San Diego Housing Bubble News and Analysis

manu, you know most people on this blog think housing is going down more, and for a while. That said, many bloggers who already own homes plan to stay in them, either because they're not 100% sure about the price decline, or because they are just too comfortable where they are to make a move.

You don't sound comfortable, as a couple, where you are. So if I were in your shoes, I might move for family harmony, and possible financial gain. If prices rise in the future, well, you might have to set aside some of that extra income to pay for a bigger house, but it won't kill you.

I wouldn't trust Zillow. You'd be very lucky to get the Zillow price now.

By the way, you say you won't get back the $500,000 you spent on improvements. That doesn't look right to me, based on what you said:

Paid = $950,000 (purchase) + $500,000 (past improvements) + $15,000 (future improvements) = $1,465,000

Current Zillow value = $1,635,000.

Based on Zillow (a risky basis, as I said) you will not only get back every penny of your purchase and improvement money, you will get a tax-free gain of $170,000. If you got the Zillow price, that's like getting your full physican paychecks starting today instead of 2 years from now. Which just goes to show that, even when the real estate money machine is spluttering it beats, for most people, returns for lucrative work. Something not right there.

Good luck!

Patient renter in OC

I’d just like to try to summarize:

1) You bought close to the peak

2) You spent half the purchase price just to improve the property to Zillow estimates (which may now be inflated…)

3) You wonder if you should spend more to improve the property during a declining market, thinking that it should ‘affect positively the house value’.

Sounds like you want to break even, or better make some profit….

If you had purchased with the idea that your property was a long term investment, i.e, more than 4 years, why would you care if the ‘marking is crushing’?

As a buyer, I don’t care what influence your ‘money pit’ has had on your ‘relationship
because of the financial stressor.’ That is a consequence of your decision to overpay for the place to begin with.

Yes, I would appreciate it if you put 500,000 dollars more into your home, because I am the one who will be looking to buy your property when the market has regained some reasonability, and that figure will be much lower than what your vice is currently telling you.

If you want to put the finishing touches on your house thinking that will increase the value of the property, then you meet all the definitions of a flipper.

Sorry for the venom….I make a better than average wage, have no debt, have substantial savings and a great job and I’m still priced out of the market? WTF…

Manu,

To answer your question we need to know where you expect to be 5 and 10 years from now, proessionally, personally, and geographically. Also, why did you decide to buy such a huge house in the first place? (The answer to that question culd be illuminating). And wuld you pay near $1MM for a house that wasn't in move-in condition?

That said, if you think that you'll stay in the same area for the next 10 years, it may be best to stay put and work dilligently towards paying down your $600K mortgage. I know you said that all your money goes into the house. Is that really tru? For instance, how much are your car payments? If you bought a used Corolla and shared it among the two of you, and kept it for another 10 years, you could have some substantial savings. The same is true of eating out, giving to charity, travel, etc. You can find money to pay your debt.

If you work hard towards paying off your mortgage, and then you sell the house when the next boom peaks (not earlier than in the later part of the next decade IMO), you'll have a huge nest egg to retire on.

Forget Zillow. My old house, which I sold at the top of the market in 2005, now it's valued by Zillow at about 23% over what it could realistically sell for today.

D.M.

If you need to borrow $15K for finishing touches YOU CAN'T AFFORD THE HOUSE

Where is your six months of living expenses that you have tucked away in the bank for a rainy day? Why don't you tap that money? Because it doesn't exist?

Two people living in 4200 SQFT? $300K/year in income and you don't have $15K liquid? Give me a f'ing break!

Manu,

I am not sure I see a compelling reason for you to sell in this market. Much of the damage has been done and you will probably suffer a net cash loss if you sell. If you can continue to live there and not get too nervous about market gyrations, you will be OK. Just remember: a lot of people will be willing to do anything to be in your shoes and have your problems! Enjoy your life - there is more to living than crying over asset bubbles.

On a positive side, A good million $ home in a nice neighborhood in LA region is a good hedge against $ devaluation and inflation that is inevitable in the next 10 years. You will be a happier person by 2020.

