San Diego Housing Bubble News and Analysis

We all win - well, most of us on this board anyway. While prices are dropping our down payments are growing. It doesn't get much better than that!

For the last few years I have had a nesting feeling but continued to rent. I felt guilty not buying a home but now I can reflect back and know I did the right thing and I am not stuck in this slump. I have the option to leave SD if I want or stick around and watch home prices drop more before buying. It feels good to be in the drivers seat.

The last four years I have paid roughly 100K dollars in rent for a clean, decent house in a good neighborhood in a great school district.

Had I purchased this house for it's peak comparable price within the neighborhood, I would be underwater at least 100K dollars today. Beyond that, I would have paid roughly 100-150K in PITI for the pleasure of "ownership".

Four years of "free rent" wasn't all too shabby a move, now, was it?

It is nice to have the following:
No home value depreciation eating away at our net worth
Less monthly cost (rent vs mortgage)
Previous home equity now making money in other investments
win, win, win :)

BTW, I know someone who is about to buy for the first time in a fringe area in CA. They are streeeeeetching for the purchase, their financial situation is bad, they are only going to be there a couple of years before they will be forced to transfer and they know they will not be able to afford the difference between ownership costs and what they can get for rent for the property. They don't want to "throw their money away by renting anymore." Sigh.... It is hard to watch people you know giddily throw themselves off a cliff without a parachute while yelling, "It's going to be a soft landing!"

I passed along my opinion and it was thrown out with the garbage.

Hey PD,

I also have a friend who just pulled the trigger - in Clairemont. I gave him the gentle approach re: advice but he and his partner still chose to buy. There are a few people who just needed the nudge of a little price drop to convince themselves "now is the right time."

Worse, they just moved here from out of state, so they really have no clue about neighborhoods. I am still aghast. They could have easily rented while they "tested the waters" of neighborhoods and then saved themselves the indignity of future falling prices.

He was incommunicado for the past month while escrow closed...

I hate to be a party pooper, but renting has not worked in my favor, yet. I sold my home in Nov.'05 for $1,988,000 at what I believed to be the "peak" back then. I was so happy for the first few months, thinking how smart I was. I was wrong. I kept checking the market from time to time, and to my amazement, property values kept going up in my neighborhood. In fact, only in Feb. of this year did prices start a mild turnarond. My home is worth about $600K more now than when I sold it. I just don't understand it. My realtor say's "I told you so", and continues to boast strong sales in my neighborhood. So not only have I lost $600K in continued appreciation, but my rent for the past year and a half totals almost $50K (at $2700/mo.) So for me it wasn't such a good deal.

Cahsman are you a friggin idiot!? You were lucky enough to sell at right about the peak of the market, and cashed out 2Mil and you are complaining? This must be a joke right?.. Of course you didn't say how much you paid for your house, maybe you overpaid in the first place?

Cashman,

Wow, really interesting. I like your honesty. A lot of people's pride would prevent them from making your posting. Can you reveal what area of the county your house was in? What's your plan now?
(And no, I don't think you are an "idiot" or that you are joking. In 92009 and 92011 right now, for instance, for sale inventory is very low in areas in the Carlsbad and Encinitas school districts. Much has gone pending recently. If inventory does not start rising soon, I could easily envision a bit of a rally this spring/summer. Long term, who knows, but the sky is not falling now in these areas...)

Post any house in the country that went up from Nov. 2005 600k. PLEASE!

My guess would be Del Mar west of the 5 with an ocean view. Good luck finding a nice house with a real ocean view under $2m there these days. Its hard enough to find one at any price.

Also NY times. Kinda interesting to plug in values.

http://www.nytimes.com/2007/04/10/busine...

-virtual

Yes, it's true, here's the link:
http://www.zillow.com/HomeDetails.htm?zp...
You can also check the price data to see that I was the original owner, bought in 1994 for $1.4M. I thought I got a great deal at the time. The builder was asking $1.8M. As the market was soft, and it was sitting vacant for six months, the builder was very negotiable. Due to divorce, I put it on the market in 2001 for $1.2M and couldn't sell it. It was listed for over a year. I kept it until 11/2005, when I finally did sell it for just shy of $2M. I didn't think I was an "idiot" then, but after missing out on another $600K, I guess I was an idiot! And like I said previously, I've spent another $50K on rent!

Just because Zillow indicates a particular value does not mean that you could actually sell for that price. Zillow is using automation to come up with an estimate. Real buyers often feel differently about the value. The buyers for high end homes ($2M is atypical even for LA) are much fewer than for "regular" price ranges, and each home tends to be unique. As a result, these homes often sit on the market for a long time even during a boom waiting for a buyer who can afford the home and likes it. If you waited another six months and asked for the extra $600K, you might have still been sitting on the listing as prices turned down.

