San Diego Housing Bubble News and Analysis

Don't worry, Suzanne has done the research :)

If it's half your money, say "no", period. That's what I did. Until she does her own research on the market, it isn't your job to show her graph after graph attempting to prove to a nesting female that it would be smarter to wait. What's she going to do, divorce you? (No offense to you nesting females - I love mine.)

I do recommend looking at similar properties on redfin.com, though. You can watch the price drops and see the sales history for individual properties, which can help it sink in.

I think that life's major decisions in a marriage require unanimous approval. So you don't buy an enormous asset, or have children, or move, etc. unless everyone agrees. There is no more compelling argument than that.

Dear Scaredycat's wife,

I hope my story will help you understand. My wife and I have been on the sidelines renting too. At first it was very tough, as my wife, like you, desperately wanted a house. But the housing market was peaking and I wouldn't agree to buying anything.

Now, looking back, both my wife and I are glad that we didn't buy. If we had bought when we first started looking we would have paid way more than the house would be worth today. In real terms this means we would have lost a good bit of money. As a bonus, I can tell you that in the last year we've been able to significantly up the quality of houses that we are looking at, because prices have come down, but our budget has not.

But to me the more important question is what would have buying a house at the peak done to our marriage? While everyone says that money is not important, love is what matters, I think it's also important to acknowledge that money can be a huge source of stress in a marriage. While I try my best to be fair, and not hold grudges, or be angry, I'm sure if we had lost a ton of money over the last year due to my wife's insistence that we buy, that would have put a good bit of friction in our marriage. And then, to boot, my wife would have felt that anything I said about it was an I told you so.

Instead, as my wife hears of coworkers going into foreclosure, friends struggling with mortgages they can't pay, and their marriages turning rocky, she realizes that the fear of not buying a house was not well founded.

Likewise, I suggest that you shouldn't fear that your husband will never agree to buy a house, but instead focus on the fear that forcing a bad decision could impact your marriage in many negative ways.

As it is now, my wife and I are closer than ever, happily pursuing the interests in our life, saving our money, and renting as we watch things from the sidelines. Would we love to stop renting and buy? Of course! But worse would be to jump into something that would turn out poorly. That's the fear that should be keeping you awake at night.

XBoxBoy

My wife and I bought in 2003 and sold our house in 2006. We too have been waiting for the market to come down and yes, its sucks renting. But tell your wife this...

1) EVERY housing downturn in US history has been an L shaped type crash, meaning prices do not just shoot back up. Prices will fall and stay low for a while

2) You said you dont care about timeing the bottom, but you and your wife must agree that its smarter to catch prices going back up than it is to catch them still falling.

3) Find other thing to focus on, like take a vacation or buy some furniture for your rental. If you dwell on when to buy, youll go probably end up buying.

4) more info
http://patrick.net/housing/crash.html

hope this helps.

You should probably pay "temeculaguy" a fee to meet with you and review the housing market in your area - where it was 18/12/6 months ago and where it is headed in the next 6/12 months. He'd be able to give you two excellent insight on the market in your area. Depending on your situation and the development that you're looking at, it might not be a horrible mistake to buy. Temecula is so far ahead of San Diego on the depreciation curve.

I'm in the same boat waiting on the sidelines with a 7 month old baby. I've told her that I won't buy until the majority of people I ask say they don't want to buy houses anymore. I keep asking people and it's gone from 0 out of ten to 1 out of ten currently. When it passes 50% I'll be ready to jump in.

That time is coming but probably along with 15%+ unemployment and tougher times. As for buying in Temecula I would be very careful on the timing. The 1+ billion dollars in mortgage fraud (ponzied) bought homes need to be unloaded and buying in before they are could be costly short-mid term.

Thanks for the props mortgage3, but TG charges no fees, just like Bill handel doesn't charge for his saturday morning marginal legal advice on KFI. I am not in a similar boat as I don't study the semi custom houses on land like they are looking for, so my opinion would be just above average but not spectacular. I will say that semi custom land houses are taking a severe beating and will suffer greatly if CV, RB, 4S and some of the other SD locations along with some O.C. locations with similar demographics begin to fall. Thus far they haven't but when they do, the gentleman ranches will take their hit. They have taken a pretty sizable hit so far and it is not that unsafe to lock in now if you find what you want.

