San Diego Housing Bubble News and Analysis

The boomers don't have any money saved either.

The average 401K has $50K in it and about 33% of them have less than $35K.

One of the explanations for the lack of boomer savings is that they are relying on the equity in their real estate for retirement.

But if all the boomers are going to sell their houses when they retire, who will buy them?

Is there a demographic group large enough to buy all those homes? As anxvariety points out, it won't be the 20-somethings who are living paycheck-to-paycheck.

Won't a massive boomer selloff result in declining prices?

I just want to add.. that the paycheck-to-paycheck mentality of my peers is scary.. but what really scares me, is that to them there is no consequence... the fix for them is to get more credit.. or hope that they get more hours at their job?? Even though they are living this way - the next thing I expect to hear from them is - "Hey I just bought an Escalade and a dirtbike!".

The thought of savings is completely foreign to them...

Do any of you older folks understand how many people my age 20-30 live with their parents? I havea lot of friends that do.. and they're not drug junkies either.. I believe it's just become part of this generation... Why or what changed? I do not know.. That's brings up another issue that scares me... I know some people my age don't understand how bad their parents are actually doing.. these friends parents (and this is mostly a guess) are living off their refinances.. and are cash flow negetaive each month.. I don't think it's very hard to tell if someone is losing money each month.. they have lots of credit cards and things that are obviously beyond their means..

As my dad says... "things are just starting to turn around for me!!" (listen to that over the last 20 years and we'll see if you believe that they are)

I just want to say that anxvariety is SO right!

My fiance and I are 26 years old. We're both college grads, and we're working professionals (she is a CPA). We make a combined $150,000 a year gross - we're not "typical" 26 year olds. Most of the people we know around our age (mid 20s and early 30s) are in enormous debt. Only 5% of those friends own a home/condo; however, their loans are adjustable. We're starting to hear from those friends that the payments are getting tougher to make.

At any rate, all the others either live 8 to a house or still live at home. Among these individuals, most are college grads who work full time (the lowest paid is $40,000 a year). I guess my point is that none of these college grad/working professionals are or will be buying a condo any time soon. This is coming from the top 10% of wage earners for this age group. In fact my fiance and I are considered "wealthy" by government standards, as we are taxed heavily because we "make" too much. We can't buy a home, but we're too wealthy.

I'm not trying to whine and complain here; I'm just trying to reiterate what anxvariety said above. There currently isn't, and there won't be buyers for the starter market until something changes. The baby boomers never had to pay 60 to 70 percent of their income on housing, so why should the indebted generation of the twenty-somethings have to... Anyone who spends that much of their income on housing is the bigger sucker! There are still many out there; however, they'll get burned with the rest. I'm not going to reward and/or bail out the suckers who made horrendous financial moves by buying a house they couldn't afford. I've worked too hard to be indebted for the next 15 years in a one-bedroom dump. I look around at my friends and others (the people anxvariety referred to) and I see that they won't be in any position to buy my piece-of-crap condo if I were to buy one at this juncture.

The people who think the twenty-somethings are going to buy their starter home some day are in for a rude awakening. It won't even be a matter of making the decision to buy, the Federal Reserve is already talking about reigning in the rampant, exocitc mortgage market. After all of the foreclosures we see in the next few years, even people like my fiance and I (with 770 credit scores) will not be able to get a loan. Oh well, I don't think real estate will see significant appreciation for next 15+ years.

I'm not so sure this hasn't always been the case with 20-somethings.

Won't a massive boomer sell-off as they cash in their retirement mutual funds over the next 30 years, result in a price drop in equities?

I was broke the first 5 years out of college. Between catching up on dental work, paying student loans, getting a car that wouldn't die on the side of the road, saving for a downpayment on a house, getting work clothes, some furniture (thrift shop and folding chairs), and then getting ready for babies and working part time for 3 months and then just quitting my job....we were so broke! Isn't that how it's always been for people starting out? As a frame of reference, I am 44 and graduated from college in my late 20's in 1988.

My parents also started out poor. They slept on the floor and rented a studio apartment until my dad finished medical school in his early 30s. My husband's grandparents were Iowa farmers who were so broke, they never went out to eat. They just couldn't afford it, despite their large farm.

