San Diego Housing Bubble News and Analysis

how about this guy?

http://www.bubbleinfo.com/

Jim the Realtor seems to be a straight shooter and this is the area he specializes in.

If you pull the "buy trigger" in the early fall of 2009, you will most likely regret it. The pain-train will not be fully passing through the areas where you are looking until late 2010-2011. My guess is that if you buy at the end of summer in 2009, you will probably overpay by around 25%. I used to live in the Leucadia/Encinitas area and have seen the pain-train pass through there before. Yes, when it hits one area, it eventually hits all areas.
But, then again.............................I could always be wrong and history doesn't teach us anything about housing bubbles, or does it?

I love it! Pain Train analogies, good show EX-SD.

Waitingpatiently, do as your name implies and just wait and see, with markets such as those you are going to have to. You may be suprised, it might come earlier, it might be worse than you expected, both happened to my market. Before you dismiss it because of the positive things going for your chosen markets understand that historically the premium for the premium areas as a percentage is fairly constant. If it cost twice as much to live in the premium areas and all areas doubled then retreated but the premium areas didn't retreat, then the same happened in again in the next bubble, eventually the premium areas would command ten times what the other areas do, and that is not reality, so do not lose hope, the train is a coming.

Do not set calendar goals, set price goals with fundamental verification. A while back I set price goals but with the kicker that I would combine it with declining nod's, not's and inventory. My price goals were reached way ahead of schedule but the kicker hasn't kicked, the nods, nots and inventory are still rising so I keep waiting. Start making charts and spreadsheets, pick data points and track them, they will help you keep your sanity and keep you from missing out. If your price goals were met by the end of the year but nod's, nots and inventory were double what they are today and were rising, would you buy? Don't just pull an "I want an oompa loompa and I want one now," make it a game and win it.

TG, that is excellent advice. I am waiting for that pain train as well here in the Encinitas/Leucadia area. Your suggestions give me nice busy work while waiting.

We are weary of renting but are wise enough not to rush it. I had to call the landlord the other day to ask permission to get a cat (since our sweet kitty had just died). I am getting way too old to have that kind of parental relationship any longer with anyone.

Sometimes I just want to say f*** it and move to Wisconsin.

I am getting way too old to have that kind of parental relationship any longer with anyone.

That's the exact reason I didn't sell the condo I live in. I don't want to start renting and have to ask permission for anything from anyone. I've got a dog, I make holes in the walls, I regularly change the paint or the tile or wiring or whatever. Sometimes I feel dumb for not selling this place at the peak (I've had it since 1998) but I think I'm going to hang onto it for a long, long time. At the price I got it, it will be positive-cash-flowing as a rental when I buy a house and move out.

Thanks for the support, four walling, I appreciate it.

To waitingpatiently - you don't need ALL the houses to get down to your price - Just ONE! To answer your specific question about what price that would be, I think in the higher-end areas if you can find a great-looking house in a good location today around 2003 pricing, you'll see it fly off the market.

Next summer? Not sure about prices then, but the fourth quarter of 2008 will be an opportunity to nab one from a desperate seller. All eyes will be on the election, school, holidays, etc., and sales should slow to a crawl (again, like in 2007). With less competition from other buyers in a market where only those sellers who really need to sell scurrying around, it will be an ideal time to bust one with a lowball offer.

I think it's worth it to keep looking straight through, because you never know when you might find the perfect house at the perfect price.

Feel free to contact me if you'd like to discuss it further:

jim [at] jimklinge [dot] com or (760) 434-5000

Jim the Realtor

P.S. If you are willing to compromise on quality or location, you can do better, probably closer to 2002 pricing. But are you willing to settle? Most people aren't. We'll sort through the features and benefits of each house and put the right value on them, and that way, you'll get the most, and pay the least.

TG, I would love to see a chart or some of the data that you are finding on Temecula NOTs and NODs, if you have some spare time. I don't have access to all that info.- Matt

I never recorded nod and not, I've checked it weekly on foreclosure.com for about two years. I just watch the overall trends, which have been upwards and worse than ever lately. I monitor it closely now as an insurance policy so I don't miss any turn in the market and I watch particular houses on streets that I like because I am terribly picky and only want to buy in a few neighborhoods, so I will know what is coming in those areas.

