San Diego Housing Bubble News and Analysis

This week's Voice of San Diego article concerns wildly incorrect data in the NAR's so-called Anti-Bubble Report for San Diego (which you can read here).

Buried in the middle of the report is this gem:

...only 3 percent of the [2004] loans have loan-to-value ratios above 90 percent, so the foreclosure risk is rather minimal. (That is, prices would have to decline by more than 10 percent to have a measurable impact on foreclosure rates.)

At first glance, this statement appears to maintain that only 3% of 2004 San Diego homebuyers made down payments of less than 10%. Regular readers of this site know that this is categorically untrue. The correct number (per DataQuick) is that 38% of 2004 homebuyers made down payments of 10% or less. A full 27% of buyers made no down payment at all!

This week's Voice column is an apologia, of sorts, for why bearish housing observers like myself spend so much time obsessing on downtown San Diego. We don't have anything against the place; it just happens to be the place where the bubble has had the most dramatic effects.

Not so long ago, Downtown exhibited all the trappings of a full-tilt speculative bubble. Inventory was practically non-existent, units were bought and sold several times before even being inhabited, and panicky buyers were willing to pay any price to get on board.

Now that the market has started to exhaust itself, downtown enjoys San Diego's most obvious imbalance between supply and demand. Inventory is up tenfold since spring of 2004, and has doubled in the past year. We now are entering the seasonal inventory-growth period, so that number will surely climb.

The monthly housing report will be finished tomorrow, or Saturday at the very latest. Sorry for the delay. In the meantime, feel free to check out this week's Voice of San Diego column, which discusses the origins of the San Diego housing bubble.

If that's too esoteric for you, maybe you can take another gander at the pictorial essay (linked to in the forum yesterday) documenting the Dowtown condo sales extravaganza. It's just surreal... I for one felt compelled to go back for a second look.

This week's Voice of San Diego article discusses what can and cannot be realistically forecast about the housing market at the current time. The premise is that while fundamental factors such as incomes, population, and housing supply can be forecast, the population's tendency towards manic speculation cannot. And right now, the housing market is driven a lot more by the latter than the former, rendering (for instance) one-year forecasts kind of useless.

This week's Voice of San Diego article was born when I dug into the DataQuick data to determine how many homebuyers were putting down how much. For all the ranting I do about EZ-credit, even I was kind of shocked: in 2005, 35% of San Diego homebuyers made no down payment.

This week's Voice article, in addition to featuring a vaguely unsettling photograph, addresses the commonly-held belief that low interest rates should make homes more expensive.

The idea that an item's long-term price should be affected by the rate at which you can finance it on any given day is not really sound. This applies both to financial assets (if the brokerage lowers the rate on your margin account, your stocks did not just become permanently more expensive) and to consumer goods (in the minds of most, a lower credit card rate doesn't justify correspondingly higher grocery prices). So why do people accept that rates should affect the intrinsic value of housing, and only housing? Because logic doesn't apply during speculative bubbles.

My first Voice of San Diego column, in which I made the case that there is no housing shortage in San Diego, drew some vaguely (and, in some cases, not so vaguely) hostile letters. This wasn't too surprising in itself; what surprised me was that the letters all missed the point of the article. Each one berated me for failing to mention that there is a shortage of affordable housing in San Diego. Which is funny, because it sure seems to me like I have an entire website dedicated to discussing the unaffordability of Southern California homes.

This week's Voice column, entitled Housing Is Unaffordable—For Now, discusses two issues. Part I explains that the point of the earlier Voice article was not at all to deny that there is an affordability problem, but to show that the standard rationalization for sky-high housing prices (too many people, not enough houses) is not valid. Part II discusses the fact that there certainly is a problem with housing affordability, but that due to economic realities this problem will eventually fix itself.

This week's Voice column concerns a topic about which I love to prattle on seemingly without end. And that is the fact that San Diego's ostensibly robust economy is, under the surface, not very robust at all.

When discussing a potential housing downturn, many pundits contend that "it won't happen here" because San Diego is no longer dependent upon the vulnerable defense industry, as it was during the last housing bust into he early 1990s. While it's true that the defense industry no longer dominates the economic landscape, this argument ignores the inescapable fact that our economy is now beholden to the real estate industry itself. Should the trends of home price flatness or declining sales volume continue, San Diego's eocnomic vulnerability will be exposed soon enough.

Each Thursday hence I will be writing a housing column for the Voice of San Diego. This week's article concerns the San Diego housing shortage. Specifically, that there isn't one. It also posits some ideas as to why people continue to believe there is a housing shortage—a "crisis," even—despite the fact that the data clearly proves otherwise.