San Diego Housing Bubble News and Analysis

There are millions of people that still have a bubble mentality, nervously ready to pounce at what looks like the bottom to them, because they think the market will suddenly change direction and rocket upwards - leaving them "priced out forever." Those people are helping drive prices down, and therefore are our friends :-)

I'm even more relaxed and sure about the direction of the market now than I was in 2006. I was planning on buying this winter, but now I may hold off until late 2009.

Cramer's calling a bottom. So you know it's far from over! Every single indicator is terrible and now I'm starting to hear people say "flipping" and "bottom calling". When sentiment turns up while the fundementals are still terrible... This is a sure sign that this is a completely false rally. You want to look for the opposite situation of fundamentals improving while sentiment is decreasing!!! Why dont people get this. It's not rocket science! Buffett, Faber and Rogers cant shut-up about it and make fortunes on this simple concept.
Foreclosure's rising, unemployment rising and now it looks like we're headed for a global recession.
Check out Mr Mortgage's latest comments.

The only guys that can make money in this environment are very professional. Dont try this at home!

I was in Clairemont with the Mrs. and we decided to check out a few open houses.. one guy had more open house signs than I had ever seen, my wife and I started to get a kick out of seeing how far out and how many you had to pick up at the end of the day.

The funny thing was the property he had all the signs out for was so expensive.. another realtor thanked us profusely for coming.. I think we were the only ones that came that day

My guess is that prices have simply come down enough to where more people that have wanted to buy a house for a long time, can now finally afford to, not for an investment, to flip, etc.. but just to live in and enjoy. Maybe not the smartest thing right now in case their current income falters, since you can't cover the mortgage with rent or sell within the next 7+ years without taking a loss, but that is a cost that a lot of people are willing to take to own a home. These are not stocks, and have an intrinsic and sentimental value beyond market price, and I'd guess the majority of those buying now are not doing so because they foresee a huge rise in prices as before, they simply want to own a house and can now finally afford it.

Just my 2 cents (a self admitted knife catcher... in escrow as we speak)

My guess is that prices have simply come down enough to where more people that have wanted to buy a house for a long time, can now finally afford to, not for an investment, to flip, etc.. but just to live in and enjoy. Maybe not the smartest thing right now in case their current income falters, since you can't cover the mortgage with rent or sell within the next 7+ years without taking a loss, but that is a cost that a lot of people are willing to take to own a home. These are not stocks, and have an intrinsic and sentimental value beyond market price, and I'd guess the majority of those buying now are not doing so because they foresee a huge rise in prices as before, they simply want to own a house and can now finally afford it.

Just my 2 cents (a self admitted knife catcher... in escrow as we speak)

I think this and "investors" buying right now is exactly why there's some activity in the market of a very slightly positive note. Pent up demand, if you will.
But this does not change the fundementals of the market. It's getting worse.
As much as many people like to equate all kinds of emotional reasons for purchasing a home, it's still the biggest single purchase most people make in their lives. And financial decisions of this magnitude should be considered carefully as they can have lasting effects on ones future options in life.

I think we are getting ready to hear a strong chorus of bottom callers.....Again! It always happens this time of year as the actual selling season comes to a close and it gives way to speculation for next year. Cramer's article last week calling a bottom is leading the charge.....Again! As has been stated the fundamentals are not suggesting a bottom, CA is in a Recession and that will more than likely get worse, the financial crisis is moving up the food chain into ALT-A and Prime, Banks are not lending due to the high cost of borrowing, etc, etc, etc. There is pent up demand on the sidelines but not as much as you would think, the lax lending that lead to this disaster pulled a significant amount of future demand in.

I think the same principals hold true when making a decision to buy a home in this environment, if you find a home you like that is within your means and have a high degree of confidence of holding onto the property for the next 7 years, no harm done, any other scenario the risks outweigh benefits IMHO.

I think July was the first month to see YOY increases in home sales this year, but after such a dismal 2007 selling season it was bound to happen at some point. Looking back at the last housing bust, foreclosures were not a leading indicator of a bust/recovery, but notices of default were. The big difference this time is that the housing bust itself is what's causing foreclosure, in the past it's typically the loss of jobs/income that does it.

We already are seeing more NOD's than home sales and over the next six months I expect we'll see more foreclosures than home sales. The only way this doesn't happen is even more massive government intervention or somehow sales increasing month to month after summer is over through the winter.

Check out Mr Mortgage on foreclore and NOD data.
http://www.youtube.com/watch?v=VNo6n_Z7z1c

Unemployment is rising, credit is constricting and now it looks like a global recession is coming as well. Oh, and the RE sales season is comning to an end.

If any of this spells a bottom, please someone, explain it to me!!