I do have about two years of monthly inventory numbers, broken down into 100k increments of listing price, but it's at work and I'm not. It isn't in excel, rather pencel (pencil) in a notebook. However it is only for 92592 and the problem is that the entire market has shifted out of my data collection so I gave up. It was broken down into 700k-1m, 600-700, 500-600, 400-500 and under 400. When I started there weren't very many under 400 and my data is inclusive of condos, 500-600 was the largest group. There is basically no market for anything over 400k anymore and it has been months since I wrote it down because of that. I'll compile the numbers and post it one day. Nowadays I check, sub 200, 200-300, and 300 to 350k but I stopped writing it down because there's nothing to compare it to and I'm not spending more than 350 or I wont be to pay my mortgage with one weeks pay which is part of my evil plan to one day rule the world. It was an education for me and allowed me to make comparisons, now I am full of myself and I just use the force.

ahh yes the force, well let me try to use it... I predict that TG has either thought hard about making an offer on the following property, or already has... am I even close..?

http://www.redfin.com/stingray/do/printa...
It is a nice home with a great price and a pool, and it's in your area, plus the 3 car garage...

The force is strong with you, young jedi. Yes, that is a tempting one and probably my leading candidate if I were to fall off the wagon now. I have one more season of will power (and a lease) so the Fall will be earliest temptation and more likely to get a lowball taken seriously (I would love to pick that one up for 250k, that would be below 1992 pricing if you took into account that it went new for 225k and the pool and landscaping is easily worth 25k. Ones like these are drawing a crowd right now but come September it should thin out. Can you imagine pulling a 1992 price, they'd have to add my face to Mt. Rushmore. However I will need to buy those "run flat" tires because I'll probably have t-shirts made for the kids that say "my dad bought his house for less than you paid new 16 years ago and all I got was this lousy t-shirt" and I'll order personalized license plates for my car that read "92price," the neighbors will have a schedule as to who's turn it is to slash my tires.

I talked myself out of it because I've had enough of pools, the utilities alone probably add $200 a month, care and maint, it's a $500 a month liability, community pools ar better for me, more to look at. The other huge drawback is the kitchen will need to be completely ripped out, cabinets and all. Those 1992 jobs came with whitewashed oak and the owner obviously slapped on some red paint and destroyed any chance of refinishing it. It also looks like linoleum/pretend tile and white tile counters....ick. A worthy project at 250k but for 300, it's within a few bucks of some that are already dialed in and I'm lazy. I've come this far, might as well go for the brass ring.

Thanks for the info guys. I will probably do what I did last time I felt the itch and sign on to another 6 month lease in November.

TG, what types of statistics are you tracking? I have kept a notebook with the MLS listings of all of the neighborhoods that we are considering. And for our Friday night fun we update prices and print out new listings. It's fun to see where prices have gone from January 2006 to now, but its just that, fun. Now that we are getting more serious about buying what should I start really looking at and where can I find the information?

This site and contributors are incredible...even the OT posts.

Jim, when we get serious about buying we will give you a call. I don't want to waste your time with us fence sitters (even though my feet are dangling on the buying side). And as far as settling for a cheaper area...we are pretty much sold on being in the Mission Estancia, OPE, El Camino Creek or La Costa Heights elem. boundaries. Of course I would love a newer house...I am looking more at the floorplan, location and lot size, everything else can be updated in time. We have two small children and would like to find a development with a pool, parks, and other amenities.

waitingpatiently,
You are looking in my backyard (actually your kids would love my backyard) and I own exactly what you are looking for. I would venture to guess that there is no one in this area (agents or otherwise) that knows that area better and has been more on target with predictions for this area over the last 5 years (both up and down). For the record, I have been on this site over 2 years. I pointed out a peak 950K for a decent newer 4/3 with 2500 to 3000 sq ft a couple years and called for a 30% fall bringing these homes down to about 675K at the bottom which I predicted would come between 2010 and 2012. So far everything has proceeded exactly as I expected. No one has stuck their neck out further than I with specific predictions for a specific area.

