San Diego Housing Bubble News and Analysis

One of the tougher things about the environment today is that we do not have a free market. All of the predictions about inventory growth have proven to be pretty much incorrect because of the government. The realization is that it is truly a rigged game and that the government will throw tax dollars at the problem. In the next 2 years I believe you will see the most extensive socialization ever with regards to housing. This will include substantial loan modifications in the form of low interest rates combined with or in addition to pricinpal reductions. This will occur primarly on loans purchased by the government. Also there is no 700B limit. Once the government purchases them and rewrites the loan the loan can then be resold and then more can be bought. Similarly 40B in loans per month will start to be purchased by the defunct GSEs.

This is the effort that the government will put forth to stem foreclosures. To be sure it will indeed reduce the flow but I do not see it halting depreciation. The economy will do a fine job at that and if/when unemployment kicks in there will be possible large chunks of depreciation. If the government can do a balancing act and keep the economy limping along without massive unemployment AND rewrite tons of loans then the depreciation will continue albeit at a more modest pace which is the goal here.

I do not see any stable ground at all. However considerations of hard assets at modest loan rates to hedge against inflation seems to be more on my mind lately although I do not see the interest rates really cranking for a long way off.

Banks are lending/loaning to people now. That is not the issue at all. Nor is inventory an issue at all either right now.

Again we are not in a free market as it pertains to real estate. I cannot emphasize that enough. This is the beginning, the very beginning of what will be substantial changes. This will not stop things yet it will lead to a more Japan style depreciation trend that resulted with a very long slow decline. If massive unemployment hits then all bets are off.

So at best, things will be flat. But really, things will tank...regardless of how many homes are on the market. So, if you own now, it's a good idea to sell or try to then hold on?

SD Realtor, your posts are almost always good.

What's your read on buyer sentiment right now? I think mass psychology has a lot to do with bubbles, so am curious if you have any off-the-cuff thoughts given past few weeks.

Also curious, who's buying right now? Owner-occupied? Fence-sitters? Investors looking for bargains? Investors looking for shelter? Any difference between local banks and national in terms of lending activity?

Business side, we're getting all kinds of attention from our bankers that we never used to get. There's my random anecdote-of-the-day.

Lost Cat I can't really comment on whether it is best to sell now and then buy later. I think there are many conditions to assess before giving you an answer to that question including where you are at (your home that you are selling) and where you want to buy in the future. Alot will depend on financing as well... It is a different answer for each person. In general yes I think it is going to keep striding downward with heavy chunks downward to be determined by employment and of course large spikes in rates.

Gandalf - Buyer sentiment is picky picky picky.... By and large buyers are very selective and over the past 3 weeks we have seen a big movement in mortgage rates. The non conforming limits while pushed up do still command a premium on the spread and that has hurt buying power. I have two listings in escrow and we are waiting for closing, keeping our fingers crossed. People thinking of buying right now are still a cross section. I have a few clients who are transferred from out of town, young professionals; I have some other people who have sold homes and are passively looking and other people (even a few first time buyers) who are looking to nest. All are aware of market conditions. Some of them have decided to wait until things settle out, some have decided to wait another year or two, some have not. A few are investors looking for bargains. All of them though are aware of market conditions and none of them are buying on a speculative assumption of appreciation in the next few years. Some of them buy with intent that when they move out they can convert the home to a rental so they actually investigate the purchase with conversion to investment in the future, thus they run caash flow numbers as well.

It is a big mix.

SD I am also irritated with the gov't intervention, the law of unintended consequences is in full swing. I think thier attempt to prop up the market and thwart foreclosures is going to hurt the market and the recovery.

By artificially stopping the repos temporarily and printing money they are driving up interest rates accidentally and reducing sales. Things were going so well before they tried to help. Those foreclosures would have been bought, people would have lower housing costs and would be spending their extra money on those houses. By grabbing ahold of the pendulum and not allowing it to swing to one side, they have eliminated it's ability to swing back. Most importantly, they have put a lot of people, like myself, back on the sidelines to await the punishment for their good deeds.

My zip code was averaging 50 not's a week and it has dropped to 6, the lowest in a year. New inventory is trickling in and the brisk sales of a month ago are slowing. The market was on pace to correct itself, good thing they are trying to help so it may take a decade to find the next rally as opposed to two years. My guess is that prices won't decline as much in this quarter but sales will. Silly me, I thought the gov't was too busy screwing up other countries to pay attention to this one, Adam Smith is laughing his butt off in his grave right now, when will we ever learn?

I should be having a fantastic week, with cleveland beating the giants last weekend and the chargers beating the patriots, they've got me so spun up I am not fully enjoying the season like I should be.

TG I agree completely.

Gotta love that Law of Unintended Consequences.
"I'm from the government, and I'm here to help you."