I'm wondering if the younger generation really is worse off than anyone starting out. It's normal to struggle for many years, to live with several people or at home. That's how it was for me also, 15 years ago.

The only thing different now is people's expectations, and their sense of entitlement. I make my kids buy most things they want, because they really need to learn delayed gratification. This is very important. Learning to wait for things. Media has become too provocative, sexual, materialistic, and people want everything now and think they should have it. They take on more debt than they should, instead of saving and waiting for it.

Maybe a lot of these people shouldn't live in an expensive city like SD, or they should be satisfied to live 5 to a house, or move back in with mom or dad until they can afford to be on their own. Living on your own in SD is a priviledge, not an entitlement or a right. And if mom and dad pay their kids' bills, well, then the kids will stay kids forever.

I think we'll see kids staying in their parents house longer.. maybe converting the garage into a second house?

Has it always been this way for 20 somethings? That isn't something I would know, I've only been 20 now once! :)

But as someone said in this thread.. the media is influenceing this generation maybe heavier than any other generation? Us 20 somethings (the MTV generation) are at the plate... with the MySpace generation coming up next!

The difference I think is that 20 somethings these days are taking on debt like never possible before

Think about it real estate gurus.. if banks are letting people borrow 100% against an inflated assett in the hundreds of thousands.. can you imagine what they're doing us naive young chaps?? Banks are well aware that credit cards are the cream of the crop.. they can charge like 20-30% a year!! Just think how much room they have for error with those sorts of profits...

Even if my frieds were to cut back on what they buy... they are on a ball and chain with the things they already bought... probably 5-10 years of substantial payments whether it be TVs, motorcycles, sound systems, modification for their cars, music equipment.. If they fix their spending now, maybe in 20-30 years they'll have the 20% down that banks will probably require after this cycle...

That was the whole idea of the thread.. just giving a heads up on at least one sample of 20 somethings.. it does not look good at all.. unless some magic bubble appears and loans them all hundreds of thousands of dollars. I was originally very concenred about this real estate bubble.. now I'm even more concerned about the recovery of this bubbble.. I just can't figure where the help is going to come from....

When this confetti clears and people ditch the hysteria goggles I think we'll realize that 2.5 middle class generations have been whiped out.. then hopefully we'll start seeing an overhaul in banking system with regulations and some sort of checks and balance system/oversight..

I do agree with Powayseller, in my 20's I lived in a "petite" studio, where you could open the fridge from the bed, only one sink, etc. Maxed out on credit cards, hoping against hope that my next paycheck would cover all my atm withdrawls.
I think at 28 I woke up and started thinking I better be putting some money away for retirement, and figured it out.
I do think that is part of growing up, but if parents make it too easy for these kids, they will never get the picture.
STruggle is part of it. Boy am I starting to sound old!!

Money has been too cheap to justify saving over the last few years. Why would a 20 something save for 3 plus years (2000K a month and about 70k down payment) to come up with a 20% down payment if they can walk out and get a 103% CLTV that will cover closing costs as well? After all saving takes sacrifice and discipline.

“Don’t panic” life has many cycles. Many problems tend to fix themselves, even without government intervention. ;) Lenders will get tighter with their loans not because they want to. After all most get paid a percentage of the total loan so it is in their interest to qualify you for as much home as possible. They will tighten their practices because their financial liability is no longer being covered by skyrocketing price increases. I doubt that you will see 103% loans being offered in a declining market. Also as people realize that the SD RE market is no longer increasing and may possibly be decreasing, people are going to be less likely to leverage themselves so far out if they may loose 10% of the purchase price. At 360K on an entry level home that 10% is 36K which is one hell of a Vegas trip in a 20 something world.

As far as myself goes, I am a 20 something and am in the process of straighten out my finances. Now is a great time to start saving up money and if there is a down turn don’t worry about the people that may get trapped in a bad situation (unless the gov. uses your taxes to bail them out) The people whose credit gets flushed in the next few years will just take that much more purchasing power out of the market, especially in the entry level market. Even if there isn’t a crash and prices level you still won’t loose money and may even come out ahead if you invest your saved money into something that is appreciating say shorting bio-techs. Worst case scenario I’m going to rent a place near Swami’s, buy a long board and not have a 2-3k a month house payment to stress over… DAMN!

Patience….

