San Diego Housing Bubble News and Analysis

My grand father had a 10 acre farm in the San Fernando Valley in the 1930’s right where Warner Center is now (50 story office buildings incase you are not familiar with that local),

The San Fernando valley looked a lot like Palmdale Lancaster area in the 1930’s

In 1980 irvine was mostly farm land

In 1970 Valencia CA Population was about 15 thousand.

The theme here is very fast growth over a very long time period in SoCal .

So If you get your chance to buy a home during this downturn (how ever long it lasts)

Maybe you should (If you can afford it).

Just my two cents

I grew up in So Cal.. I remember when Irvine was orange groves, when Temecula was Rancho California in the 1960's with very few houses, before Magic Mountain was in Valencia, etc.

The area exploded in the 70's-80's because housing was AFFORDABLE.
It made sense to buy and real estate wasn't looked at as a road to riches, buying overpriced McMansions with ARM's and other toxic loans created by Wall Street that were going to explode.

You actually had to qualify for a loan, which you could get with as little as 5% dow, and prove your income.

This isn't a "downturn", it's a return to sanity.

The denial about what happened and thinking that you need/have a "chance" to buy a house is laughable.

The REAL crisis was the market bubble that the govt allowed to inflate.
The collapse of housing prices isn't a crisis.

Foreclosures are not the problem, they are the solution.

The stock market is in the same boat. Believing that it's a safe place for retirement may be foolish.

Until several generations accept/understand what was allowed to occur and that housing and the stock market are ponzi schemes, the charade will go on; artificially manipulating the market is the problem, not the solution.

Never buy a house EXPECTING it to go up. Appreciation should be a bonus....HLS

I totally agree with you BS.

I truly believe the govt will have no option but to let inflation creep up here shortly.

Couple that with the very low interest rates and the fact that housing has dropped 30-50% in most SD areas, and it probably means it is a good time to find a home you can be happy with for 10 to 20 years and buy with a 30 yr fixed.

This could be totally off base, but that is where I would put my money.

I think you're call on housing may be a bit too negative. But keep your eye on rates if that's your driving criteria. They tend to head lower as a recession gets worse. So we may have another year or so of rates at this level or lower. 4.5% to 5% is historically down there. But, if you think we're going to get inflation this year, then I guess rates will have to rise in the next 6 months or so. Seems like the govt agenda is going to focus on low mortgage rates for some time, though.

Maybe I'm missing something, but I don't see WAGE inflation happening anytime soon. Let alone the end to increasing unemployment.

The powers in charge aren't entirely clueless. They know all too well what would happen if mortgage rates jumped sharply in the next few years. There is going to be a strong push to keep low rates, IMHO over the next several years. Either that or a program put in place to let those underwater refinance.

Now wage inflation out a few years, say in 2014+ might be a whole other story.

no inflation in wages and no inflation in housing

the coming inflation will be in the things that we need on an everyday basis: you know, things like bread, milk, gasoline - simple things like that

I think it's called stag-flation although this time around, hyper-stag-flation might be a better description

it is amusing to read all these people thinking that inflation is like magic and will somehow save them from their previous delusional thinking or somehow enable their current delusional thinking

here's a very simple phrase to keep in mind:

THERE IS NO SUCH THING AS A FREE LUNCH

I couldnt agree more with HLS. People moved to these areas because it was affordable. When housing and gas prices went up 3X in 5 years it wasnt affordable anymore, at any interest rate. So people stopped buying and we are where we are now. The very idea that things will go right back up to where they were cause the GOV commands it is so foreign to me. Wasnt the Gov commanding it back in 2006-7? I sure remember alot of "all clears".

Everyone here talks about the weather as if it is the end all and be all and that everyone in the world wants to live here. I have had a few cousins move out to SoCal, from Minnestoa I might add, only to go right back in a year or so. They didnt like the culture, or the cost of living, the constant traffic jams, or the almost soulless nature of so much of residental Ca. I have friends who moved to texas, or NYC, or Boston and LOVE IT. They are not coming back. To each his own, and despite the nice weather, Ca does have its draw backs. Something the "housing always goes up cause everyone wants to live here" crowd needs to rememeber.

This is a bit off the subject of inflation, deflation, but this video is a wealth of knowledge and understanding of how we are where we are!

http://www.youtube.com/watch?v=O_TjBNjc9Bo

All the government has to do is print a boatload of money - and by that I mean several times more than anything they've done to date - and get it into the system...if they do that, inflation will take off.

This would solve some problems but create others...for one thing, the buying power of senior's 401Ks would be greatly reduced...and you don't want to piss seniors off.

The way I look at it is this: if you buy now, prices in most areas probably aren't going to drop much more. They may not rise for 10 years, but they aren't going to go down another 30-50% either.

Buying now allows you to lock into the current mortgage rate in case rates take off and also helps work you towards paying off your mortgage. What I think many forget to realize is that every year you rent pushes out the payoff date of your mortgage another year. True most don't keep a house that long anyway, but some people do - especially with prop 13 in place.