Let's talk area, are you going 15 minutes east (glenaoks, wine country, anza) or do want to be in town (los ranchitos, santiago, meadowview), or even westies (de luz, la cresta)? I think we are close to bottom and wouldnt oppose a purchase in those areas right now, weighing the limited amount of properties vs interest rates vs declining gas prices in the near term. The timing might be right but it's all about the right property, if you find it, can afford it, do it. If you are settling and needing to get a better one later, wait for it. Are you horse people, dirt bike and rv people or wine people? It's best ot settle amongst your "people." Each of those communities is in a different place on the timetable. Throw down the particulars and I'll give my free worthless advice, if it is a particular property and you want to keep it off the boards, temeculaguy [at] hotmail [dot] com is always an option, just mention piggington so i dont delete
same offer goes for anyone

Near a bottom? Tsunami's coming. Maybe when CA unemployment is at 12% at the end of 2009 or in 2010.
Check all stats about CA home prices and unemployment above 7%. I think this may prove valuable to everyone who's concerned about price movements in the housing market. The correlation is astoundingly high.

Check with SDCIA and see when Bruce Norris is going to be speaking again. Then take your wife to this meeting. Last a couple of hours.

peter, it is 2010 in Temecula, The Tsunami came through already, the price movements have already occurred, there may be some more but the bulk are behind us, now the fear for a primary long term house is interest rates.

I won't argue that housing wont continue to decline all over the country but this question is about a specific area. 2001 prices, more than 50% off peak are commonplace in my valley, sub $100 a square with some larger homes at 80 or 90 a square are approaching building cost and well below replacement cost. New building has stopped. Some condos are now priced at $100 a square and 100x rent multiplier with cash positive on day one. The downside risk has diminished, inventory is falling slightly and nods/nots are down significantly (jury is still out because of the new state law, they may rebound). This only pertains to my zip code, not all of So Cal, and I would be more fearful of areas that have held, than those who have already imploded. I see about another 10% decline over the next six months in my hood, then inflation or higher rates keep things flat. That 10% will come not because of unemployment but because S.D. and O.C. will fall and fall hard, stopping the flow of impatient fence sitters from relocating here and perhaps some reverse migration.

I'll give you an example, 3/2 1400 sq ft townhouse with a 2 car garage listed for 165k http://www.redfin.com/CA/Temecula/33513-...
it was bought new in 2003 for 187k, these were high 300's at peak with some touching 4. They rent for $1500 right now, vacancies are rare. 3% down fha and the P&I is just under 1k a month, tax and hoa, still under $1500. Figure the tax deduction and it is about 3-400 a month cheaper to buy than to rent, experts may not like that but people do, thats when people buy. So what does bruce norris think this unit's bottom will be, he doesn't know, because it's a micro market, I don't expect him to understand every micro market. Will it go down to 100k? I seriously doubt it. So the downside risk in my opinion is 10-20k (10%). If someone could show me an 800k carmel valley home selling for 325k that rentd for 3k, I wouldn't talk them out of it, I'd say you are near bottom, these numbers are exactly the same as that example.

we're not rv or dirtbike people, not really horse people. i guess we're just weirdo homeschooler types who want some chickens and a little room. We like meadowview for sheer closeness, but could go anywhere within striking distance of temecula. i don't liek all those dang mccain signs, but I'm tolerant and get along well with others, and if that were a real factor, i guess i couldn't live anywhere in temecula ;). What I'm seeing is listings ranging all over the place, similar looking houses ranging from 350k-550k, with not much appreciable difference in the property. it sure seems like the downside risk has to be more than 10% if you're buying ont he high side of the range of 350-550k, cause i could see all of them collapsing ino a pile of listings at 300k in 6 months because there's already a 30% plus spread on similar properties. From the bottom end, though, 350-400k, it just feels to me like it could be 250-300k in a year. But I also feel theend of the empire is at hand and that we are at the end of the game and that there will be nothing good happening appreciation wise perhaps in my lfietime. I see this only as a consumption item, and have no epxctation of appreciation. I just don't want to get hurt too badly by price implosion and would liek to ahve a place we like to raise our kids. Or am I just being way too pessimistic about the future of 1970's era semi-custom home sin temecula? I can see investors stepping up to pay super cheap square footage prices on cash flow places, but these are quirky old houses form the 70s in varying states of disrepair requiring someone who has some money to maintain and would probably not be the kind of property that screams out to someone looking for rental. in fact, they seem like a landlord's nightmare. Which means it's for an owner, and the pool of people looking at the higher end of temecula properties for themselves I think will be smaller next year. My wife says poppycock, all the good stuff is going to get snatched up a nd that we should seize the carp, or carpe the dime. I tell her no, there will be places, we're not going to "miss" it, but i have agreed to "look". I fear that looking seriously could lead to buying, kind of like the way that first kid arrived just by considering him. I told her I would only be willing to make offers based on what i think the price will be in a year, and they will be abnoxiously low. With that proviso, i have agreed to shop a little. I'm in trouble though, aren't I?