Hello everybody ant thank you for answering.
Sorry I was not very clear with the informations I gave.
We did spent 950000 on the house and it was actually well priced back then.
We both the house thinking about staying long term and for that reason we did not care too much about having to remodel to make it the house of our dreams.
4 years down the road we haven`t had children yeat and we are both very busy with our jobs and barely at home.
The house is absolutely stunning right now and at one point I was told was woth more than 2 milllions.
As far as zillow goes, the estimate is valued on the house next door that sold for 1650000 2 years ago (2 years after we both ours) and is comparable in size and lot.
That said our lot is much better as is fully usable with views while the other is mostly on a slop.
We also have an extra garage and since moved in the family next door spent another 200000 to 300000 between inside and backyard.
What I am trying to say is that (I hope) the estimate on zillow doesn`t take in consideration that our house is fully remodeled right now compared to when it sold in 2003 and might be worth more than that.
The real problem is that we have about 1000000 or more equity in a house that is too big for us and is about to depreciate. Shall we just cash in and re-invest in a crushed market or stay put and enjoy the house after all the money and effort we put into it?

I know it is hard to believe but you have to realize that in the last 4 years all our cash has gone into the remodelling. The idea to buy such a big house was driven by the fact that when we both sounded like a very good deal and we decided to buy a house that we would never have to move from once we had children and so on. we have no other debt other than the loan and all the cash we were back saving went into buying mu new used car after my last one broke down. we are actually very conservative with money and in the last year I started to work (about 44000 a year) and my husband had a rise, so we are doing much better now and I expect we will be able to start saving money soon as we have no more extra expenses in the house unless we want to sell (changing the floor in 2 bedrooms and redo bathroom that we never use)

I know it is hard to believe but you have to realize that in the last 4 years all our cash has gone into the remodelling. The idea to buy such a big house was driven by the fact that when we both sounded like a very good deal and we decided to buy a house that we would never have to move from once we had children and so on. we have no other debt other than the loan and all the cash we were back saving went into buying mu new used car after my last one broke down. we are actually very conservative with money and in the last year I started to work (about 44000 a year) and my husband had a rise, so we are doing much better now and I expect we will be able to start saving money soon as we have no more extra expenses in the house unless we want to sell (changing the floor in 2 bedrooms and a bathroom that we never use)

Why don't you get the house properly appraised so you can make an educated decision?

Also, part of your question is philosophical - that is to say you realize now a big house with a big payment isn't necessary to live a happy life, in fact, it's causing unhappiness. Those are the bigger questions you need to decide. But you can only answer 'what's it worth' once you know the true value of your house in this current market.

Another reason lotto winners generally lose thier winnings within a 5 year average!

You make a combined $300K a year, and rising, and you still have an unhappy and messy financial situation!

Geez, do yourself a favor, and subscribe to some financial/money magazines, and get rid of that money pit as soon as you can. You make enough to recover from this, and you will save your marriage instead of waiting for another once in a lifetime booming housing market to recover! You may not see the prices your neighbor got two years ago in a decade...........

WHEN THE HELL WILL PEOPLE START TO REALIZE THAT ZILLOW IS ONLY GOOD FOR SEEING WHAT YOUR HOME OR PROSPECTIVE HOME LOOKED LIKE 4 YEARS AGO .....AND OR TO SEE WHAT MORONS IN YOUR NEIGHBORHOOD PAID FOR THEIR HOMES BETWEEN 2003 and 2006.

THEIR COMPS ARE COMPLETE RUBISH BUILT ON COMPARABLES BASED ON THE HIGHEST SALES WITHIN THE ZIP CODE. ITS LIKE BELIVING YOU STILL LOOK AS GOOD AS YOU DID WHEN YOU WERE 20! GET REAL.. ZILLOW IS MADE FOR A SELLER'S MARKET AND FOOLISH BUYERS. THAT'S ENTERTAINMENT!!!!

continue on....