I do think twentysomethings are taking on much more debt than previous generations. It is so easy to get credit. I have seen so many who think nothing of buying a 3k plasma TV even though they are deep in debt.
My husband and I were able to pay off all of our college debt (student loans and credit cards) in three years. We worked hard, bought used furniture at consignment stores as well as a second-hand fridge. It seems like twentysomethings are graduating with more debt and then pile it on with expensive TVs, Pottery Barn furniture and new cars. Then you add on the crazy price of housing. How are they going to get ahead?
But then these same things are true for other generations. My parents went bankrupt in their late 40s because they were stupid with money.

It must be easier to get credit. I remember when I was 23 (it was 1984). I was making 31k a year and had no debt. I'd never been late on rent, utilities, or anything else. But I also had no credit history. I wanted to buy a stereo, and I wanted to borrow, if I remember correctly, $350. The store (one of the major audio/visual chains) wouldn't give me the credit because I had no history.

Anyway, to add one more "what today's middle-aged people did in their 20's" story:

I've had the same job for 23 years. A white-collar salary. I got married at 35, and didn't have a nickel saved at that time, despite the decade-plus of having a good job. On the other hand, the only debts I'd had were for a VCR (they were expensive in the '80s - and yes, someone eventually gave me credit), a used car, and a couple houses. The second house I bought was in 1989, which (when I sold it because I was moving) wiped out the profit I'd made on my first house. So the saving was minimal (ok, non-existent), but the borrowing was minimal also (I put down 20% on the first house and 30% on the second house, both fixed-rate 30-year loans), which seems to be a contrast to "kids these days."

To tie this in further with the RE situation, I've got more in the bank now (from selling a house) than I possily could have saved over the past 23 years unless I'd been a complete fanatic about it, sacrificed many things over the years, and made good returns on all investments. And I wonder how many people over the past few years in San Diego have said to themselves, "I can sacrifice and save and hope my investments do well, or I can buy the biggest house I can afford (or can't afford but can get a loan for) and make even more money and live in a nice house to boot. Prices will keep going up, so there's no risk. There's no downside!" How much of the demand and the willingness to pay any price came from that type of attitude? And how much will the reversal of that attitude affect the market? I think there's a good chance that that attitude change will add up to more price declines than any fundamental economic situation.

I was at Pottery Barn Kids recently, and was amazed at the number of young families shopping at the UTC store. How can they afford $600 desks for their toddlers? I bought my first child's crib for $20 at a consignment store, a $25 bunk bed that I painted at a thrift shop when the 2nd one came along. I didn't have one of those pull-wagons until my 3rd kid. My kids didn't have their own bedrooms until last year, and until then, had to at least double up. The oldest was 14. How many young families would be able to live like that?

On Bill Handel this morning (640 AM, 6-9 am), he talked about a new study showing middle class parents are reducing retirement savings to buy stuff for their kids. The stuff has gotten more expensive over the years: sports camps, high school trips, sports trips to faraway places, iPods, designer clothes, activities galore, prom, cell phones, ...The problem is that parents are scrimping on responsible retirement savings and getting into bankruptcy over these purchases, and that kids have a sense of entitlement.

Delaying gratification and stamping out entitlement are so important to teach our youth.

I think young people had to struggle harder to save for things even 15 years ago. The age of credit has changed the problem of waiting/saving into worrying about how to pay all those debts.

It really is amazing to see what parents spend on their kids.. It's not surprising how effective marketing to children is.. because they're easier to lure in, and their strength over the parents purchasing decisions is pretty overwhelming, especially if the parents have any guilt about their parenting skills.

My parents really never bought me any toys or fashionable clothes and for the most part I wasn't interested.. I believe this is because I stayed away from TV..

How did my parents facjilitate this? The way they did it was relatively hands off.. when I was about 2 years old they bought a house on an acre next to a 100 acre park.. They didnt have to worry about their me taking much of an interest in television.. Is it anywonder why kids would take to consumerism and TV brain food if they are tied up in a tiny condo with a 10sq ft patch of grass for them to play in?

I bet most parents here, by virtue of less population, had alot more space to play in when they were kids...

