San Diego Housing Market News and Analysis

We have been discussing this article today on the Wanna be a Knife Catcher? Buy Now! thread.

edit: Here's some comments about the article from across the nation.

http://community.nytimes.com/comments/ww...

I see this as a healthy development.

I believe the bailouts programs were necessary to keep growth on track.

Economic growth has resumed notwithstanding the housing downturn, proving that the government was able to engineer a decoupling of the housing sector from the general economy.

The economy is growing despite housing. It's now time to pull back housing support.

That also fits into my assertion that the higher end houses have some deflation/stagnation ahead. At the very least, there will be more selection.

I believe that there's a generational shift at play also. It seems to me that younger folks are turning away from McMansions and opting for smaller spaces closer to the urban core. In 20 years, we'll see if I'm correct.

Thanks BG, I hadn't checked in on that thread yet today... never mind!

Jim points out that the actual change in monthly payments isn't all that big:

http://www.bubbleinfo.com/2011/05/11/wev...

However, I thought that jumbo loans were more stringent in their underwriting requirements so it still seems like this would have an impact even beyond the 6% increase in payments (per Jim's calculation).

I just read two pages of the comments on the article. The general consensus seems to be that the higher conforming limits enacted in the last three years have only served to help those purchasing "McMansions" and/or properties in exclusive zip codes that these buyers would otherwise not qualify to purchase. Commenters from coast to coast and all walks of life are not sympathetic to buyers needing government-assisted mortgages to purchase in Monterey, CA. A few made fun of the "flight attendant" who obviously purchased a property in Monterey with a low downpayment for 10-14 times his annual salary. A few made fun of the (quoted) comment, "Why should I be penalized for living in an affluent area?" by stating words to the effect of, "You made that choice. No one forced you to."

In general, folks from America's midsection and the south are not amused that many homebuyers in coastal CA have stretched themselves to the brink.

Do they read the NY Times? (just joking)

(I haven't read the comments myself to see the commenters' locations).

I'm not a "mortgage expert" but I believe many Jumbo programs require at least a 30% downpayment.

Apparently, they do . . . at least the "online version," lol :)

I just dont see that huge an impact. Getting any loan is tough these days and the jumbos are back. If you can qualify for a $697500 super conforming loan you most likely will have no problem qualifying for a jumbo loan in the same amount. The monthly payments wont be that different. I know its something the permabears would love to hang their collective hats on but they've lost the war already. Jumbo financing is back.

It certainly won't help with home prices in the range you are talking about Rich from $600,000 to $900,000. I'm not sure how anyone can try to even look at it as it being nothing less than a big negative for home prices. That's why the realtor lobby group is fighting it so viciously....

It's not going to help things at the higher end of the market and the NAR knows it.

Personally I think it's a healthy development. It's healthy that they are working to ease out of the market and as they do, loans should get more difficult to get and as they do it will put more pressure on home prices.

Economics 101.

It certainly won't help with home prices in the range you are talking about Rich from $600,000 to $900,000. I'm not sure how anyone can try to even look at it as it being nothing less than a big negative for home prices. That's why the realtor lobby group is fighting it so viciously....

It's not going to help things at the higher end of the market and the NAR knows it.

Personally I think it's a healthy development. It's healthy that they are working to ease out of the market and as they do, loans should get more difficult to get and as they do it will put more pressure on home prices.

Economics 101.

I'm not saying they will cause prices to plummet because I don't think they will. But no one can argue it's a positive development for home prices and the direction of them.

Let's be honest..... guys like that flight attendant have no business buying a $700,000+ house in the first place and the reduction of the loan limits will help prevent people like him from buying more than they can afford.

Don't forget just how high the % of negative equity is right now. 28.4% plus the near negative equity #'s out there. Ugly.

Yeah, real estate prices vary in various areas like California and New York. But my philosophy is if you can't afford a given area, move to a cheaper area that is more affordable.

Don't you know that people in expensive areas have a right to government programs to help them live there, paid for by all the poor saps living in the Midwest?

Right, nobody can argue that it's a positive, but is it a significant negative?

sdr says no, that it's the same to qualify for both types of loans. But for instance sdr, I've heard that down payment requirements are higher for non-conforming loans... if this is true, (even if "qualifying" is otherwise the same), that represents a tightening of financing for this price range. Any idea whether that's the case?

Exactly.

Oops in looking thru the posts again I see I missed bg's post saying she thinks that jumbos require a 30% down pmt. I had read that somewhere as well. That's the kind of thing I'm talking about... if true, that's a definite tightening.

I'm not sdr, but I believe many buyers seeking jumbo products to buy in "upscale areas" have the resources to put down far more than 20-30% but choose not to because they are able to leverage their purchase without the extra mortgaged amount costing them more in the form of a higher interest rate.

Obviously, if they are paying a 1% origination fee or "points," then this "closing cost" would be a little higher. However, the purchase money points are tax deductible. If I was in this category, I wouldn't pay points. I would take the rate offered without points. But that is just me.