TG, I've been keeping a fairly close eye on Murrieta/Temecula, and it looks like Murrieta is dropping much faster. Maybe because it is closer to the rest of the French Valley(?).

Anyhoo, it looked like Temecula was holding it's value more than Murrieta. I thought they might trend downward at the same rate. But it doesn't look like it when you can get a house for $77-90/sq.ft in Murrieta these days.

http://www.redfin.com/CA/Murrieta/30038-...

http://www.redfin.com/CA/Murrieta/36645-...

http://www.redfin.com/CA/Murrieta/38803-...

Any idea why Murrieta is tanking much faster than Temecula? K-12 education maybe? Less foreclosures? And do you think Murrieta will continue to drop faster as Temecula drops?

The way I see it and often explain it to people without having to go into great detail is to just list the factors involved in house prices and see what they indicate.

1) Economy - We are in VERY poor shape
2) Unemployment - Going higher based on every account
3) Inventory - Near record levels
4) Interest rates - getting worse
5) Foreclosures - getting much worse

Every single factor here points to downward pressure on home prices. When several of these turn around (and it will NOT happen overnight) then it could be a good time to jump into the market.

I would take the lower priced MLS listings with a Grain of salt in Murrieta (or even French Valley),

The good ones almost always have multiple bids the first day they hit the market these days , most way over the asking price.

But good luck, I don't think the prices are going to start running away anytime soon, but I would not be Surprised to wake up one day and see all the good Foreclosures gone, and the asking prices jump maybe 25-50K (just my guess).

To each their own and good luck again.

Responses in reverse order.

sdbear, I agree with the pressures but you need to address my argument that those are already priced in, and $4 gas that has become $2.90 gas and soon $2 gas has a reverse effect on exurbs, it softens the blow. Foreclosures aren't getting worse, our foreclosures already peaked, I've tracked them daily for 2 years, I need 30 more days to figure out the effects of the state bill that delayed foreclosures before being certain on that.

ralphfurley, good finds, but prices in the valley have always declined as you travel North, a few percent per mile. Schools are great in Murrieta, crime is low, that isn't the reason. More commuters work South than North, traffic blows on the 215, you get closer to the crappy areas (elsinore, perris, hemet) the further north you go and it get hotter. I like murrieta, at those prices it's a good deal (but they are shorts so it can be misleading). It wont tank percentage wise any differen than temec, it will just always be a little cheaper and wildomar or french will be cheaper than murrieta and hemet/San jacinto/Elsinore cheaper than those, it's just the way it is.

The pain train moves south, I used complain that it was frustrating me that it was in murrieta and not temec but eventually it caught up, each subsequent wave, takes a little time but eventually it makes its way south. But it will never be a tie.

scardeycat-you are correct with the strange pricing spread, that is the trouble with pricing customs on land, it is dfficult to figure out comps. Check the zoning, some of places wont allow chickens or have limits, most have an hoa you can contact. I know santiago and ranchitos allow horses but that may be it, i remember a publicized lawsuit with the hoa over a llama someone had. I wish i knew more but i am allergic to land so just check into it before shopping. Just decide you want to pay 300k and dont offer more, if that means waiting, then wait. If the same property for 350 and 500 exist, just visit the 350k and make offers of 300k, avoid the 500's altogether. You also need to understand the whole water, sewer, private road, taxes, issues that can vary wildly with homes on land. It's a game of chicken, the market will find you, just maybe not this week, hoping a 350k place will take 300k is reasonable and the average list to sale is 10% below list in our area, so i look at 350k as 320k right off the bat. Those 350k's will be 300k or 320k at some point, but hoping they will be 175k or 200k isn't reasonable at any point so if you can get a few acres and a nice house for 300k, I'm not going to talk you out of it, nor will i talk anyone out of $75 a square in murrieta.