It's the biggest no brainer in the history of mankind! Sell as fast as you can. It will be 10 percent lower per year for the next four years. That's not just pocket change on that expensive a property. Price it aggresively, sell it and take the money and rent. End of story.

This person is going to be a physician?

My wife's a PA, trust me there are a lot of stupid doctors out there. One young doc at the hospital where she works is looking for houses because his mom, a realtor, told him there's never been a better time to buy! WTF, she's willing to screw her kid to make a sale OR she is a blind as he is to the current market.

SELL the freaking house. It's not going to be worth any more than it is today for another 10 years. Get it appraised, price it 10% UNDER that and get it sold. If you try to get top dollar you will just chase the market down, all the while making BIG mortgage payments.

spend a little time/money/effort trying to sell it. if it doesn't sell then keep it.

Further evidence that literacy and wealth are not correlated.

My reply will surprise many on this forum who have seen 2+ years posts from me always advising, "SELL SELL SELL"

However, I think everything has really changed in the last three months. The real estate market fell off a cliff.

I advise you DO NOT SELL because now it is too late to sell. Six months ago (before the cliff) I would have advised you to sell.

Also, I've found (in advising friends in similar situation) this logical advice is a MOOT point anyway, because your emotions will always dominate the decision, specifically the shell shock you'll experience if you try to sell your home into a real estate market that is going to kick your pricing expectations to shreds.

I know several families who during last couple months ignored my "too late, don't sell" advice and then tried to sell into THIS market. They have been so emotionally / psychologically devastated by how low the market priced their house, they pulled their house off the market and ran for cover.

Let's say you really think your home is worth $950,000. Imagine buyers laughing in your face. Imagine the few offers you get are all at least three hundred grand below what you think your home is worth. Imagine deals fall through because no financing available. This market is pure hell for a seller. Very few sellers have the emotional fortitude to complete a sale into this market.

Of course, there are still a few areas in CA where this in not the case. The high end in the Bay Area still is going strong, for example.

It's a no brainer.

First of all, your original plan is to buy this big house and enjoy it for a long time, right? If so, start enjoy it, will you?

Since you can afford the payment, why not stop worrying about losing equity now? If you look at it long term, by the time you retire (say in 15 years), the market will be well recovered and you can sell and retire comfortably.

Why people love to buy high & sell low?????

You should buy low & sell high!!! If you don't see the opportunity present itself and you have the money power to stay the course, STAY THE COURSE.

Face the reality, you miss the peak and now it's too late to make the most out of your house, so forget and forgive yourself. Live your life and try to enjoy every minute of it.

Masayako

I really have to ask here.

What does a $500k improvements include?

The only reason why I ask is because back when my wife and I moved in to our place, there were a few things we "needed" to do, a lots of things we "wanted" to do.

After all said and done, all the wanted+needed ended up being close to $150-200k with a good contractors and materials.At that point, we looked at the home which was a 2600sqft, and the lot size which is about 4700sqft. And we said to ourselves "are we fvcking kidding???"$200k renovations on this tiny home on this tiny lot, we're not going to recoup half of our renovation if we were to resell it.

So in went: new carpets (for hygentic reasons), a dishwasher to replace a broken one, flagstone to replace cracked bricks, a new toilet (to replace a stinky one), some coats of paint inside that I put on myself , a few coats of paint outside that some guy put on for $3k, replacement of all worn faucet fixtures free of charge ( courtesy of Moen's lifetime warranty),1 mirror closet door in one room to satisfy my wife's occasional vanity, and a portable $300 bbq grille that I bought seperately to allow me to rotisere a turkey.

And out went things we wanted: new hardwood to replace the old hardwood, crown molding, new staircase, new granite countertops, new cabinets, new bathtub, new showers, custom entertainment center, sound proof glass retaining wall, epoxy garage floors, custom garage cabinets, planter boxes, built in barbeque and fountain.

My first question is. Do you really "need" to spend that last $15k now, or can you wait? Second, while I believe that there are definitely things that need to be done when you first move in, was the entire $500k spent on needs?

