San Diego Housing Bubble News and Analysis

the current owner is toast. if anyone takes it from him over 500, the new owner will also be toast. so on down the line until it floors around 200k.

i'm more interested in the previous owner who cashed out at a great time. where did they go? did they buy into CV and are now also being toasted? or...?

Another North Park loss

I was just about to start a new thread when radelow posted this one. Definitely a trend around here in North Park. Here is one I've been tracking for a while now. Its a house very close to my (rented) house- 3151 Palm Ave. 92104

Sales History-
06/11/2007: $695,000
10/03/2006: $755,000
08/24/2001: $441,000
(from zillow, looks like sdlookup doesn't have the latest data yet)

These guys tried to rent this place for a few months and didn't appear to have any luck. As soon as I saw the house back on the market, I knew trouble was brewing! Here is the rich (or poor) part - they listed the house for between 799-899K... hmmm very hopeful indeed. Looks like the rather strong market forces prevailed- if you factor in a 6% broker fee, thats over a $100K loss.. ouch!

$200K is too low

It's worth $216K to me as a rental unit - a 1400 SQFT, 2/2 with a 1 car garage is a pretty good rental unit

is that assuming current rental rates?

drunkle -

by "CV" did you mean Carmel Valley?

Please people, don't assume that Carmel Valley is real estate mecca to everyone!!! I personally would remain in North Park before I'd move to the cookie cutter subdivisions in CV.

whatever. i'm just curious what they did and where they went as a snapshot of behaviour; did they profit only to sink it all back into RE? did they rent? did they retire to palm springs?

drunkle - I was mostly kidding - I'm expecting to find far better properties than this when it is time to buy again

at $1500/month rent the $216K is about 12 times yearly rents - without a healthy down payment the property would have negative cashflow using traditional financing

given the condition of the current market and the location of this property, I wouldn't offer more than 8 times rents which would be $144K

this would be my offer: $144K cash, 15 day escrow, no contingencies

You guys are losing a fundamental here....You can't price it below replacement cost. There is a fundamental bottom point in pricing and that's the cost of the land plus the cost of the structures that sit on it. The land is worth more than $144k...significantly more.

I don't think there's a bottom to the market, radelow, over limited periods.

Over longer periods, existing homes have to compete with the option of buying land and building on it. So home prices converge to the price of land plus the cost of building. But the bottom to land prices is just about... zero. It doesn't happen often, but 1996 was pretty close, at least by today's standards.

Patient renter in OC

really? It's R1 and only 6500 sf. The value of the land is the value of the resale price for the home that can be built on it. As stuff slows, custom build will drop back below $200/sf. Builder new buildout will be in the sub-$100 range, like Phoenix and Texas.

So, you put a new 2500 sf house on this lot sucking up most of the land for the house and garage, what's the resale going to be? $450K? That puts a pretty nasty cap on the value of the lot. Is there anything that makes this lot better than any other lot in San Diego?

Land isn't worth much of anything to anyone until someone is ready to build. That's why not much gets built during downturns - no profit.

The site value at peak was probably in excess of $300k, maybe more. Not counting fees and permits, the costs to build are about $100/SqFt, and that includes a small profit margin for the builder. Those fees do add up though, which is why in California we probably won't be getting down to $100/SqFt construction costs.

There's no reason that site can't devalue back to $50,000 or even less. As far as the value of an existing home never dropping below the cost of land and improvements, I direct your attention to Exhibit A; all the towns across the US where you can still buy an average condition home for less than $50,000. It's all relative to local wages and employment, and if this place ever gets that bad for wages and employment the prices will reflect that reality.

"It hasn't happened yet" is not the same thing as "It can't happen."

4plex:

ah, i wasn't sure. i'm glad i didnt condescend and lecture you on how shitty north park is!

i figured 200k based on "inflation" would be a reasonable mark to aim for. under that is just gravy... relatively speaking... maybe providence is a better word...

and as far as building in np goes... that area of np is mostly sfr. nicer than the areas cramped with apartments and auto shops. just one block over is exactly a little shop. come to think of it, the house in question is probably butted up behind the shop. go ahead and build your custom home, drop your 400k. in the end, you still live next door to an auto shop. and that doesnt even address the damn hippies/college kids, tweakers and sex offenders.

edit: nope, a block over and down. here's to hoping for 100% raises for everyone.

My point was to assume that this house would drop in value to $144k is plain ridiculous. I am as bearish as the next guy but a $144k home with $14k down has a $780 payment. That is way way way out of line with rents. A house like this would rent for around $2500. That equates to a home value around $425k (based on a $2500 mortgage payment & the same $14k down) that is a much more reasonable number to expect.

