San Diego Housing Bubble News and Analysis

Heresy! Here in the nicer areas of San Diego such as CV, this won't be a problem. Haven't you heard that every household in these locales has an income of $300K/yr! And those are of course the slackers, most make a lot more than that. Of course the majority of these people are employed in recession-proof industries like sales and middle management. They have also been smart enough not to get caught up in the stock market crash since they maintain all of their wealth in their home equity and automobiles.

Again, I say to thee, these so-called "job losses" will not affect the nice areas of SD.

And what is Obama's solution to get us out of this?

Bailouts for every small business in Amerika? Or putting all the out of work drivers, technicians, clerks and others to work building roads, bridges and other infrastructure? LOL

Welcome to Bailout Nation.

We drove Russia into bankruptcy and dissolution through outspending them in the Cold War.

China drove us into bankruptcy (and soon, dissolution) through us spending ourselves into oblivion buying their crap. We are going to bail ourselves out into third world status with a mountain of debt we can never pay.

This time really is different. Prices started falling before the jobs market showed any weakness. Now with unemployment mounting a bottom looks nowhere in sight.

You gloom and doomers! Don't you know that interest rates are at historic lows!!!

You gloom and doomers! Don't you know that interest rates are at historic lows!!!

Actually, 4plexowner, Coastal North County homebuyers don't care about interest rates since they mostly pay with cash. Haven't you heard? The fabulously wealthy are leaving their pied-a-terres in Monte Carlo and St. Moritz to buy 3/2/2 stucco homes in CV and Encinitas. And of course our local middle managers and salespeople have to do something with their $800K bonuses from 2008. You can only buy so many 5 series Beemers before it gets boring, you know...

SDT - Great title on this thread, and an interesting point.

Lots of folks on this site say the bottom hits when nobody realizes the bottom is here, and that makes sense.

I can totally see mainstream media focus on jobs directing attention away from housing. 2009 may very well be the year everyone forgets about housing, which may prep the housing market for a bottom.

Completely agree with premise of original post.

Housing will soon be dominated by layoffs creating foreclosures in addition to the continuing foreclosures due to mortgage resets. This means some housing areas previously showing resistance to price declines will now get weak as layoffs accelerate into at least 2010 hitting middle-class and upper-middle-class housing areas.

Plus, rents will surely face enormous downward pressure going forward, which will just crush the RE "bottom fishers" of 2008. Wait until those folks start to panic.

Borat: you look funny and your mama dresses you in silly clothes (especially that bathing suit!)

[I can't argue with your facts so I am reduced to name calling]

I've said it at least a dozen times on this site...when unemployment goes past 7%, CA RE starts to tank. It's on record for the last 3 recessions. This is gonna be a mega-tank year.

As a buyer I can only hope for the beating we have been hoping for. I was just looking at inventory in 92131, 92024, 92064 and 92007... It is depressing to see first off what is out there and second what sellers are thinking, especially in the 700k-1.3M range. There is buying activity though.

As an agent I am consistently surprised and befuddled at where people continue to gather income.

I absolutely agree that this will be the year that the two forces collide. The collision of the largest social jobs program and bailout of ALL businesses that this country will ever see verses what could be double digit unemployment. With all that I still do not even begin to think we will see the big chunk drops people are wanting to occur. Sticky on the way down will continue for the next few years is my opinion still. Hopefully some sporadic moves will be nice.

I also would encourage people to read the posting by Rich commenting on how the government will fight tooth and nail to prevent deflation.

Interesting times are ahead.

Borat,

Fundamental changes are coming soon to America. The government is going to bail out everyone in America (but except you or any of your funny relatives)

There are many ways government can do this. Think about it, worse come to worst, they can get several families join into one roof, become communal and all contribute to pay the mortgage. America will be saved this way financially and culturally and we will just be going back to our family's roots of 3 generations under 1 roof like in Kazakhstan (but no cousin kisses allowed). Cheers.

Borat: you still have much to learn about the fabulously wealthy - the 5 series BMW is what we buy our 15 year old kids for their first car - for ourselves we get the 8 series BMW (http://www.ukzero.co.uk/bmw07.jpg) or the Maybach (http://www.carstopsites.com/Cars/Maybach...)

Another downward push to housing prices is developing--the decline in rents. It makes potential buyers rethink the house payments vs. monthly rent decision. The old saw about a housing recovery coming when buying is cheaper than renting will push off the time of recovery.

Yes, EconProf, we have a perfect storm developing in real estate

- declining prices
- declining rents
- increasing aversion to financial risk taking
- increasing difficulty in obtaining mortgage loans
- rising inventory of for sale and for rent housing
- increasing unemployment
- pay option ARM loans resetting for next 2 years

eventually the final nail will be put into this coffin - that will be rising interest rates

at the bottom in 2012 or later, those of us who have maintained our ability to actually purchase real estate will have a field day

what's even cooler than that is that from the bottom, real estate investment will only get better - interest rates will decline and demand for housing will rise

you only need to make a few good investment decisions in your lifetime (while avoiding the bad decisions of course) - IMO waiting for the bottom in real estate is one of those good decisions

Also, don't forget that many of the financial geniuses (I unfortunately must include myself in this group) who have been waiting to purchase a home have had their down payments reduced because they had some portion of it in stocks. Even if they didn't have any of their down payment in stocks, they probably had a lot of their retirement portfolio in stocks and that value is now much less. When lenders look at these borrowers balance sheets, they will be hesitant to lend as much as they would have before because they have fewer assets now.

good point CONCHO

inre 401k's, IRA's and other retirement funds that people consider to be "their" assets - I wonder what happens when the govt takes them over to cover the lack of funds in the Social Security pot

will individuals still be able to count "their" retirement money as an asset?

this coming change could have dramatic effect on people's ability to purchase real estate

[yes, I know, you're saying to yourself that the govt will never take your 401K's, IRA's, etc - OK, whatever helps you sleep at night - I'll probably be wrong again - just like I was wrong about the GSEs being nationalized, silver at $5/oz being a good investment, gold at $400/oz being a good investment ...]