It wasn't but a year ago that pigs were saying better to put your money in the bank and draw 5% interest, that was the way to go. Well, with current interest rates on CDs etc that doesn't look so hot anymore, does it?

You only get so much cash...put it where it makes you happiest. And for me, renting sucks.

DWCAP, I think you misinterpreted HLS' post. He was not claiming that Irvine, Santa Clarita and Temecula boomed and then were cut off by high gas prices. He was pointing out that over time in So Cal, we've had ups and downs but this latest up was an exception, that we aren't in a housing crisis but rather a needed reset to reality and traditional financing. Having lived in two of the three aforementioned regions during their booms, in the case of Irvine in the 1970's and Santa Clarita of the 1980's, both attracted people and ended up quite autonomous today, especially Irvine. Irvine isn't being cut off because people can't afford to get to their jobs from there, the jobs are there now.

People didn't stop buying because of commodity prices, people stopped because the prices were fundamentally unsound, caused by destructive financing.

I'm with 4plexowner on this.

I don't see inflation in the consumer products that Walmart sells (plastic tubs, electronics, etc..) because of the glut of productive capacity brought about by manufacturing automation and low labor costs in China, Vietnam, Cambodia, Myanmar, Bangladesh, India and soon, Cuba (and eventually Africa). If there is peace in the Middle East, I have no doubt we'll see lots of garments "made in Palestine".

I would begin to worry about inflation if and when China and India become consumer societies.

What will be interesting to watch, in the next few years, is that as interest rates move up, house prices will commensurately drop while we have to pay more for food and education, health care and insurance.

I remember Temecula when it was Rancho California.

It was a commuter town when it started. Cheap and people commuted either to L.A., San Diego, Riverside or San Bernardino. Slowly at first, but accelerated in recent years, it became a self-sustaining city w/hospitals and courthouse and all the businesses associated w/most cities. Jobs were created along w/housing.

The artificially created prices is the most damaging thing to happen to these towns. People relied on equity to support a new lifestyle. Clearly not sustainable. I agree that prices will have to return to normal for things to be balanced. That doesn't mean it will happen. Ideally, it should and if it did, it would solve a lot of problems.

They said the bubble wouldn't pop and they are doing their darnest to drag this out, letting the air out slowly and gently and painfully long.

Actually, I think you misread my post. I totally agree with HLS that the problem is that housing because unaffordable to almost everyone without BS programs. This is a return to fundamentals, an action of the invisable hand punishing the bad speculation of the past few years. This isnt a case where a regions dominant industry imploded and alot of people couldnt work anymore, ala detroit. This is a case where a commodity class (housing) bubbled and is now self correcting. I totally agree.

I included gas prices because it caused people to re-evaluate their habits, including commuting and home buying. And it bubbled at the same time.

My bad for being unclear.

I took your post to literal, your clarification makes sense to me now and I agree with it. You have to realize on the weekend I'm more drunk than during the week so you need to dumb it down for me on weekends. Were good, Hugs.

"Invisible Hand", now your talking my language, I'm thinking of sending copies of Adam Smith's book to the fed governors and Obama in hopes they will realize that things never change and they will be better off if they keep their remaining tarp money to themselves and letting this thing play out on it's own. The invisible hand will have it's way no matter what they spend, we can get to the same point with less debt if they just let it happen.

temeculaguy - you mean you don't think that 3 million shovel jobs are going to save our FIRE economy? that's unpatriotic, dude! be careful or homeland security may come knocking

Hmm ,

I guess what I was trying to say is,

Just as the bubble was unsustainable,

That the current down turn is unsustainable.

(At some point you will run out of foreclosures although it may be awhile yet).

Agree with the prior statements, classic inflation requires wage inflation. With an economy like ours losing jobs at an epic rate, not only do I not see wage inflation, I see lack of jobs affecting wage creation period.

Maybe we'll get inflation a few years down the line. (But look at Japan. Japan wasn't really successful stopping their deflationary spiral, after twenty or so years they might be bottoming now.)

And the jobs I see that are going are good paying jobs...catepillar, high tech, etc. These will be replaced w/ what ? burger flipping jobs ?

The #'s I've seen daily for the past year of what our gov't is doing to save the system truly scare me and I believe have made us numb. FNM, FRE, guarantees to BSC, BAC, the Fed buying MBS and taking toxic assets on their balance sheets. etc etc.

I think what we are experiencing is the great deleveraging of debt that took 25+ yrs to build up.

If you could go back in time and tell a classic economist what has transpired, he'd probably tell you that that was financial armageddon and you no doubt experienced a depression.

I understand that our gov't is deliberately trying to debase our currency, and I understand gold as a historical store of value, but I'm staying in cash and staying w/ my bunker mentality for now.

Nothing looks too promising right now.

Well yea I can see us all driving 23 year old cars, and doubling up families in homes in 10 years (NOT !!!)

Just like the bubble was unsustainable this down turn is now unsustainable as well.

What happen in Japan was in large part due to the aging and declining population.