Having that park and land to play on a kid I believe shaped my personality more than anything... I am friendly to animals and nature and am also pretty succcessful at 26.. I attribute it to being outside as a kid, building stuff, catching animals, doing yardwork and exploring. So if parents want to consider their kids in the buying of a house, I give land and parks the highest mark for enriching children...

Hopefully that doesn't sound like I'm giving parenting advice.. because coming from a 26 year old virgin, you might not want to listen!

Just kidding about the virgin part ;)

I double posted please delete. Thanks.

"I'm not so sure this hasn't always been the case with 20-somethings."

I agree with this statement.

The most important things you can do financially in your 20s are first, get out of debt and stay out and second, develop financial habits that will serve you well for the rest of your life.

I wasn't out of debt myself until right before my 26th birthday. But I did attack my debt with vigor, working two jobs for awhile and being very careful with expenses. I kept working at the second job a few years to work up some savings, only quitting it once I started doing well enough in my primary job that the secondary income wasn't worth the effort.

At that point I was around 29-30, and bumped up my lifestyle a little, but not to the extent of the entire extra income I was making.

That was all in the 1990s, and I doubt things have changed much since then. If you're 26 now I presume you're three or four years out of college, and that must seem like a long time, but eventually you'll learn it's not. You have 40 years of your working life left, if not more.

It's unreasonable to get rich overnight, but quite easy to get rich slowly. To use Millionaire Next Door terms, not everyone can play great "offense" all the time, especially in one's 20s, but you can always play good "defense".

BTW, there are lots of places all around the country where 20somethings with decent jobs have no problem affording starter homes. A two-earner couple making $70-80K can EASILY buy a starter home with a traditional mortgage in most of the country. Now if it's beneath you to live in Michigan or North Carolina or Colorado.... well, that's your choice.

I agree that overscheduling children has reshaped childhood from riding bikes, playing sports pickup games in the park, playing with your siblings, and sitting down to a home cooked meal made with fresh vegetables, to being driven around to activities commandeered by adults and catching a restaurant meal on the way home. This is a huge social experiment. After 10 years of somewhat participating in this lifestyle, I am out! No longer do I have to deal with the uppity parents who couldn't figure out that I didn't watch the 2-hr baseball game because someone had to be home to cook dinner. After all, to most people the family home-cooked sit-down dinner is as unimportant as the stay-at-home mom or the downpayment on a house idea. Our life is better without all that excess.

One thing I didn't like about living on the 5 acres was the remoteness to friends, parks, school. It was too isolated, and the neighbors didn't interact because they were too far apart. It's not a good life for kids to be isolated on their 5 acres.

Poway,

I don't see being isolated and 5 acres as synonymous.. like I said, my parents only had one acre, but it was backed up to a hundred acre park.. There are quite a few of places like that. I do realize that buying 5 acres in a city area is cost prohibitive.. but I think it's possible to find areas that are somewhere in between(See: Guajome Park in Oceanside)..

I understand what you're saying abuot remoteness though powayseller.. Fallbrook is a place like that where you can get lots of land, but it's a very kid boring place.. most of the people that are the age for kids live in neighboring Oceanside and Vista.

Hopefully I haven't hijacked my own thread! Sad! :)

20 somethings have FAR, FAR more debt than they ever had before, this is a readily available fact.

Average college grads come out with over 20K in debt. Tack onto this the high cost of living, especially in San Diego and I would say that this crop of young men and women have it much tougher than the ones that came before them.

Do you know how they calculated this:

"The average 401K has $50K in it and about 33% of them have less than $35K."

Did they consider the situations that people change their jobs and leave the 401K account behind with their previous employer? I have four accounts with my previous employers and the total is about $100K. If they did not do it correctly, the average will be $25K and 100% of them have less than $35K.

I think the new 20ers are mostly well educated like you and holds more professional jobs than previous generations. Look at yourself, with just four, five years out of college, you are making more money than most of the people in San Diego. I am not sure of the percentage but you are at least in the top 5% of all SanDiegans. With you are so young and early in your career, you have better days ahead of you. I think this new generation are more confident with themselves and will have a bright future.

Ah... so this is the thread where we flush out all the 20-something wetbacks and get them to spill their guts on their personal finances. Okay, I'm game.

27, college educated, decent office job at a great local medical technology company. It took me a while to get here. Unmarried. Traditional midwestern upbringing via two fantastic upper middle class parents. Summer jobs in college included factory job, home builder, then financial planning.