Also, I believe many of these buyers are nearing retirement and have plans to retire their *new* mortgages within ten years.

edit: I guess what I'm trying to say here is, I don't think any "tightening" to qualify this category of already highly qualified buyers (who purchase in places like Monterey) is going to make much of a difference in prices. "Location, location, location" will always prevail as the holy grail of value in CA, even if that mantra is referring to a vacant lot :=]

Just to be clear, I never said it was a positive...clearly it is not. My belief is that its not a big negative, at least in the areas I follow closest. Will it take some out of the market? Sure. Does that make it a negatve? absolutely. Just not a huge negative in my mind.

I dont know where everyone else hangs out but I constantly meet people with tons of money everywhere I go. Last night I was sitting at the 3rd Corner in Encinitas having dinner and glass of wine. An unassuming guy sits down next to me and we srt talking. Next thing you know he's telling his wife is one of 3 partners in a hedge fund up in OC and they paid $25M cash yesterday in a purchase of distressed assets from the FDIC. When we left he got in his Bentley. It may not be this way everywhere but in NCC there are alot of people with a lot of money running around.

I don't see this affecting the foreclosure and short sale market. That market is filled with buyers with large down payments. I think the big impact will be new housing from builders and resale homes from the flippers. This sub-market is filled with marginal buyers and minimal down payments.

Unlike in sdr's world (where everybody is rich and life is a utopia), I don't believe everybody is loaded with cash. Of course there are people with cash to put down 20-30% on a non-conforming loan. But, you guys are extremely naive to think that everbody who purchased in the price range had the means to pay 20-30% down. They didn't have to, so by definition it left the door open for a huge pool of buyers without that kind of cash. Well now it looks like that door will be shut again. It will have significant impact no question.

deadzone, I don't believe ALL homebuyers shopping in the $600K + range are all flush with cash, either. I was referring to those buying in niche coastal markets of predominately custom properties, such as Monterey (ex LJ and DM in SD County).

In less-desirable inland tracts, especially those encumbered by CFD's, I think many unqualified buyers quickly got in over their heads buying in the over $600K range when they were helped by developers' designated loan officers (were offered incentives to use them) who put them in 80/20's, 80/10/10's, 30 due in 5/7's, I/O's and balloon mtg vehicles. Often, there were never any surrounding comps to begin with to command the prices the developers were asking. They just attempted to create their OWN sales comps by making it easy for an unsophisticated buyer to pay top dollar for a house on a substandard lot (often less than 5000 sf).

Yes, I believe the value of inland tracts (east of I-5 in SD County) where the recent sold comps are currently over about $680K could be affected by lower FNMA/FDMC conforming limits. I do NOT believe highly desirable custom areas in coastal zones will be affected, however, as the buyers of each of these types of properties are completely different animals.

edit: I don't think the lower conforming limit will affect buyers of acreage either (ex East County). This type of buyer is typically 50+ years old and often has plans for new construction or a major gut/rehab prior to even making an offer.

Of course in general buyers in prime coastal areas have more cash. But during the housing boom, I guarantee a large proportion of these buyers relied on a positive equity home sale to cover the down payment. These buyers by and large don't exist anymore. Again it is naive to think that any area is immune.

We'll find out for sure when (if) the government ever takes away their artificial housing support. The lowering of conforming loan limits is one step and it will certainly affect most areas of San Diego, some more than others as has been pointed out.

after all this effort to prop up the housing market, doesn't it just seem like there has to be a catch; like, we'll lower the limit, but give you a tax credit for the difference, or these are the new rules, but if we begin to notice it has any bad effect, we'll immediately revoke them and go back where we were, or some other freaky shenanigans.

Hey Rich,

I think "significant" can be a bit relative. I don't necessarily think it will be too significant on it's own. But when you couple it with everything else that is going on at the same time including a tighter credit environment, continued unemployment and a potential start to a Bear stock market and correction of commodities and couple those things all together and I think it's going to add up. But I too am not sure how significant it will be.

And I was more speaking on the national scale vs. just San Diego but definitely I see it having an effect in that price range you mentioned for San Diego as well.

sdr sounds like he is hanging around the wealthy crowd, which I admit there is plenty of in San Diego. However, there are a lot of pikers out there as well. From the outside looking in, they might appear to have money or at least a healthy net worth... but it's all smoke and mirrors and they are leveraged to the hilt.

Some times you don't even know about it (even if it's your neighbors) until you read about them losing their houses.

I think people really underestimate all of the negative equity out there. People are finally starting to realize just how many people have a $0 net worth (or even a negative $0 net worth).

The trends don't look too good for the rest of 2011. I'm not sure how even the biggest bull could try to argue on that one.

The government WILL eventually ease out of supporting the housing market and when they do it will be ugly. It might take a few years but I do believe it will happen. Personally, I wouldn't mind seeing them get rid of the interest exemption as well.