I'm only asking because unfortunately I don't think it would be reasonable to expect that you can even recoup even 1/2 of your remodeling costs if you were to resell. What you might perceive as something preferrable, someone else might hate it and want to take it out the first time they move in.

That said, I'm assuming this is your primary home. My personal rule of a primary home. NEVER THINK OF IT AS AN INVESTMENT. Unlike some people on this board, I plan to stay in my primary home if the house price increases or if the house price decrease. It doesn't make money for me, it's a money drain, no different than my car. It satisfy my material needs and it allows me to do whatever the hell I(and wife) want to my (our) liking , as long as i don't piss off a very loose HOA. Some people on this board can move in and out of a primary home and capture some gain on the appreciation. That's great. I can't do that. I'm more emotionally attached to my primary home like I would be to a sports car versus say a normal car. However, I can afford to slightly indulge in this lack of financial prudence.

The question you need to ask yourself is: what do you want to get out of your primary home?

1) Is it/will it satisfy you and your husband's emotions? All said and done, if you now have the home in a state that you and your husband like..just enjoy it from this point on, provided #2 and #3 isn't an issue.

When I bought my Audi 8 years ago, the damn thing broke down 3 miles once I got out of the dealership. It had to be flatbedded back to the dealer, and then 2 weeks later the same thing happened...And then 1 month later the damn thing happened again. I hated the car, and swore I would sell the damn thing at a loss just to get rid of it. But once fixed, and after all the things said and done, I love this car and won't get rid of it. Cars aren't the same as homes, so it's not a fair comparison..But you get my point. You've pretty much already done of the fixing/remodeling the two of you wanted anyway. It would be a shame that you neither of you wouldn't be able to enjoy it.

#2) Can the two of you afford the current $950+500k loan balances? Please tell me you got a 15 or 30 year fixed rate mortgage.Seems like the two of you make pretty good salaries. And you said you can make the payments. Provided you aren't bleeding anywhere else, you should be able to afford this .... Savings will be tight. You or your husband might need to penny-pinch a bit. Less eating out, less shopping, delay car purchases. Skimp of cell phone plans, skimp on just about everything. If you exercise financial prudence elsewhere, it should help a bit with this predicament. The question is whether you AND your husband are willing to exercise this financial prudence elsewhere.

#3) You and your husband need to agree that if bought of you decide to keep the house, neither of you will talk bitterly about it moving forward .....EVAR. It's not worth fighting over frankly. You have many more important things to fight over (inlaws, parenting,etc) :) The best time to talk about this would be right before and/or during...uh, never mind.

Lastly, I think there's an important lesson to be learned here by prospective first time home buyers. Every home has an economic threshold at which home improvements just don't make sense anymore. Because those upgrades just don't "fit" with the house's profile.

Good luck with this. And if Rustico is reading, yes I know I need to get a life. But I have an excuse today. I'm jetlagged.

And if Rustico is reading, yes I know I need to get a life. But I have an excuse today. I'm jetlagged.

In my book one doesn't tell someone who just went to China to get a life. Also, one must understand that excessive blogging can be a perfectly acceptable phase to pass through. I have enjoyed your stories...

What I really want to know is, if you were comparatively fat, did you walk more the 250 feet per day and did the kids seem smarter than your kids?
Rhetorical question posted.(inside joke).

Thanks for your concern about our well being related to fires. Some people had it really bad but no piggs have reported anything awful.It has been about the crash either accelerating because of the fires or stopped in its tracks for the same reason, depending on the poster.

Best wishes.