Me: Currently investing equivalent to 20% of my base salary through company-matching 401k, company-sponsored stock plans, and a Roth IRA. Will be upping initial investment to about 30% in July to maximize company stock plan offerings, but will likely have to cash in some of the stock after discounted purchase (but hey, where else can you get a guarenteed 15%+ return in 6 months? Say SD RE and I'll tar & feather you, lol). Currently share rental of a 2-bd condo in Crown Point to the tune of ~$1600. I hate renting, and want to own so badly I'm addicted to this site, Zillow, ziprealty, realtor.com. I have a nice place with nice stuff, but I have a good eye for bargin hunting and know how to fix things and minimize extra associated costs. Seriously thought about overextending on a crown point "starter home" a few months ago (read: 50 yr old 800sqft 3bd/1ba on 1/10acre, 0 ga, 0 storage, 0 space, asked $700k, sold for $630k). Bubble primer lent backing to my fears and talked me out of it (thanks Rich!).

My brother: 25, very laid back, not-a-ton-of-direction type. Just graduated from college, got engaged to a great girl with a fun job that doesn't pay very well. While he was working a retail job and applying to fire depts they were able to buy a nice 2bd house, recently nicely renovated, full semifinished basement, semifinished attic, 2ga, ~1/4 acre yard, quiet street, good neighborhood, easy freeway/city access (Milwaukee, WI). I think it cost them about $175k. Their morgage is less than my rent. I'm green with jealousy, lol.

My friends: Tend to be mid 20's-early 30's. Two early 30's are homeowners, one in Mission Beach (he rents out the summers) and one couple bought recently in Encinitas and had a baby. We all like playing hard, traveling, etc. One of my typically month-to-month friends is thinking about buying a Caddy CTS with cash soon. He's learning about debt, but he hasn't picked up on the saving bit. I'd agree that many aren't saving... but some of us are, and with as much gusto as we can manage while not having the social life of a hermit.

I am very concerned about the entitement culture mentioned previosly, and its present effect on my generation and its future effect on my pocketbook. It is much more noticable to me here in SD than it was in WI... I do not know if this is due to geopolitical differences, increased personal awareness, a growing trend, or some combination there of. The idea that the American Dream is a gov't guarenteed entitlement to everyone with their feet on US soil is one to which my work ethic takes large exception.

I'm a firm (albiet novice) believer in free market and supply-side economics, and fully approve of sellers continuing to seek top dollar for their RE. I, however, will never make a first home purchase here unless things change drastically. This is a great town, but it isn't perfect, and there are pleanty of other great places that are also quite affordable. Personally I hope for a hard crash with no gov't bailout. Personal accountability (on both buyer and lender sides) is a wonderful thing and would, I hope, help prevent this massive overvaluation from replicating itself elsewhere or in the future.

Thanks for posting. Keep saving - it gets harder after you own a house and have kids.

My biggest regret is that I delayed working until age 27, so I had only 3 years to earn money before having my first child. So those of you saving, keep it up. Once kids come along, and you lose that second income and have more expenses, you can't save as much.

And before you say women can keep working after baby, the most lucky babies are the ones who fall asleep nursing in their mommy's arms and wake up in a quiet room; no comparison to getting a bottle, Gerber baby food, and a noisy daycare center with the typical 2-month staff turnover. Older kids still need an encouraging word, a loving touch, a snack prepared. I'll never leave my kids with daycare or home alone after school as long as we can afford to be there. Husbands benefit when kids and the wife are happy, dinner is made, the house is clean and humming. These choices cost money, and we made the decision early on to get a mortgage reliant on only 1 income.

Homeownership is very expensive too. Just ask your homeowning friends how much they spend at Home Depot, and on other remodeling and repairs.