Sorry guys things are definately going to devalue but not to the extent where everyone can afford a house. This is still San Diego and if homes get to pricing like $144k for this, I'll be buying them by the boatload.

anyone find the details on this one?

http://sandiego.craigslist.org/rfs/36792...

and how it compares to the op?

A house like this would rent for around $2500.

Really? It's only 1200sf, that works out to over $2/sf. I pay $1.25/sf in a better neighborhood closer to downtown, just under $2500/mo. Nicer, bigger place too. Maybe I'm just lucky...

I rent a 2000sf house in Bay Park for $2300 and feel like I got a great deal. I don't see many homes in GOOD CONDITION on Craigslist renting for less than $2500 regardless of size in a central location like North Park.

Yeah, but how are those rents going to hold up when there are 6000 empty brand new condos in downtown?

I remember buying my place last down cycle, I moved from renting a unit to owning a unit. Rent was $1450, owning with 10% down was $1150.

I hadn't checked rents in that area lately so I had a peek - from the July 1st, 2007 Union Tribune rental section

Normal Hts
> 3/1 house $1800
> 2/2 townhouse $1450

North Park
> 2/2 house + studio, W/D hkup, fplc $1700
> 3/1 house $1700
> 3/1 Craftsman house, W/D, landscaped, gardener $1700

Talmadge
> 3/2 house $1675

University Hts
> 3/2, 1200 SQFT, gar, cat ok $1550

~

As a conservative investor, I stick by my original back-of-the-envelope number - the property will rent for $1500/month - maybe we could get $1700/month but our turnover might be high at $1700 - better to base a 'buy or don't buy' decision on conservative numbers and have a pleasant surprise than to use pie-in-the-sky numbers and lose our asses

Sorry guys things are definately going to devalue but not to the extent where everyone can afford a house. This is still San Diego and if homes get to pricing like $144k for this, I'll be buying them by the boatload.

Well, things are different this time. There is a glut of inventory from overbuilding and RE/retail dominate the employment numbers. A housing crash plus recession is going to dry up whatever pool of potential renters are left.

Assuming the market really starts tanking hard I can see rentals becoming a hotter commodity, as more folks would consider moving to SD, renting for a year then buying at the bottom.

Regardless of gentrification, neighborhood improvement, and potential upgrades, how in the world did the buyer think in November of '05 that paying more than 4x the 1999 price was a good idea? Assets never increase in value that quickly.

My mind is officially boggled.

those rent numbers seem wrong. university heights is far better than np; less apts, nicer people, neat local shops.

i rent a 2/1 garage/driveway for 965. been here for awhile, early 2000's. my neighbor has been there longer than i and still only pays some 700/mo. when my friend and i first moved into the house, rent was 800 and i thought that was high.

rents shot up in the past 5 years for retarded reasons. there's no gentrification here, it's still the ghetto. you want a "party"? crack whores and tweek houses abound. dont go walking at night if you're bone white or female.

i would venture that the majority of people in np have been here a long time. many permanent renters, some older folks. the new people, the people who think it's cute or centrally located may be paying such high rent, but they dont stay. they get disillusioned quick enough.

btw, golden hill is closer to dt, about as central as np and yet... would you buy there for 400k?

drunkle-
I agree that the majority of people in np have been here a long time. I have lived here for the past 17 years in various places (minus 2 1/2 years in Hillcrest),and I also have many friends in the neighborhood.

Most people either own homes or rent homes they have been in for awhile, and many don't even get advertised. Case in point....I live in a 2 bed/1 ba house with a 1 bed/1ba house on same property, next door, not behind my house. I have been here since Dec 99, and when the house next to me came up for rent, some friends of mine got it and have been here since early 2001. It is who ya know....the people that are paying the high rents are either divorcing, new to the neighborhood, or have been given the boot when their long term rental went up for sale.

Some other friends of mine were renters on Pershing Ave and bought the house for $225K over 10 years ago. The prior owner took a $50K loss at that time.

Approximatey 3 years ago, they did some condo conversions across the street from me. That was cool, because it moved out the family with 16 people in a 2 bed townhouse. However, the new owners got screwed, the place is constantly having plumbing and electrical issus, and a unit is always for sale (out of 5 units) and the price keeps going down.

EDIT: I think the house posted could rent for about $1900--$2500 is pushing it. $2500 will get you Pershing, or Granada street, something near Morley Field, with more square footage.