I was out looking the past weekend and saw some REOs in good condition. I can comfortably own a home at the current price and I plan to hold onto the property until I die (if I don't live in, I will rent it out).
But still I decide to pass. That is because many of the houses already have bids on it, so it will be hard for me to low-ball to hedge any future price drop. So I will wait. The other thing is that I am not convinced that the house is cash flow positive at the current price if one factors in vacancy, maintenance, management, property tax, insurance, and 30-year fixed mortgage. And that does not even include the potential rent drops due to unemployment.
That all said, I do see one argument supports knife-catcher: the interest is going up! The GEOs are having a hard time selling their bonds. So sooner or later the mortgage interest has to go up. People say price will drop when the mortgage rate increases, well, theoretically. In reality, the price drops always lags behind mortgage interest, so you will need to wait until at least 2010 for the price to catch up (or catch down?). For primary residence (not for investment purpose), it might not be worthwhile to waste 2 years of your life for the rock bottom price. Of course, everybody's situation is different.

By the way, the lending standard is tightening. So if you don't have 20%+ down, good credit score etc, you theoretically will be "priced out forever" soon. So for some people, it does make sense to jump in while they still can. In real estate, a lower price does not always mean affordablity will improve.

By the way, the lending standard is tightening. So if you don't have 20%+ down, good credit score etc, you theoretically will be "priced out forever" soon.

I think it's a big misconception. "Tightening lending standards" only apply to private lenders. Government is doing the opposite. You can get a FHA loan of up to $625,000 with 3% down, credit score of 660, and 45% gross DTI ratio. That does not qualify as "tightening" for me.

"I think it's a big misconception. "Tightening lending standards" only apply to private lenders. Government is doing the opposite. You can get a FHA loan of up to $625,000 with 3% down, credit score of 660, and 45% gross DTI ratio."

Interesting. As I learned in the mortgage business, the devils are inthe details. Any details here that may slow this down?
If not, this would be a strong inflationary force on the RE market as well as crowd out many lenders. If any are still interested in this market?

Yes, you are right. In fact, "Government-insured home loans in July soared to 29.1% of all home loan applications, up from 8.4% just 12 months earlier, reports the Mortgage Bankers Association".
The problem is, if the foreclosure rates continue to increase or even if they hold steady, the FHA is left holding the bag. The FHA has been the only government agency that does not rely on taxpayers for funding, and operates solely on mortgage insurance premiums paid by homeowners with FHA-approved loans.
Of course, the government might change that one day, we will see...
But if the taxpayer money is on hook one day, it is really hard to justify not to tighten FHA loan standards.

During the last bust we had (I believe) 3 mini- rallies between peak to trough. I can see no reason to believe this is anything other than another pause on the way down the hill.

We have a lot of forced-sale inventory coming yet and the pace of sales hasn't increased so much as to mitigate that trend. We still have a gross oversupply and we're still losing mortgage-quality employment.

I'm sure it will eventually turn around, but not yet.

We'll qualify for any mortgage, but our thinking is now this - since the market will likely still have a way to fall and this will be our first place, we'll get a 3% FHA loan anyway, so we'll only lose the $10-15k down. As long as the payment is less than it would take to rent an equivalent place, I'll be happy. I think there will be a lot of those to choose from next year.

What the rate on these sweet loans?

Admitted knife catcher here,

But got in at about a 2002 price level in Temecula Valley so not worried about it really (I have never held a home less than ten years anyway), I bought in 1992 as well (same deal) held for twelve years and tripled my money when I sold at the end of 2004 (had to live somewhere anyway)

Still have a little gun power left if Coastal SD comes in a range that I would be willing to pay, but to tell the truth starting to lose faith that Coastal SD will go too much lower.

But here's to hoping.

Good luck to all

I am one of the knife catchers - Many thanks to SD realtor for his great help.

My comments below may be only relevant to potential CV house hunters:

I have been looking at CV properties for the last two years. The one I am buying is 130K less than the last year’s purchase price and ~200K less than our budget. I have submitted ~ 20 offers this year including ~ 10 offers in the last couple months. Every time, I was competing with several other potential buyers. One time, I offered 50K above the bank’s asking price and still lost the bidding game. This time, we won because we offered within 2 hr of MLS listing with a shorter closing term. The situation is very similar to 1998 yr when I bought my current home. There is still so much money around for houses in good areas and in good shapes. Most of my friends have >500K cash in saving counts set aside to purchase houses at the so call invisible “bottom”. I am wondering where the momey come from. May be the good money made in the house booming/tech firm IPO time and may be explain why stocks rose many times in light of all the bad news. My 2 cent conclusion is that there is a lot of free money in this country, they need to be rest somewhere- whether it is the bottom of the house market or the bottom of stocks. To me, the scenario of rent covering mortgage payment is hardly achievable for houses in good locations at near future, since everyone with purchase power like to get into this investment opportunity (positive/minor negative flow with low risk)- which will drive price up based on supply/demand fundamentals, unless we see drastic changes in salaries and employment in next two years.

Another reason or the main reason I buy right now is for my son to start a better school (moving from poway to CV). I can never link his education to the bottom of something. A primary home has more meaning than a purchase price. As far as one can afford housing for 30 yr, one cares less about being a knife catcher. In terms of best investment – if purchasing a home is not the one, there are many chances in life to make best investments elsewhere.