Prices are supply/demand driven. If no one wants houses, the prices will keep moving down. It's this simple. Higher unemployment will grind down every market. The further from job markets, the far worse it will be. Homes in Temecula for $100K, why not? Lower rents, of course.
This is like contemplating the value of stock based on the last two years of its P/E. Not very useful if the new level of earnings is going to be so much lower that the price has to come a lot further down to match the acceptable ratio. Current rents and ratio's are based on things that people tend to think are static, and they are not static. Will wages come down? I think we're going to find out the hard way in the next couple of years. But if they do, that will cause all these ratio's as to rent vs. buying and a home costing 4 times the HH income to be reset to a lower level. Now add the psychological pressure of possible job loss or need to relocate... See what unemployment does to the housing market. Just wait and see. I hope I'm wrong, but this is looking the mother of all melt-downs thus far. So I will now take off my tin foil hat. But this is not out of the realm of possible.

see, this is exactly what goes through my head. past performance does not predict future results. people talk about cycles in real estate, etc etc., what goes up must come down and then up again, but possibly, it could be radically different. I think the answer will become clearer in a year or so, either the hemorrhaging will slow, or it won't. Maybe all the good repos will be gone, but, somehow, i doubt it will all clear out in 09. On balance, it just seems the risks outweigh the benefits of buying in the next 12 months.

..... Will it go down to 100k? I seriously doubt it. So the downside risk in my opinion is 10-20k (10%)....

Why have any downside risk if you help it? I would wait until prices at LEAST stabilize if not start appreciating.

FACT: Prices are still declining...

REPEAT FACT: Prices are still declining...

It makes 0 sense to buy a home in a declining housing market. Ask anyone with a brain.

As far as Temecula and 100K, I bought my Murietta house at $150K in 1999, and I would submit to you that prices will be back to those levels within the next 2 years. Why, because like TG said, there are no jobs in the area and housing is all about supply and demand. Temecula and Murrieta are over built, meaning too much supply. If you can buy near your work for $200 to $299K, why the hell would you pay any where near that to drive to SD or LA with the "951 croud, AKA people of the dirt. I use to be one of them, and you could'nt pay me to move back there vs SD.

jet, I never said there are no jobs in this valley, I said that more of the commuters travel South vs North, there was no mention that all temeculans are commuters. I should just ignore your comment/insult because in reality it benefits me to perpetuate the sterotype you cast because i don't want the competition. Personally there are about 4 school districts in S.D. county I would put my kids in, the rest is crap. I am also from there and but you could pay me to move back, exactly 350k is what it would take, because the neighborhood, schools and people that 300k would buy me here, would cost me 650k at least there. How big was your house in 1999 when you paid 150k? I paid 200k in 1998 for 2400 sq in Redhawk and my income was half what it is today doing the same job so 300k for 3200 sq ft doesn't seem too far from 1999 prices. I checked i can buy my old house for about 250k. Plus S. Temec is pretty much built out, the building is to the north of temec and the farther north the less desirable but why am i responding, how did I get suckered into the "I wouldn't live there for free" bullshit for the umpteenth time, you stay in your world and leave me alone in mine.

But this was never the question in the first place, i was asked my opinion and gave it, I think that the majority of the price declines in this valley have happened already as opposed to s.d. which is still overpriced. I have gone head to head with a number of people in an attempt to buy both my primary and rentals and they aren't dirt people, they aren't unemployed and they arent even 20% downers, most are coming in with a far larger warchest than I, which is why I am still here, because they will pay more than i think certain houses are worth. Because I want to pay 2009 prices now, more and more it looks like I will have to wait for 2009 prices in 2009, but I can argue the specific fundamentals as to why paying 2009 (same as 2001) prices makes sense and why certain rent multiplier fundamentals make sense in my hood while buying in sd right now does not make sense, you want to have that argument, point out specific errors or flaws in the data, dont make "dirt people" comments, you want to take on TG, ask around, i've been here a while, can't remember ever losing, maybe my time has come and you will be one to knock me off the boards, or maybe you'll reveal where you live and I'll make generalizations about the community you love.

It's probably the wine, maybe you didn't mean to pick a fight, I should switch back to zoloft before someone gets hurt.

I know what it is that has me on edge, once again it is Norv Turner, blame him, not me, I'm just a victim.

Find some articles on the internet that are discussing expected future declines in home prices here in SoCal. Find he worst ones you can and let her read them.

John

Just remember TG, you need to have a good defense (or maybe even an average defense) to win right?

In all fairness, I did see some Temeculans driving single file to hide their numbers. "Baarraorrrrr!!!"