With luck you could get a decent newer 4/3 with at least 2500 sq ft and everything you are looking for between 775K and 800K today which you already know. Next Spring, I believe it will be possible to find that for 750K. Beyond that it will all get dicey as the last 50K to 75K bleeds out between late 2009 and 2012.

The real problem will be finding the home you want at those price levels and not just any house. Demand would be very high for homes like this if prices dip below 700K. Lowballing will get you a house but it might not get you the one you seek. IMO, Getting the one you really want will take the ability to recognize the right one and the willingness to strike when you find it.

All this of course is just my opinion. Take it for what its worth...............

sdrealtor-
Thanks for the post..I was hoping that you would chime in. I think that we became piggs around the same time!! I would love to sit and pick your brain about the area. We moved here from Shadowridge and love it (we live close to Mission Estancia in the cheapest rental I could find here) I have tried to talk to people around town to get a feel of different developments but most people say they are all great. I have heard comments that OPE is a snobbish school and that LC Valley are stepford wives. Although, that could be from people that are just bitter or it could be the truth. My husband and I are very joe regulars that don't feel the need to keep up with the Jones'. We are jeans/shorts, t-shirt/tank and flip-flop type of family that spends most weekend at the beach. But we also like the feel of the newer developments. I am afraid that we will buy in a neighborhood and I will have nothing in common with my neighbors.

We have been looking at the MLS for so long that I am not even sure that we know exactly what we want. We started just wanting a 3/2 sfr and then it went to 4/3sfr, now I would love a 5/4sfr (office, gym, craftroom/kids office) As prices have been dropping my taste has risen. I am starting to think that I won't mind overpaying by 10% if that means that I can get the house that I love. We are so young and are planning to live in the house until our children graduate from college and then move to our beachfront house (hopefully) that it seems silly to live in our hotel-like house for 75k. We don't have pictures up and we haven't unloaded most of our boxes because I don't want to do it again.

I don't feel the need to buy at the absolute bottom. We sold in 2006 and feel that if we bought today we are still loads of money ahead. So how does one decide what prices fundamentaly should be? Do you take 2003 prices and add 8% a year?

We went to a couple of open house this weekend in La Costa Valley for the first time and I was a little disappointed with the floor plans. I did not want to start looking at houses before for fear that it would make me want to buy. Do you know how we could get information about the different develpments and floor plans of each? We have of course absolute things that we need. My husband works from home or will when we move, so we need a room that is pretty secluded from the play areas in the house (a master retreat would work great or another room upstairs), I would like the kids rooms to be jack-n-jill or at least have their own bath in their rooms and the kitchen and family room need to be open. We basically want what everyone wants, which is going to be a problem.

Do you have a separate email that I could email you more personal questions that I don't want the world to know about?

Sorry for the rambling....

Judging by the state of the present economy and viewing all of the available information re. the number of homes that have already been foreclosed, plus the likely future foreclosures from ARM resets over the next several years, etc, we may be looking at 1998 prices before the bottom is found. And I don't meant 1998 plus any allowance for inflation. Inflation follows no rules or boundaries when it comes to bursting, housing bubbles. The measure will be the availability of loans, mortgage rates, number of qualified buyers in a given market, etc.
A good example of what could happen in San Diego is occurring right now is southern Florida (and other parts of FL, as well).
http://piggington.com/florida_luxury_hom...

It's your money................................. but if you fall for the hype that the housing market may be close to the bottom in 2009 and that you will only overpay by around 10%, you are seriously deluding yourselves and you'll be paying all of that overpriced housing money back to the bank plus interest for a long time.

WP,
We share the same hopes and dreams in life. We live the same lifestyle also. The open houses in LCV this weekend werent the best floorplans. I have original floorplans for every builder in my office. What you describe exists in a few neighborhoods there.

As for the schools, sure OPE has some snobbish folks but there are plenty of down to earth families there also. They used to have a real superiority cvomplex at that school because of test scores which were high because there is no multi-family housing in olivenhain which would tend to lower the average scores. With the building of LCV and LCO, Mission Estancia and ECC got the same favorable demographics and have been beating them since. With that said, OPE is a great school and some of my best friends have children there.