Economy is in for a long slog...

Inflation generally requires upward wage pressure, not happening anytime soon.

Currency matters may lead to dollar debasement.

I honestly have no idea what to expect...

I think it will do a lot good to the society if everyone treats the house (except investment property, which is a business) as a consumption instead of investment. Realtors are still saying "house is the biggest investment in your life" (by the way, digress a little bit, I received tons of letters from the mortgage insurance companies that starts with the above sentence. I don't know why anyone would buy mortgage insurance while they could buy life insurance that covers more than the mortgage amount). No, they should say: "Shelter cost is the biggest consumption in your life, buy at the low 30-year fixed rate to get it under control."

Good comments.

A few things to consider are if/when inflation returns due to the rampant money printing of late will housing start to turn around? And will it be artificial or will it have hit bottom?

And then, we know it's only a matter of time before the Fed has to raise rates, so how bad will inflation be by then and how much harder will that hit housing?

I can see it already: housing falls for 6-10 more years by which time people have forgotten the Great Housing Crash of the late 2000s and after a year of modest gains brgin saying RE is under-valued again.

The price of housing is predicated on the ability of the populace to pay for it. We could have a devaluation of the US$ while the populace cant afford to pay for a house. I think that basically, the US would need wages to rise in order to support house prices. If this doesnt happen, then prices have to come down.
As the govt spends more and more money, this will weaken the US$. Now, does all this govt spending result in wage increases? Or just sustaining the economy to avoid collapse?

Ill agree with NorLA...guy that some of the comments on this site have gotten alittle over pesmesetic as of late. I dont think we are going to a "mad max" type world, even if we go into a depression. Rather, I think all of this crap will be taken out of our countries hide in a reduced standard of living for years and years to come. We will still have cars, but teenagers will get to borrow the car for the night, not get a new mustang on their 16th bday. People will take camping vacations in the USA rather than 'Eco' Camping vacations in Thailand. A movie and chain resturant dinner will be alot more common than a night on the town after a steakhouse dinner.
Basically I think we will go back to a lower, if more stable, standard of living for all.
Unfornatually I also think that the gap between rich and middle class will continue to widen.

That was before the Democrats ran the state into the ground.

Not sure everyone understands what a $40bill and growing state deficit means regarding future Tax increases etc.

John

I would agree Ca will probably declare bankruptcy at some point (I think they are just waiting until at least the rest of the U.S.A. has managed to recover somewhat).

Then we can do a reset with the unions, until then there is no hope, unions here have just committed slow suicide like the auto workers unions.

The last few comments strike notes that bear some discussion. I agree that, on the surface, public employee unions in CA, and the increasing dominance of a left-leaning Democrat party have brought us to the brink of financial ruin. But C'mon, unions just do what unions do--increase their pay, benefits, and power...what I would do if I were (still) in a union. And left-leaning politicians have always been around, nothing new there. What goes unremarked is why these two forces gained such ground in recent decades. Why did officeholders cave in so disastously to union demands? Why did the media shift to be a mouthpiece for the left? How did politicians give up on conservative values?
We can all offer answers to these trends. Instead, I'd like to take these trends as a given, and reflect on their impact on real estate in CA. In a word, we are pretty much doomed in terms of average real estate values, since they depend on underlying economic health and demographic trends.
The glory days of RE appreciation in CA were all in years when government here was small and efficient, when middle class, educated people moved into, not out of CA, and when businesses were not saddled by governmental, environmental, and lawyer-inspired burdens as they are now. I'm referring to decades ago, not so much the 2000 - 2005 credit-inspired blowoff. Few would believe it, but average CA house prices about matched the national average in 1975. We were a solidly conservative state with a clean government, good infrastructure, and an entrepreneurial spirit.
Since then, we have emulated the high tax, big government policies of states like New York, Michigan, Massachusetts & others that have seen their people and businesses flee to other states or other shores. Accordingly, I'd seek states and cities for RE investment or house purchase that have the welcome mat out for business, that have more reasonable taxes and cleaner politics, and have an influx of productive citizens. Long-run demographic trends always dominate RE values, and we should place them first in our criteria for where we place our money.

Other than reducing/eliminating personal debt, what are you doing to hedge against inflation?

Or is it too soon because the deflationary spiral is still in early innings?

Is gold a viable option?

If you hold the belief that all fiat currency countries are working hard to debase the value of their currency, then gold may be a viable option. The market seems to be saying this right now. Gold up and the markets down. The questions is, will these govts be successful in their efforts?

I'm personally still heavily invested in gold, via ETFs.

I had liquidated a bunch when it was approaching $1000 last year, and put it in a 6month CDs at FDIC insured institutions.

At one time a couple years ago I was 80% stocks. I am essentially completely out of the market now.

Here's a cronology of my thinking on gold over the last 2 years and litte more on my personal situation.

http://piggington.com/are_you_more_risk_...

Bubblesitter -- nice article. What's even more impressive is that you said you were getting out of the stock market in July of 2007.

Time for me to ease into some GLD.