By the way, SD realtor did not encourage me to buy at this time. I respected his advice but still decided to become a knife catcher at the time when house market is already down for two years.

This is interesting to see market forces/dynamics in action with our own pigg community. Many hold-outs from the bubble are now purchasing, it seems like. I'm curious as to the trigger point for people.

Perhaps someone could do a "poll" on this as I think it may be interesting to see how many that have been on this site awhile decided to purchase at this time and why.

I believe they are comparable to typical 20% down loans, except you pay a 1.25% to 2.25% (depending on your credit score) insurance premium on the mortgage up front, which is due at closing. You can add that onto the loan. It's their version of PMI.

Sounds like a govt attempt to support a fundementally unsound market in the throws of a correction. And thus creating a short term rally on the way to the bottom. Am I a skeptic?

For the record, Cramer has a HORRIBLE forecasting record. About a year ago he was on the cover of Barron's magazine, which pointed out his bleak history of hardly ever getting anything right. He is entertaining to watch, but should be taken as a contrary indicator.
Also, at the height of the dot-com boom, he listed 10 stocks he recommended buying. Some time later, all but one was kaput or had plummeted in value.
Guys like Cramer and locally, George Chamberlin, need to be held to account for their record. Too often they escape scrutiny by a lap-dog press.

Home sales are up, but inventory is at an all time high. We are clearly far from the bottom. The only arguments for upwards prices are emotional and rhetorical. Fundamentally things are getting worse.

The BIGGEST driver of prices is supply and demand. Well the big news today is another record high supply. And as the knife catchers buy, the demand will weaken too. With tougher lending standardsmore people loosing jobs, and others spend more of their income on food and energy

They are helping drive prices lower in the long run. Most recent/active buyers I know will be or are stretched way to thin from their purchase. This means that after they close escrow, even less discretionary spending out in the economy. With companys big and small reporting weaker earnings, the reduction in consumer spending will only add to the unemployment.

Most knife catchers now are buying out of past regret/envy or FEAR of being priced out in the future. Both motivators are highly emotional and illogical. Usually the current buyer/k. catcher is not paying attention to the real fundamentals and economic indicators, which are poor and point to further price reductions.

I see way too much eagerness to buy on this site. And I would have thought it would have been more bearish. The sure sign of a bottom is improving fundementals with a high level of negative sentiment. Many people here are thinking that it's "so cheap compared to where it was."... Like that is how the market works. I heard the same thing about a year ago here. And this year the fundementals and outlook, are far worse!!!

So in my estimation, we're still far away from it.

[These are not stocks, and have an intrinsic and sentimental value beyond market price, and I'd guess the majority of those buying now are not doing so because they foresee a huge rise in prices as before, they simply want to own a house and can now finally afford it.

Just my 2 cents (a self admitted knife catcher... in escrow as we speak)] - biggoldbear

Three years ago I was at a Padres game sitting in left field occasionally gazing at the new condo conversions. I said to myself, “since we are renting anyway, maybe we should buy a microscopic, ex-apartment for an investment. We could stay until we’re ready to have kids then sell for a profit. We could do it.” My cousin’s friend’s cousin said, “No problem. I don’t care if you are both in school, have to eat Kraft mac-and-cheese two meals a day, have $50.00 in your checking account and currently live in student housing. I have your loan!” We didn’t do it, partially because of this site. Now we are buying a SFR in a nice area.

I am in the same boat with Biggoldbear.

This is more of a slowing down off the crazy 30-50% fall we have seen. Not absolute bottom.

"The BIGGEST driver of prices is supply and demand. Well the big news today is another record high supply."

Thats national not local news. I have the news on in the background and just heard a statement that sales are up over 40% year over year this month (admittedly it is mostly low end bargain hunters). Inventory in the MLS is down from last year. Not saying prices are going up but supply/demand certainly is not on your side right now. I have about a dozen buyers, all well qualified, with substantial down payments ( afew are all cash) looking for decent proeprties at or just below today's prices. It has been a HUGE challenge to find what they are looking for. When we do, there is competition.

The truth is there are lots of buyers (you may prefer knife catchers). Bottom or not depends on the performance of our economy. You know the Fed is trying everything to save the housing market. If inflation is no longer a threat, they will make interest rate stable and low for as long as possible and the bottom will be near. The current inflation is all driven by oil price. You know that oil price is not moving up recently and stronger dollar also suppresses rising oil price. If they have the trick to do all these, then the housing market should not be looking too glim. It is all psychological cycle. Just my personal opinion.

I have been renting for three years now, and I don't plan on catching any knives any time soon. When I feel the bottom is in, perhaps in late 2010, I think the bargains will be plentiful and very few will be wanting to buy. That's when I'll make my move. I don't care what the interest rates will be, as I'll be paying all cash. I have two other friends that also are sitting on the fence with all cash. I can't believe we are isolated examples. Unless we enter another Great Depression or some other geo-political disaster, I think the next cycle up will be a strong one with so many people waiting with lots of cash. But I don't think there will be any hurry to catch the knife, as when there is a true bottom, like I said, everyone will be thoroughly disgusted with real estate.