LCV has its share of stepford wives and some uppity folks but for the most part is pretty down to earth. Keep in mind that when built in 1999, many of these homes sold at or below $400,000. The community is still full of teachers, firefighters, forest rangers, small business owners, professional salesguys, engineers and regular old techies. The uppity folks tend to live in the higher end neighborhoods and/or are not original owners. There are still tons of orignal owners there with plans to stay until their rugrats graduate high school/college.

If you want, you can email me personal questions at dlarcot [at] gmail [dot] com. Its a separate email I set up a while back for anonymous conversations. I dont check it often, so let me know you sent something here and I will be sure to respond.

It comments like Ex-SD's about prices reaching 1998 levels that make me tear my hair out. Where will this occur? In every area of SD county? So the house that I'm renting for $4000/month in Encinitas will only cost $400,000 in a few years even though the rent will run up to $5,000/month? Wow, do you think someone might want to buy that as an investment seeing as how it would cash flow like the greatest dividend paying stock in the history of the world? Or are you saying rents are going to go down as well? Are you calling for housing deflation while everything else in the universe is inflating like crazy? Here are the facts:

- Rents for single family homes are increasing not decreasing because there are more renters and that is bringing the rent/buy spread tighter and tighter. The spread increased rapidly (making renting much cheaper) from 2003 - 2005 as interest rates plummeted and loan origination standards weakened thus inflating housing. (who wouldn't want to buy when you didn't need any money down or even decent credit?) As more renters clamor for fewer available homes the rental rates are inflating.

- Foreclosures are not equally spread throughout the county. They are clustered in areas that are shall we say subprime in terms of both their location and their constituency. The vast majority of "bubble buyers" without stayng power who qualified when they shouldn't have been able to and the speculators will be washed out of the market through foreclosure or forced sale within 12 months. That's not to say there won't be more foreclosures but it is to say they will return to more historical norms.

- Both the run up in prices and the quick retreat are unprecedented in terms of how quick they both occurred. Those predicting this downward cycle lasting for another 5 years or whatever are wrong in my opinion. I believe many areas will hit bottom this winter and you'll see a more normal market developing where you'll see +/- 2-3% per year in 2010 and beyond.

My lease is up later this year and I'm beginning to look for a home I can live in for the next 15 years. My advice is to not compromise on location or floorplan particularly location because you can change a floorplan over time. I highly doubt I'll find a foreclosure, but I'd break my lease today if an unusual deal came up. I have a 30-40% downpayment on a $1.0mm - $1.3mm range house and I'm waiting for the right location to come up. I'd also suggest to Waiting Patiently to walk the neighborhoods you are considering. See what they are like on the 4th of July, Halloween, Xmas, or just a regular school day. You get a feel for how old the owners are, how old their kids are, etc. I found the dream house on the street I wanted last year, but didn't pull the trigger because I had been reading sites like this. Did I save myself $100k or so? No, because an inferior home on that same street just sold for $50k over the better house. I kick myself for that daily. A home is more than a financial decision like an emotionless stock. It's where you are going to raise a family and hopefully create lasting memories. Find a house you love and can afford to stay in for the next 20 years. Period. You'll look back and wonder why you ever hesitated.

we may be looking at 1998 prices before the bottom is found. And I don't meant 1998 plus any allowance for inflation.

I don't know if you realize this, but 1998 prices were at about the same level as 1990 prices (ignoring inflation).
So, what you are suggesting is that prices will revert to ~1990 levels without accounting for inflation.

As a point of reference, median rent in San Diego county was $564 in 1990 (Census Bureau), Median household income was about $35K, A gallon of gas was about $1.20. (Geez, I am starting to sound like my Dad). And we had to walk to school uphill both ways in the snow.

OK, maybe not that last thing, but I think I've made my point.

Yeah................And.................
*The Great Depression never happened
*An engineer will be standing at the finish line with a slide rule and will carefully measure the slide of prices against inflation. He will raise a checkered flag and tell everyone when the bottom is reached by using a formula.

My point was that prices will fall to where they're going to fall and they're not going to adhere to a scientific formula. The economy, inventory of homes for sale, affordability, availabiliy of mortgage money, public trust in the housing market, etc. will determine the level that prices will fall to. They may be 2003 prices or they may be 1995 prices.................nobody knows because this bubble is different in so many ways from past bubbles.