Thank you for your answer.
let me summarize again so that I can answer your questions.

we bought the house for 950000 in 2003 which was not peak as the house next door, total fixer upper, similar in size but with a lot not as nice,sold the summer of 2004 for 1200000.
The previouse owner of our house (first owner for 40 years)had done few improvements over the years so our house was basically sort of a fixer-upper as well.
all the improvements we made (more in the 400000 after rediscussing with my husband) were paid cash as the money was coming and with the leftover equity from a previouse house both in 1996 fro 250000$ and sold for 540000$ in 2003.
We added a master suite, reconfigured all the inside wall to create a better floorplan and family room, redo all the floorings and bathrooms (but one)repaint all the inside and outside,change all the windows and doors, redo all the electrical with new lighting inside, redo the patio outside and the pool, redo all the landscaping. The roof had been changed in 2002 before we bought it.
It is a brand new house other then 2 rooms that need to be repainted and new flooring, and one bathroom which we could either redo or try to make look nice.
They are building a new house in the same neighborhhod, slightly larger which is on sale for 2400000$
WE were set on keeping the house long term so we did not rush finishing those 2 rooms and bathroom as we never use them.
Since I started working we realized that we are really busy and the house is too big and requires a lot of work and money to keep in good shape so we were considering downsizing.
I am pretty sure that if we sell right now we would still be able to make a profit plus we would be able to pay cash for a much smaller house and put the rest of the money in the bank. We have about 1 million dollar in equity in the house more or less depending on what we can sell it for.
we don`t want to have all this money stuck in our house expecially if it is going to depriciate and we can make some profit out of it right now.
Forgot to mention: we live in a neighborhood with homes
ranging from 1000000 to 2600000$(ther is one for sale for 5400000 (good luck with that!) and we porbably have one of the best lots available (all usable, views, orchard, horse facility, cul the sac, sewer, no power lines)
We really like this house and would like to keep it. I just don`t want to miss the opportunity of being mortgage free in our 30s when apparently bad times are to come and my husband could face a pay cut in the future and I would be forced to work in order to pay the mortgage.
We are very conservative with the money. we just didn`t realize how much money it would take to fix up the house. We found ourselves in the situation of wanting to sell the house about 1 year ago but at that time we had a full house remodelling half done, with some rooms totally redone and other things less attractive, like a 40 years old pool and patio and so on, so we just tried to finish the project to get top dollars but in the meanwhile market as changed.
I drive a 20000 used car, my husband a 30000 car for which his company pays gas, insurance and even monthly 300 $ check reimbursament. We have no debt other than the mortgage.
As far as me being a physician I just want to let you guys know that when you just relocated from the other side of the world and you work 80 hours a week in a hospital, dealing with a new job, 1 hour commute both ways,a remodelling and personal problems with your husband you don`t really have time to keep an eye on stock market or real estate.

Thanks for your answers,

manu

so let met get this right!
you make 300k a year and growing..
You had 290K tax free gain from your 2003 sale
And you think you have 1 million in home equity..

And you live like you make 60K a year!

Wow, nice going.
You're more screwed up then I thought you were.
Hey, do yourself a favor, when you start making 500k a year, try living like people who make 60K a year and have a nice happy life; With very little worrys and stop to smell the roses once in a while, and stop trying to keep up with everyone you think is successful.

"We have no other debt than the mortgage"
Oh, so that must be ok then. Seems like for the last 7 years it was okay to have all your money tied up in real estate because real estate never goes down.......

this is unreal!

Manu,
I don't really know your portfolio but will go out in the limb and say, sell the place! Especially if you could make a profit.
If you have to fight traffic 2 hours every day (wait till its start raining then it will be 2 hours for one way), its should make your decision easier. You also contradicting yourself about affortability of your mortgage, you said you could afford it but cannot save any money because of it. That means its not affortable and you should downsize (4200sq.ft for two people its just too much, just to clean that place you'll need two cleaning maid).
Sell it as fast as you can, forget the additional fixing, priced it aggresivelly (it sounds like you could absorb some losses). Rent a condo closer to work, cut down the commuting and work to rebuild your relationship with your hubby. Just my 2 cents......

BB easy young man...don't get to mad. I know some people thats make 60K/year and live like they make 300K/year :)

You need to get your house appraised. Ask Bugs for a referral in LA.

Then, you need to talk to an RE professional in your area - one who has been in business 20 years, and seen the cycles come and go. Ask the professionals what to do. You will get answers.