The MID (up to $25K annually for a personal residence) is the ONLY reason wealthy buyers take out a mortgage at all. If this were eliminated, these homeowners would simply retire their mortgages.

I'm not a "bull," ER. I actually think the gov'mt should return the conforming limit to $417K. That's more than adequate to purchase a $521,250 property with a std 20% downpayment (which is higher than the current median sold comps in most CA areas).

Even if this happened, I STILL don't believe it would affect the values in coveted coastal areas. There are too many buyers who have the money to purchase exactly what they want where they want in these areas and whatever the govm't decides to do will have little impact on their decisions. It is what it is.

Just to be clear. I never said immune and I dont hang out with a wealthy crowd. I hang out with well educated, professionals in their late 30" to mid 50's who have earned good money for many years and have always lived within their means. These folks didnt over extend themselves, have solid incomes, assets and family behind them. Too many of you seem to think everyone out there was irresponsible during the bubble. I know that I wasnt and that my friends and neighbors werent either. There are a lot more of us out there than any of you could imagine. The rich folks, well i run into them in my travels because of where I live. There are lots of them out there too.

Yes there are folks who got caught up in things and overextended them in my hoods. However they are far more the exception than the rule. There are just as many if not more conservative folks who sat all this out than there are over extended around here. Bear in mind I am specifically addressing NCC and the other submarkets are very different.

I do agree with this statement sdrealtor that you made. I do agree that in that area, the incomes are higher, the education levels are higher and there are probably far fewer that over extended themselves vs. on the national scene.

You are right there are plenty of people that lived within their means over the past decade. I work with hundreds of investors and they all are in the camp you described. In fact, I've purchased over 500 properties for them in the past decade and they have all paid 100% cash for their properties.

And I do agree with you BG that the coastal areas will be less affected by the loan reduction limits but I do think nonetheless it will make a difference.

I think that San Diego will always be a more desirable market and will attract a wealthier crowd in the nicer neighborhoods.

While there are a lot of wealthy folks in that area, there are still plenty of people that lived beyond their means. Lots of folks even with good income streams were taking equity out of their homes, etc.

Just a look at the scary high number of Americans that have NEGATIVE equity on their homes speaks volumes and isn't something you can argue with. By the end of this year, the percentage of Americans with negative equity could be upwards of 35% depending how much properties fall. That's a staggering #.

So yeah there are a lot of wealthy people that didn't over extend themselves but there are lots that did.

Couldnt agree more.

ER, I don't see how there could be a "trickle down" effect of lowered values to La Playa San Diego (92106) or Del Mar Village because a homeowner in SantaLuz (92127) or Scripps Ranch San Diego (92131) lost their (valued at over $680K) property to foreclosure.

SantaLuz IS a custom area but situated in a less-desirable inland area and also heavily encumbered by CFD(s). Scripps Ranch is predominantly on tract (except for some fire rebuilds). No matter what improvements were made to a property there, when all is said and done, it IS a tract home situated in a tract area. That fact in itself sets a "ceiling" on values. Very few buyers will pay a premium for over-improvements on a tract.

Since you are living out of the area, why don't you try this exercise before you visit? Take an urban zip code such as 92103 or 92106 and compare the current distress in it with a suburban or exurban zip code (such as the two above or their surrounds). Study ONLY SFR's (condos have a much higher rate of underwater owners and walkaways).

I think you are mistaken on your assertion that most of the valuable coastal property is owned by "highly educated" people or even career people. Perhaps 50% of it is and even a higher percentage in sdr's outlying NCC. But in the urban core, the valuable RE is mostly owned by the over-55 set. This demographic may or may not have a college education or even a complete HS education. They may be widows/widowers (remarried or not) and other heirs. Due to the familial pass-thru provisions of Prop 13, an heir often bought out other heirs so they could live in a low-tax property for life. If the last parent died 15+ years ago, it may have not cost them that much to buy their siblings out. If you were a 62 year-old female who inherited your parent's 70+ year-old well-appointed, well-located valuable home in Mission Hills (92103) and also their tax base, would you mortgage it and screw up your entire future just because it is now 2004 and an easy-lending bubble floated thru the statosphere? I think not. Many of these people are on fixed incomes. Whatever their house is worth is on paper only to them, until they decide to sell or die, whichever occurs first.

These are often the unusual custom properties we see marketed with a "wishful" price. If the marketing "experiment" doesn't work, the listing is withdrawn. It's not about seller-delusion because there is no distress here. No one wanted that particular property at that price at that time (with all the distressed properties around to choose from) and that's okay for now. It's a free country.

Custom properties vs. tracts are apples and oranges. Older and newer areas are apples and oranges. The buyers and owners in these respective areas are also apples and oranges as is their levels of "distress."

In short, CA RE values and levels of distress vary widely from micromarket to micromarket. This will never change.

Premium areas will be affected by this change simply by the fact that there is now a smaller pool of people who are able to get the loans. Result is less demand, prices will be affected negatively to some degree.