Have you taken a hard look at the Temecula area lately? You realize that is only a short ride up Hwy 15 from San Diego, don't you? Think that won't or can't happen just down the road?

We have never seen a mess like this since the Great Depression. The job losses are just starting and there's a gazillion foreclosed homes on the market (plus a lot more coming over the next few years). You can poke fun of the uber-bears who think that this is going to be a real tsunami but let's just all agree to come back here in four years, take a look at the housing market in SoCal and see "who's the doofus."

Ok Ex_SD
Come back in 4 years. Don't let the door hit you in the....

"- Rents for single family homes are increasing not decreasing because there are more renters and that is bringing the rent/buy spread tighter and tighter. The spread increased rapidly (making renting much cheaper) from 2003 - 2005 as interest rates plummeted and loan origination standards weakened thus inflating housing. (who wouldn't want to buy when you didn't need any money down or even decent credit?) As more renters clamor for fewer available homes the rental rates are inflating."

This is simply false. I can tell you emphatically that rents are going down right now. My lease has been up for like 10 months and I have been on month to month. The entire time I have been checking rentals on a weekly basis, over the last 3-4 months, rental properties started sitting for long periods then dropping when they could not rent them. I'd even say just by casual observation there has been a 10% decline in rental prices for my area (92103). Probably the cause is the economy, people are doubling up, kids are moving home etc....

"- Foreclosures are not equally spread throughout the county. They are clustered in areas that are shall we say subprime in terms of both their location and their constituency. The vast majority of "bubble buyers" without stayng power who qualified when they shouldn't have been able to and the speculators will be washed out of the market through foreclosure or forced sale within 12 months. That's not to say there won't be more foreclosures but it is to say they will return to more historical norms."

This is irrelevant, it will only affect the time frame in which an area will see decreases. It's all connected. Also, foreclosures are off the charts and the downturn is only going to make it worse. What are you thinking?

"Both the run up in prices and the quick retreat are unprecedented in terms of how quick they both occurred. Those predicting this downward cycle lasting for another 5 years or whatever are wrong in my opinion. I believe many areas will hit bottom this winter and you'll see a more normal market developing where you'll see +/- 2-3% per year in 2010 and beyond."

This should be labeled under: Things I hope are true. Because that's all it is, wishful thinking. If you have not noticed we are going into a recession and it won't be over in the winter, not by a long shot. Last time I checked recessions affect housing markets negatively.

Go ahead and buy but do it with eyes wide open. Do not concoct downright stupid arguments around what you want to be true. When you looking at your next prospective house make sure you do some calculations. Take 10% of the purchase price plus the difference in what it is to rent the same home for say three years, add that up and say I am giving this amount of money up to paint my walls purple if I want to. After you do that calculation see how you feel...

Good luck

^^^^^^^^^^^^^^^^^
What arraya said.

My point was that prices will fall to where they're going to fall and they're not going to adhere to a scientific formula. The economy, inventory of homes for sale, affordability, availabiliy of mortgage money, public trust in the housing market, etc. will determine the level that prices will fall to. They may be 2003 prices or they may be 1995 prices.................nobody knows because this bubble is different in so many ways from past bubbles.

I am not the one that put out there that prices may fall to 1998 levels, even without accounting for inflation, not me.

My point was to point out in stark terms exactly what your statement means. 1998 prices = 1991 prices. Even at historically low levels of inflation, over that period of time inflation matters and is significant. Back then a gallon of milk was about $1.25. It's basically the same gallon of milk, so why is milk $3.50 a gallon (or more) today. Milk is not more desireable today than it was 10 or 15 years ago. I know that everybody wants to buy some, but still, it's the same milk.

Inflation happens.

*An engineer will be standing at the finish line with a slide rule and will carefully measure the slide of prices against inflation. He will raise a checkered flag and tell everyone when the bottom is reached by using a formula.

I agree with your (sarcastic, but well-put) point here.
We can't really precisely identify a future price. There are too many variables, as well as time lags in data, and the wild card of buyer psychology.