Thanks for the replies TG. Mucho appreciated.

scaredycat, the fundamentals suggest there is still some downside in the san diego market, but if you are sure you want to live there for 10-20 years, and you find a home you really love, go ahead and buy it if your monthly payment on the purchase would be close to what you could rent it for, for example: purchase price 400k, loan amount 400k @ 7%, payment is 2646 plus 480 tax and insur for a total of 3126. say you can write off 30% for a net payment of 2188; if this home would rent for that much, i would say it will be a good investment.

i'm a lender, i understand there are only a couple of 100% financing programs out there right now, and i understand closing, carrying and selling costs, this is just a general idea of determining wether or not to buy; if you can buy for what it would cost to rent and you are going to be there for a long time, you'll probably be ok...

i hate "probably be ok" after 10-20 years! that woudl suck. 10-20 years should be almosta sure thing...but it isn't. that's what makes me think it has to fall to where 10-20 years is virtually a sure thing. if wages fall, unemployment spikes, why should rents stay the same? they should be falling, esp. if "investors" are snatching up rental properties and increasing demand. "i's really difficult to predict things, especially the future". The future itself is so hazy to me. I cannot have any sense of what it might look like economically, socially...nothing i'm reading inspires me to buy. somehow I have the feeling that this inert house is going to suck the money, energy and life out of me. I guess what i wan treally is the bottom of the market, even though i won't admit it. i want a screaming deal. I don't think that time is now. I think these are acceptable deals.

The RE market moves so slowly that no one should worry about "missing the bottom". That's stupid. And so is leverging yourself into the biggest debt you'll probably ever have on a depreciating asset!
Think people! That's what got us into this mess. Really stupid abuse and miss use of debt. Anyone who uses big leverage to go long on a depreciating asset, deserves what they get. It's the price of education, I guess.

I think that's the gist of it. I am in the same local market and I do believe that you can find acceptable deals right now but not "a screaming deal". That said, I just put an offer on a property over the weekend, because apparently everyone is watching World Series and nobody is out looking. Still the seller (flipper, not bank) has not agreed to my 10% off listing price offer and still stands firm on his original price. It is a very nice house so it will be a good deal if I can get it at my price (roughly $85/sqft in Temecula), but it is far from what I would call a screaming deal.

peter, koolaid comes in two flavors, bear and bull, don't drink either. Just plattitudes and cliche's, still no examples or data. I've followed my micro market as much as anyone on the boards or probably the town and I say it is within striking distance right now with 09 being ideal, nobody has made a cogent argument against that, other than generic talking points.

here's another example

http://www.redfin.com/CA/Temecula/44656-...

$82 a square for rental property, 89k for a rental that brings over 1k a month, I'll concede these are the scuzziest units around but they rent, seen them between 1100 and 1300.

Not that you can get 0 down on rental property but purely for mathematical calculations, 90k at 6.5, 30yr fixed is $586 mo. hoa is $275 taxes are about 1500 yr, as they were 3k based on a much higher purchase price, this place peaked at 270k in early 2006 and was 82k in 1992, out the door today, 1k a month total carry with zero down calculated and rents for that plus a little extra. So if I am finding rent nuetral or rent positive properties i have a hard time accepting the other flavor of koolaid and phrases like "prices are still going down, it's a depreciating asset." You can't find a rent positve property using zero down calculations in carmel valley then those phrases apply to carmel valley, but it doesn't mean that they apply everywhere.

TG, I agree with all your points. However, I am wondering if one really can get 2009 prices now. There are still a lot of buyers out looking and the government intervention is not going to help the near-term supply/demand picture. Luckily, I see more rational buyers now, so if everyone demands 2009 price, it will just bring the bottom closer.
Anyway, I too think it is within strike zone right now. So I will be trying to write a few offers in the next few months, yet it is often very frustrating.
I just kept on rambling, but the point that I want to make is that I always enjoy reading your posts, so thank you very much for that.

I am a careful student of economic history as well as CA RE history. (Never cared much for Kool-aid, but I know what you mean.) I've studied the last few RE cycles in CA, and unemployment over 6% has by far the greatest correlation to a downward cycle. We're at 7.7% and heading for more. This is a terrible sign for CA RE! (Not to mention Foreclosures at off-the-chart-levels and growing.)
On the national economic front, economic history tells us that a credit bubble burst of this magnitude will retrace all bubble prices back to pre-bubble prices. And then drag along at this level for some time before any uptick is seen.

Put these two histories together, local RE and national economics, and you've got some more down to go. Even somewhere as stricken as Temecula. $50 sq/ft. is not out of the question at all.

Crap, the house was bought by another buyer at the listing price (a little bit over $90/sqft). That just confirms my doubt that we will ever be able to buy 2009 price in 2008.