Agreed. The capital loss to borrowers' balance sheets has been enormous.

If this debt madness really does finally go away, then people who have to rely on borrowing against their retirement savings to buy a home will not be able to get a loan. Prices will match the paying ability of real buyers. The notion that it's OK to buy a home when you can only make it happen by reducing the money you dedicated to support you in your retirement is nuts!

Sorry to be so direct, CONCHO, but when I saw this I realized that even some fellow Piggs have more education ahead of them.

Sorry to be so direct, CONCHO, but when I saw this I realized that even some fellow Piggs have more education ahead of them.

I didn't mean that people were borrowing against their retirement savings, I was just referring to the fact that borrowers' balance sheets have been drastically reduced. When you apply for a home loan, you disclose all of your assets and debts, including your 401K/IRAs, etc... Your lender will use this value, along with your income and credit history, in determining how much to loan you. The buyer who a year ago had a $300K 401K now has a $175K 401K, so lenders will not be willing to lend him as much. He's not borrowing against those savings, but the lender is using that amount in determining how much he qualifies for. I totally agree that you shouldn't borrow (much anyway) against your retirement savings to purchase a home.

I misunderstood, CONCHO. Thanks for the correction. Why would a lender in a non-recourse state like California care much how many other assets you have? Even if they cared some, why would they give any weight to qualified retirement assets?

Let's face it, homeowners who are in difficulties are not going to cash in their 410k to pay the mortgage if the value of the home is much below the mortgage.

Whilst I accept that lenders may be taking these other factors into account to justify lending, it all strikes me as desperate attempts to avoid requiring big cash downpayments with careful appraisals, which are the only real protections against default losses.

I see it as silly that desktop underwriters would bother to look at 401k savings also. They can not attach it(make any liens or get judgements), it is for retirement, not for paying the mortgage. Yet they want to know !- by the way Rich I think the clock on the server is on Mountain time has that always been the case, I guess I'm not too observant.

Yeah, it is silly that they ask for all that stuff when in the worst case they could never get it. My guess is that in the good old days of responsible mortgage lending, one's retirement account balance showed how "serious" the borrower was. If someone who's trying to purchase a home doesn't have anything saved for retirement, they're probably not very responsible. Of course in the last few years anyone that could fog a mirror could get a loan, but I think we're heading back to the old standards before much longer.

Also there will be the feeling among borrowers that "my retirement is half what it used to be" which will make them (if they're responsible anyway) a bit reticent about stretching to purchase a home.

You set your own time zone on the "my account" page.

Rich

If dipping into retirement savings allows a young person to buy a house and start building equity and lessening the burden of future costs of shelter, while continuing to save at the same rate as before the extraction from retirement savings was made, why would that not be a boon in the long run?

For many young people, even reasonable shelter costs preclude much savings potential anyway. It could be looked at in a different way than you are patientrenter. Getting started when one has no or little retirement savings is a boon as compared to having enough retirement savings to actually buy a house, as you seem to be suggesting, before doing so by credit.

The rational purpose for buying a house seems to me two fold , first getting started towards reduction in future shelter costs and second forced savings. With rent/buy parity this is extra savings above what could be accomplished with renting alone. While rents could drop temporarily I would still gamble that rent inflation and other measures or inflation would continue to benefit the buyer. Dipping into retirement savings to bring these benefits to one's life, if necessary makes complete financial sense to me. This is especially true if basic housing makes saving difficult, as it does for most young people.

Also, I don't see how one buys a house without dipping into retirement funds, even by paying cash? To me its all just individual wealth , strategically apportioned according to individual parameters. A mortgage can be an important part of diversification or initially instead of diversification, for some, if that what it takes to get started.

This is a different answer of course as to whether or not banks should lend to non-savers. I favor that they do for the reasons above.

Where are the holes in this?

Russell
Formerly posting as rustico

Take this job - or shove it

It is a bit shocking how little many people saved to tide over rainy days. For many, it is a move from affluence to misery.

http://money.cnn.com/galleries/2009/pf/0...

When the tide goes out, you find out who's been swimming without a bathing suit. Tide's going out in a big way now.
Retirement accounts are still your money. You can take it out, you just have to pay a penalty to do this. Theoretically, the lender may think that you would take out the money to keep paying your debts in order to avoid foreclosure and trashing your credit.

Click the button on this web page after you read each story for extra dramatic effect.

http://www.sadtrombone.com/

A 10 month severence package, at 160K/year? Poor fella.

We have spent last two weeks looking at rentals to downsize into, cutting our rent by $1,000 per month.

We want something we can pay the rent on for three years even if BOTH my wife and I lose our jobs.

Plan for the worst. Bring on the pain. Conserve cash for the bargains that will come at the bottom. Make the pain your gain.