However, that is no excuse for being sloppy. Thanks to Rich, this site has always attracted a fair number of analytical types. After all the motto at the bottom of the page is "In God We Trust. All Others Bring Data." Although, my bet is that if God did log in with some comments, some people (including me) would probably call bull$h!t on it and ask him to back it up with some facts.
But I digress ...

I'm not saying prices won't revert to 1998 levels. My point is that if someone is going to throw out a number, a date or a price level, they should know what that implies.

arraya,
i'd like to rent a 3 bedroom place (hopefully home) in 92103, or possibly 92106. where do you do your weekly rent checking? I am only using craiglist (i am not in san diego, but tranfer there in mid-late july)
thanks
jim

Nobody knows what effect the increased availability of the information will have on emerging trends. As time goes on the blogs like Piggington's contribute tremendously to the ability of Joe Average to access and analyze the data for themselves.

How many people, prior to coming to this site, had the "feeling" that things weren't right but no way to back that intuition up with data and analysis? Those people who choose to avail themselves of this information need never feel like they're taking an uninformed risk ever again. They wont need to rely solely on their friends or their brokers for advice with respect to macro market conditions.

I think this is one of the factors contributing to why these prices are falling as fast as they are on the bottom end. When the second wave of ARM resets comes on next year I think it will contribute to the collapse of the upper end too.

However, this increased availability could prevent the pricing structure from significantly overcorrecting, too. If that happens then it might signify a trend for cycles with much smaller high-low extremes going forward.

It's possible that the timing for your future purchases could depend more on prevailing mortgage interest rates than on sales prices because pricing will become more dependent on the financing than on NAR commercials on TV.

Another unknown is the impact of our changing demographics and exactly how many boomers will be in a financial position to retire in place. What will the employment options be for the younger workers going forward and how will those options affect their capacity to service their mortgages?

There are so many unknowns. On the surface I can see no reason to believe that the answers to any of these unknowns will turn out to favor having an itchy trigger finger on a purchase transaction. But there's no way to really know the future before it gets here.

Email Adam Rappoport (SD Realtor) at adam [at] 1800grrealty [dot] com. After reading piggington for 3-4 years, I found Adam's posts to be level-headed (not emotionally driven), and (much like Rich) based on empirical data. Some of the traits that impressed me were his ability to understand the local housing market by analyzing empirical data, his objectiveness on the current market, and most importantly, his honesty. I don’t think I can capture completely in words my unequivocal confidence in Adam. Indeed, I am using Adam now for my own housing search, and I've referred my little brother to him as well. Before I decided to work with Adam, I did a search of all the posts from the realtors who regularly visit this website and found that Adam was probably the least optimistic, which earned some credibility with me. Whenever someone has asked for a referral on piggington, I believe he has a policy of avoiding some self-promotion, which explains the lack of response from Adam. No offense any of the other realtors on this website.

Submitted by sdrealtor on April 22, 2008 - 10:27am.

Ok Ex_SD
Come back in 4 years. Don't let the door hit you in the....

sdrealtor: Why is it that you're just a first class asshole? Just because you're a real estate agent doesn't mean that you have to be a jerk too.

(PC, I agree with you concerning Adam, SD Realtor. He's a class act)

"Back then a gallon of milk was about $1.25. It's basically the same gallon of milk, so why is milk $3.50 a gallon (or more) today. Milk is not more desireable today than it was 10 or 15 years ago. I know that everybody wants to buy some, but still, it's the same milk.

Inflation happens."

Yeah, the problem is that is not "Inflation" as it is properly defined. Inflation is an increase in the base money supply through either printing or availability of credit. We have had the latter for past several years.

If you continue to conflate the effects of inflation with the root cause you are going to make some very bad decisions in the next several years.

Don't sweat it Ex-SD. You see, the problem is that that this site is a direct threat to the lifestyle that many SoCal realtors have cultivated for themselves over the past 5 to 10 years based on inflation of housing prices and loose lending standards. That is coming to a rapid end and they know it and they are scared. What you are seeing is lashing out at those who are telling the truth about what is going on they don't like it one bit.

Too Freakin Bad.....

If you continue to conflate the effects of inflation with the root cause you are going to make some very bad decisions in the next several years.

I did not conflate the effect and cause of inflation. I simply pointed out one of the effects.