Pretty much everyone on is this board has been on here for 2-3 years, and now that we are getting requests from people like you I have to say, we are just getting irritated. We all found this board because people like you were doing stupid things, and we couldn't believe what was happening in the RE world.

I wish you luck. The sooner you make some decisions either way, the sooner you can get on with your life. Talk to professionals. Treat it like you've just been medically diagnosed with cancer and the outlook is not good. What would you do? Get second opinions? Ask for the country's top specialists? Seek alternative, creative treatments? Change your diet and exercise habits?

to blackbox
I don` t know why you have to be so harsh. I am here to ask for some advice.
If I said that it was ok to keep all our money tied in real estate I would not be questioning it in the first place.
Second it was not meant to be like this.
Third things got out of control during a major marriage crisis.
Fourth there is nothing wrong in living ona 60000$ income
Now if you are done with your insults I`d like to get some input from people who like to give advices without being so judgemental

thank you for your answer.
When I say we are making no saving I referr to the fact that up until few months ago we were still finishing remodelling the pool so we had extra expenses. I know we have been able to save some since then, not sure how much because my husband likes to be drammatical when it comes to how much we spent for this hosue and how expensive it is to live in it. And you are right about the cleaning maids!

I am calling a real estate agent in the next few days. I will let you know how much she thinks the house can sell for.

I say just live in the house and enjoy it... Stop working so much, and have kids, and enjoy your life....

Hi everybody, just a quick update.
Summary:
house bought in 2003 for 950000 in best area in town.
400000 (not 500000) spent in upgrades, improvements, 200 sq/feet addition.
600000 conventional loan.
combined income about 300000/year. My income should go up, my husband`s most likely would go down because of the depression.
Have an OPTION for 350000$ HELOC no questions asked at 7.5 percent in case of emergency
House too big and very expensive to mantain.
Thinking about downsizing.

I was finally able to meet with a realtor today.
She is the top agent for high end listing in the area.
She came in expecting a 60`s ranch and was very impressed by the improvements and expecially the views.
She told us that since we are not forced to sell we are crazy to consider selling in this market.
As everybody knows there are a lot of low ballers out there and she first said she though we would get offers in the low 1 million.
Part of the problem is that most people won`t even come to see the house thinking is a 60s house and apparently on the mls the 200 sqfeet addition is not disclosed
Then things started to get complicated.

Apparently there are 3 preforeclosures in the area (high end) and one auction property that she said she has a buyer for. She thinks it would go for about 1.5 millions.
At that point she asked us if we would be happy selling for 1,6 and 1,7. She just sold this week a listing in the area, smaller than ours for 1699 (full price). She thought the house was the ugliest (very contemporary) and would never sell but there was a buyer out there just waiting for a contemporary house who paid full price no questions asked.
At that point I got very confused.
First she says we would get very low offers (1,2 range), that she tries to see how we react to a 1,6-1,7 offer (after she mentioned she has a buyer in the price - range), than she tells me she just listed a house much worse than ours for a relatively high price which sold in a week at full price.
One thing was clear: she was really trying to discourage us to sell (was she just testing our commitment or was she sincere?)
she raccomended that we call all the realtors in the area and make our house a pocket listing (not on mls but available at fixed price, showed on discretion of the real estate agents that came to see the house if they think they have possible buyers).

Then before she left she said she would feel comfortable listing the house for 1450000.
????
She was really nice but my husband and I are really confused.
I think part of the problem is that my husband kept saying that we are not forced to sell and we would not sell unless it is worth it, which is true.
The problem is that I can see the realtor being very discouraged upfront and not willing to put any money and effort into trying to marketing our property expecially when there are so many listings out there popping up every day which are relatively easy sell because there is not much negociation since the seller has to sell no matter what the price is.

Please help me out here.

Cash out (breaking even at least I hope) or enjoy this very expensive (but so far in our means) house.
I am just really scared when I read about how tough times are going to be.
My husband works on commissions so I am very nervous about what it is going to come.

Please, no insults.
Appreciate your time