San Diego Housing Bubble News and Analysis

Why do you say no more than 30% for inflation? That is an extremely modest 3-4% per year, and the arguably grossly understated CPI was running 6% for much of the bubble. (Shadowstats put it closer to 14%.) But besides that, the bottom has nothing to do with matching reasonable prices. Usually the bottom overshoots the mean just because there is as much bearish momentum on the way down (and bad leverage wiping people out) as there was bullish momentum overshooting the mean on the way up.

I think the mainstream news will be about as accurate at predicting a bottom as they were at predicting a top. Seeing as they didn't predict a top, we all know what their track record is. Anyone calling bottom now is being silly with foreclosures still on the rise and a slew of Alt-A resets coming over this year and next. Then, next year starts what I call the "retirement boom". If 1945 was the start of the "baby boom", 2010 is 65 years later, so look for even more asset liquidation. Also, any arguments concerning price to income while unemployment is soaring (therefore aggregate income is dropping) is also silly. msn money is good for a laugh, but little else...

Take 2000 prices, add in zero for inflation and you have reasonable prices in todays dollars. Salaries not going up? Prices must come down. I earn LESS now than I did then in real terms and so is most everyone else.
Josh

Add a zero? Wow, that's like 900% inflation. Quite a disparity between 30% and 900%. Maybe somewhere in between for the past 8 years? Hopefully not more than that in the future...

Not only that, but defined benefit pension plans and 100% employer-paid health insurance plans are becoming obsolete over time. Additionally, healthcare costs, education, food, gas, etc. are all rising, which leaves LESS money for housing.

With fewer social safety nets and fewer, less-reliable employer-paid benefits, in addition to jobs being less dependable...there is much less money left over for housing.

The old 28/33% DTI ratios were calculated under much more favorable conditions. I'd say people should now spend no more than 20% of their income (maybe 25% max, for higher earners), in order to stay afloat.

home prices match income inflation not CPI. Real income has fallen during the last 10 years so affordability and prices will decline accordingly. Right now due to the severe unemployment situation prices will correct even more than that.

home prices match income inflation not CPI. Real income has fallen during the last 10 years so affordability and prices will decline accordingly. Right now due to the severe unemployment situation prices will correct even more than that.

My problems with this article.

a) It has no numbers I can see. It just states that median housing is now about 2.9X median income. It doesnt say what either actually is. This would be helpful to know.

b) It uses a national scene. All Real Estate is local, and I dont think anyone looking to buy their first house in San Diego really cares that they could buy 5X the house in Detroit. Saying national numbers look similar to national numbers in past times that were better; so therefore it must be a good time to buy is just dumb.

Barnaby, you are correct! Wages did not inflate but everything else, non electronics, did....so you have to go to 1999 / 2000 pricing to even be close to any bottom and we should overshoot....

Home prices are geared to wages and available credit. 2002 to 2007 was about the biggest credit expansion in history, not wage increases. So now that we're seeing credit implode, prices are going with it. More foreclosures are coming from being upside down and growing unemployment. Credit card implosion is happening right now. Bottom, no way!

OK I will take the Contrarian stance ,

I say that whether the housing market has bottomed in SoCal has more to do with the economy than price income levels (they rarely match that well in Socal anyway, there has always been a SoCal premium in L.A. county and I think in the last 10- 15 years now San Diego county has joined that club (I also think housing in Socal is becoming a lot more like Europe or Asia where rents don’t match home prices all that closely).

Not saying SD has hit absolute bottom here but where it goes is more a function of the economy now than income/price levels.

Anyway they have that old saying don’t fight the fed, but now it is don’t fight the fed, the bank of England, the bank of France, the bank of Germany , the bank of Japan Etc…. the list goes on…

Sooner or later (I think sometime around the start of 2010), they are going to turn the economy around. I know it sounds improbable right now but I think it’s very possible,

One side note, Once the banks get somewhat sorted out I think Gold will lose a lot of it’s safe haven status (just my two cents).

Wages did inflate, just at a rate short of the real inflation rate (or even for that matter, the fake inflation rate that the government uses that understates inflation), at least nationally -though the gist is correct - historically, housing has inflated at the rate of wage inflation, or very close to it.

Based on average income gain in San Diego circa 2000 (2000 census put SD household income at $47.5K, 2008 was estimated at $66.7K) a gain of about 40% is justifiable from 2000. Based on the available numbers, San Diego had more wage inflation than most areas of the country - possibly a side affect of the skyrocketing standard of living on the west coast due to the housing bubble.

Assuming 2000 was about on the long term trendline (it was close, anyway, and before the hyperinflation of property values kicked in), the recent Case-Shiller numbers have us only about 10% above the long term trendline (I believe the most recent had us at about 155, and as a lagging indicator based on data in the Oct-Dec timeframe, it's probably in the 140's now).

Of course, different regions within San Diego have fallen at different rates - the bottom may be close in the harder hit outlying and older areas of the city, while some of the newer and coastal (and until recently "immune") areas like CV and 4S probably still have quite a ways to fall.

Though, as you mentioned, we will probably overshoot on the way down before we finally revert to the long term trendline. There's little doubt that unemployment, underemployment, and the other ills that the current economy is causing will also push housing lower before it recovers.

For the general housing inventory, yeah prices have come down quite a bit.

Don't forget the antique factor though...it seems that craftsman and Spanish-style houses seem to be retaining their prices more than, say, a box house in Serra Mesa or Clairemont. Seems these places were a steal in the late 90's and after prices went up, they did not come down much.

One person's shack is another person's palace.