Great post and I feel the need to chime in as well. I would like to think I am still a 20 something, but I am actually 31, but at least I have recent memories of that decade! Anyway, I am married with two kids and make over 80k a year in sales, and as you may have guessed, I STILL cannot afford a house in San Diego. We currently live with relatives and are trying to determine our next move. For anyone out there who is worrying about the next generation of buyers, you should worry about people like myself and anxvariety. My wife and I are both college educated, and I am also a former military officer who wants desperately to buy a home in a decent community with good schools where I can play an active role in the community, assume leadership positions etc. We live in an area that fits the bill right now, but prices are an insane 800k-1Mil, and you wont be surprised to hear that there are only families with children aged 12+ here because they all bought when prices were cheap. People should be worried about families like ours not being able, or willing to afford their homes and condos being flipped for insane prices, but they should have a more urgent concern as well. Increasingly, the most logical choice for families like ours is to simply leave town! We recently flew to Colorado for this very reason - to check out jobs and housing, and at the airport happened to sit next to another young couple from San Diego. They were both consultants and had just purchased a home in Colorado Springs. They couldn't deal with housing prices in SD anymore, and felt no hope of ever being able to afford, so they moved. Before you stop reading, consider this...ALL of our friends are seriously considering moving away from San Diego, save a few who happen to be wealthy enough to have mommy or daddy buy them a house!

I'm back! Been busy - end of school year mayhem.

PSeller - How do you send your address to Rich? Is there a link on here somewhere I am have not had time to find???

Anyhow, had to chime in here and reiterate that my family is one such as you mention. We make a very good living, but giving it all to a house was not what we wanted. Living in upstate NY has changed everything for us. I do miss those beaches - but for a few thousand, we spend our entire summer in San Diego with family.

Literally 95% of my friends that stayed in San Diego had their parents pay for all or most of their home. Either outright, or by giving them a significant downpayment amount to make the payment affordable given their income (which is really not much for average 30 somethings)...

OT - My littlest son has discovered the magical world of underarm farts (taught by his best friend). I told him it was rude and he asked if it was okay if he does them in his bedroom with the door closed. I said sure. Now as I am trying to type, all I can hear is hysterical laughter and the occasional "OH, escuuse me! I couldnt contwol that!" more laughing... and "Pardon me! Dat was a gwoss one!" laugh laugh laugh... It is the little things in life....glad I am home to hear it because if we had moved back to San Diego - I wouldnt be - I'd be working to pay for the nieghborhood/schools we desire.

Hi lostkitty. Rich's e-mail is rich [at] piggington [dot] com. I already e-mailed my address to him.

JES, there is an exodus of people leaving SD. The Census Bureau said 44,000 in the year ending June 2005. If this trend continues, perhaps we've lost 60,000 more. This will continue until housing prices come down.

JES, are you willing to wait for prices to come down? Would you rent until they do?

You're right ZK. When people involve emotion in to the thought process of their investments, whether it be real estate, stocks, etc. they tend to make irrational decisions. The past few years have provided homeowners' a windfall of money that they most likely would never have realized by just saving by doing nothing more than just owning a home.

But just remember, as the saying goes: "easy come, easy go". Everything is cyclical and all assets eventually return to a mean.

Isn't that amazing that so many people left last year? I am considering waiting a few years to see what happens with prices, but I don't want to wait forever. I'm thinking that if I give it a year or two I will be able to see if my predictions of a market crash come true. If prices are going to dive we should at least start to see the beginnings of it in the next year don't you think? Problem is that they have to dive so far for me to consider them attractive and I don't know if they will ever get that low. EG: It doesn't do me much good if homes in Carlsbad go from 900k to 775k. Have you considered relocating, or are you going to wait it out?

Isn't that amazing that so many people left last year? I am considering waiting a few years to see what happens with prices, but I don't want to wait forever. I'm thinking that if I give it a year or two I will be able to see if my predictions of a market crash come true. If prices are going to dive we should at least start to see the beginnings of it in the next year don't you think? Problem is that they have to dive so far for me to consider them attractive and I don't know if they will ever get that low. EG: It doesn't do me much good if homes in Carlsbad go from 900k to 775k. Have you considered relocating, or are you going to wait it out?

Isn't that amazing that so many people left last year? I am considering waiting a few years to see what happens with prices, but I don't want to wait forever. I'm thinking that if I give it a year or two I will be able to see if my predictions of a market crash come true. If prices are going to dive we should at least start to see the beginnings of it in the next year don't you think? Problem is that they have to dive so far for me to consider them attractive and I don't know if they will ever get that low. EG: It doesn't do me much good if homes in Carlsbad go from 900k to 775k. Have you considered relocating, or are you going to wait it out?