San Diego Housing Bubble News and Analysis

Downtown is still dismal as ever. I have a client who is about to put an offer down on a unit in Treo. We were looking at units in a few different developments. In every single one, the lockbox cabinets were overflowing with lockboxes.

SD Realtor

Dismal because of the supply, or dismal because a lot of the places are being run down?
Josh

Heck, half of 'em aren't even finished yet. There are tons of buildings still under construction downtown. So the supply end of it is just going to get worse and worse. A lot of these are going to end up as some kind of rentals I think, although that could take years to pan out.

Downtown is a disaster. I bought here in November '06 in an odd deal, the details of which I won't bore you with, that protects me from a peak-to-trough decline of 40%. And I'd like to buy another place down here as well, so I'm pleased with the direction and speed that prices are moving.

In my building there are two REOs and three or four short sales that haven't sold yet. They are priced at 20%-30% below their last sales, depending on the unit. And they aren't moving. This is happening in several other buildings as well. So, we're going to see a dramatic drop in the comps over the next 6-9 months. I believe that in 2009 there will be many units available downtown for which the mortgage+taxes+HOA will be at or below comparable rental prices using conventional financing.

But as for right now, there ain't no hurry. Just sit back and enjoy the show.

I bought here in November '06 in an odd deal, the details of which I won't bore you with, that protects me from a peak-to-trough decline of 40%.

I, for one would be very interested in the boring details of an odd deal that would protect one from a 40% decline in prices. Do tell.

Rich has a copy of the contract on my place (with certain identifying details left out) as well as (by definition) your email address. I hesitate to speak on Rich's behalf, but I bet if you ask Rich nicely he'd forward you a copy. (Rich, if you're reading this, I don't have a problem with this.) I'd ask, however, that you keep the contents and structure of the contract to yourself.

Josh dismal as in supply is excessive and growing.

It is going to continue to snowball downtown. I cannot envision it getting better down there for quite awhile. I still think we can get down to the 250/sf someday in the future. Long ways to go though.

SD Realtor

Dave, since your purchase, are you surprised by the price drops?

I follow the downtown market closely and I feel the eventual price drops will leave condo owners in a daze for many years. I'm thinking $200/sf, especially in East Village where the low income units are being built.

Wait for the recession and we'll have the yuppies fleeing back to the suburbs.

Not at all surprised. That's why I structured my contract the way I did.

I think prices will drop in most buildings to the point at which it's a toss-up between buying and renting. Historically, that has been a very good time to buy in San Diego. I don't see why it should be any different this time around. Depending on the building that would mean a 35%-60% drop from the peak. When you see those kinds of prices, demand will pick up. But that's still a couple years off I think.

Ok, davelj, I trust your judgment. I'm in no rush at all so I'll wait 'till 2010 to buy my pied a terre in the city. :)

A short follow-up to my last post. Something to keep in mind...

It's almost impossible to bottom-tick a market. I'm sure I didn't do it, even the way my contract was structured. I may still lose a little money "on paper" for a while after all is said and done. But I don't really care. I really like the place I bought and I'd like to buy a second place as well, so if the price declines are greater than I anticipated, no big deal.

I think many people here get a bit obsessed with "buying at the bottom." I think (perhaps) a better way to look at a home purchase is to wait until you find a property that you really like that makes sense financially... and then buy it. That may sound ridiculously simplistic - and it is - but a lot of people get caught up in trying to buy at the absolute lowest price and end up ultimately unhappy. (This applies to a lot more than houses.) Again, when rents and ownership payments on a condo are comparable, at worst you're probably buying within 10%-15% of the bottom. Maybe I'm crazy but that doesn't seem so bad to me. It's a place to live, after all, not an investment.

Since I follow the downtown condo market too, I am concerned with the financial health of the HOAs in these buildings with foreclosures. How many owners are not paying their HOA assessments? Certainly, if they are behind on their mortgages, they are not paying their HOA. And when a foreclosed condo is sold by the bank, does the bank pay the HOA for dues owed by the previous owner?

I once owned in a building whose HOA was almost broke. That's the main reason I sold in 2005 and have rented ever since.

http://piggington.com/hoas_in_trouble

It's not a good thing to be the last man/woman standing in this situation.

Condogrl there is even more concern about the HOA then you brought up. The client of mine who is interested in the downtown area is an attorney. He has found that some of the current projects that are less then 10 years old are indeed having litigation regarding construction defects. The larger problem here is that the developers that are defendants may not have any money left so even if the HOA wins the lawsuit, if the developer is broke or is structured in such a way as to be able to shield the assets, then the HOA is on the hook for whatever needs to be remedied in the building. This (in some cases) can be big dollars. Now as a homeowner you may be on the hook for an assessment, perhaps a non trivial assessment.

Is this happening alot? No. Is this particular client perhaps a little over paranoid? Yeah a little but he is an attorney and he is simply covering all possibilities. Not a bad idea.

SD Realtor

I live in an area where there is an association and when the homes were being built, during the early 90's, they were taken over by 3 different builders. There were also some problems and an eventual lawsuit where we had to sue the 3 different builders. There was a small one time settlement eventually, but I would have to say, the biggest winners were the lawyers. I know this is no surprise to any of you. I would be very wary of any situation where there are known on going problems with anything in the structure or even the grounds. Naturally, when we moved in no one was aware of any problems. After a 20 year flood, some of the problems became evident. Another issue that was misrepresented to us as buyers was that when the entire development was built out, then the association fee would be under $150. a month. It never has been and it has been increased a couple of time. I would recommend that everything be in writing and witnessed.

I hear what you're saying, davelj.

I would be splurging and buying a 2nd home Downtown. It's a luxury I can live without for now. I think I'll wait for another couple of years. I have a feeling that if I let the temptation to jump in rule the day, I'll regret it.

I'm glad you were able to work out a deal that you're happy with and that somewhat insulates you from further price drops.