1991-1992.

But prices continued to fall (in real - not inflationary adjusted - dollars) until sometime around 1996 or 1997.

As another poster pointed out, the bottom of the housing construction sector (to economists anyway) doesn't necessarily result in a pricing rebound (and indeed, from previous examples, doesn't even mean prices will stabilize).

Edit: beaten to the punch by sdrealtor lol

charts

I don't interpret the chart to mean that we are at the "cheapest" prices for real estate right now or soon. However, in the larger economic environment, the possibility that housing starts will begin to go up bodes well at least for the economy, because maybe it will start generating more jobs, more jobs means more money, more money means people spending it, etc. etc. Whether the chart indicates higher housing prices in the Scripps Ranch zip code 92131, I doubt it.

I myself am starting to see the beginnings of the housing starts. We are seeing dead projects being bought up and springing back to life. Soon, they will start actually building again, hiring more people.

surveyor, can you elaborate more on this?

I myself am starting to see the beginnings of the housing starts. We are seeing dead projects being bought up and springing back to life. Soon, they will start actually building again, hiring more people.

Do you see anything in the North County coming back to life? To me, the only good deals out there are either from builders or REO. Since new housing stock are mostly large SFR or small condo/townhouse, there's really no option for something who are looking for a modest 1500-2000 sq-ft SFR.

To the clown who started this thread:
Read it and weep: http://www.washingtonpost.com/wp-dyn/con...

The Washington DC housing market is very similar to the San Diego market re.pricing, etc. If this is happening there, guess what's coming to San Diego? Toot toot.................The Pain Train.

starts

The stuff I'm seeing is not in San Diego county.

There are a couple of stalled subdivisions in northeast Escondido that I am watching. However, the owner is being very stubborn on price. He expects bubble prices.

There are other possible subdivisions but they are probably way too north for you to consider. The County is trying to build a road from the 15 to Valley Center, and someone will probably start looking to develop there. However, it will take 10 years for it to be finished, even if they started their application today.

Just a thought.....

Most of the distress in the North County Coastal markets seem to be in the newer tracts that were built 2003 to 2007 like San Elijo Hills (if you can call it coastal), Bressi Ranch, La Costa Greens, La Costa Oaks and Encinitas Ranch to some extent. It looks like everyone will soon be able to buy those McMansions with sky high Mello Roos and HOA fees on postage stamp sized lots that they so covet around here. (Tongue firmly in cheek).

EX-SD,
Why be a %$##$*? With comments like that, I stoked you are an ex-San Diegan.
MPO

"Even IF the bottom is here, how long of a flatline. I seriously doubt the chart is going to be a V"

I think you are on the right track jpinpb. I am thinking we could be flat for at least 3 years, but that all depends on how many people are sitting on the sideline, and if credit markets loosen up, then there could be a mini buying spree. My call is a possible slight bump of 1% in housing prices in the next 18 months, and then flat for 3 years, but I think the Fed has done a lot to calm the avg. buyer. Tomorrow will be a big day as Paulson speaks on housing and credit markets and March housing starts are released.

"Case is speaking of the national aggregate market.
That is very different scenario than SD, OC, LA, and Miami."

Bingo, many markets did not see near the appreciation that these areas did. Also keep in mind previous housing downturns were caused by recessions that were the result of some external force outside of housing. This time housing is the CAUSE of the current gloom and really we have just now entered into a recession, we have seen what happens when prices become completely disconnected from fundamentals but we haven't felt the FULL impact of the economic downturn on housing yet.

While it is true that Case is speaking about the market in general, that still does not translate into the avg. buyers mind in this area. Many people are antsy and not as savvy as the avg. pigg. They see low rates and some media attention that the market has bottomed out (i.e. Tonight's Nightly Biz report on PBS) and they start asking parents to borrow the 50k deposit needed to get a place. Is it not true that you are hearing a lot more people talk about getting into the market. I know I am. For me thats a good thing, I don't deny that I am all for a prolonged flat period or even an increase, but I understand that being a bummer for those who have been waiting for a larger drop.

One small detail that is easily missed, housing starts measured on the way down are not the same as those measured on the way up.

If you look at the square footage, expected sales price, etc. of starts being put on the books today, they are far lower in both areas as those at the peak. Thus, prices and sizes return to nominal levels, which actually support further declines in existing values, until evertything catches up to the new constructions.

This at least partially explains the lag seen between housing starts and prices. The starts you observe 'at the bottom' are seen as a baseline for where prices are eventually going, and if you consider that prices almost always over-correct at the bottom until they turn, it is easy to deduce that, price wise, we're nowhere near a bottom.

One of these days the bottom callers will be right. This does not happen to be that day. Did anybody read a post showing headlines in the early to mid 90's describing the downturn. I think the media pointed out every Spring that there was an increase in activity and signs a bottom was being put in only to be followed by more malaise. We will see many false starts. There is cash on the sidelines but it does not remotely begin to compare to the cash provided by lax lending available to anybody with a pulse and in many cases actual dead people earlier this decade.

From Yahoo Finance front page

Top Stories

Consumer Confidence Plunges to 28-Year Low- AP

Consumer confidence tumbled to its lowest in 28 years this month, a survey showed on Friday, as short-term inflation expectations hit their highest since the stagflationary early 1980s.

UN: World Economy to Grow 1.8 Percent in 2008- AP

Stocks Slip as Oil Passes $127- AP

___________________________________

Here is what is going through my head this morning, will the division that I work for in my company be spun off due to soft revenues and margin challenges. In the event that happens do I keep my job and if not how do I replace my income?? I am giving a presentation this morning to another company that is in the same boat, the topic is how to grow revenues in a challenging market. Point being the mood on the street is one of growing concern, how high is oil going to go, how bad will this get. Until we get past these concerns don't expect a sustainable stampede back into RE.

LA_Renter - I agree that the amount of cash on the sidelines does not compare to the free money that was available. I don't know what the impetus would be to get another run on RE. Right now w/the tightening of credit, 20% down, already few qualify compared to just a couple years earlier. It's a considerable disparity.

Good point about housing being the cause of this recession. The domino effect into everything housing touched is also a factor, one that directly correlates to employment. The jobs lost now are of considerable income levels that are not easily going to be replaced w/out further education.