BTW, for those who didn't look at the info, this home is in LA, not anywhere in San Diego county.

I have to second a previous opinion about Zillow not necessarily reflecting what the house may actually fetch. Moreover, I can bet that cashman's former house is in a huge gated countryside community called "The Country", in Diamond Bar, in the eastern part of LA County. Having lived in more humble accomodations in Diamond Bar during the 90's (i.e. townhome), I know firsthand that homes in "The Country" are the most expensive that you'll find at the outer edge of LA County, moreover not really in the same class as the rest of the millions of properties in the Greater LA/San Diego area. They are in a class of their own, so once again not a canary in the coalmine for housing in general. Having said that, I'll bet drops in sales prices in this community as well, because I knew and still remember a realtor friend in 1991-1992 who told me firsthand the trouble she and her agency was having selling homes in "The Country" gated communtiy during '91 and '92.

We can beffudle ourselves as much as we want folks, but we can't deny history. Cashman, I'd be interested to know how home prices in "The Country" fared between 1990 and 1994. I think you'd be surprised. Perhaps you might want to track and see if your former property actually sells for $600k more than what you got, I doubt it. But it would be interesting nonetheless.

calidesigner

Profit is profit in my books, I would treat it like my stocks, when I take my profit and leave I don't look back and say "coulda should woulda" if I made my green I made the right decision, so did you

Cashman,

I looked up some data for that area, and based on what I'm seeing I wouldn't trust the Zillow estimate to be that accurate. A lot of homes in that size range have much larger sites than you have and are sited along that ridgeline to offer some views.

Zillow will work better for homes that are part of of large subdivisions that are built by the same developer. Tract homes. The less homogenous a neighborhood is the less accurate an automated valuation model like Zillow can be. Zillow basically can't account for site attributes (including noise, view, topography, etc), nor can it account for additional improvements to the site or the home. For instance, a home might have originally been built in 1980, but if it was completely remodeled and updated to resemble a 1990s home those would usually be the more appropriate comparables.

From what I'm seeing you may have sold a year early but I wouldn't assume the $600,000 figure is anywhere near accurate. The real number could be less than half that.

The other thing that everyone should remember is that Piggington's is San Diego-centric. San Diego's dynamic runs on a different clock than the L.A and O.C. markets. Those areas have only recently joined in with our trend.

Cashman -

What it's worth and what it will sell for are usually two wildly divergent figures. In today's market, people will pay less than the "valued" price because they anticipate the property losing value in the future. A couple of years ago, the situation was reversed, and people would overbid, confident that the prices would rise to meet what they paid and then some.

In 5 - 10 years, you will see selling a year early, a year late, or right at the peak of the market are all in the "sweet spot." It is too early now to kick yourself, my friend! There are a lot of people who are envious that you were able to sell at all - and on the high side, at that!

The $600K is indeed a phantom figure - like Marley's ghost, just an apparition to piss you off.

Cashman bought that house in 1994 (near the bottom of the last cycle). And in 2005 (near the top of the current cycle), it only appreciated 42% ?

Perhaps he sold it for less than the market price in 2005 ?
Or, he paid too much for in in 1994 ?
Or, perhaps b/c it is in the most expensive neighborhood of a "not-so-expensive" city (Diamond Bar) ?

Bugs, does this seem strange to you ?

gn,
This goes back to post I made a few months back. Homes do not appreciate in%'s the appreciate in $'s. Forexample, in my area everything went up about $100,000 in one 3 month period (Dec 2003 to Feb 2004). Lower priced homes had a higher appreciate rate but everyone pretty much got the same amount of appreciation dollars. Likewise, on an individaul basis I believe it is ridiculous for a potenital homebuyer to try and predict what percentage the market will go down. You are better served by determining what you want and trying to figure out what the nominal price will be. Admittedly this is not easy but worth the effort. Overall market decline figures are for economists not homebuyers and the only price that really matters is of the home you actually buy unless you are buying as a speculator/investor.

Gn, that's my point. I think I did sell too cheaply. I was timing the general market, where it probably peaked somewhere late in 2005. Where I made my mistake was not allowing for the specific conditions in my neighborhood, which lagged behind the general market, and we can now see peaked in early 2007. I find the Zillow price history graph classic in the sense that the sharpest rate of appreciation was just after I sold it. Of course! 2006 was a banner year. And to answer your question whether I paid too much for it in 1994, I don't think so. The builder had sold two other homes on that street in 1991 for $2.0 M and $1.8M. He was asking $1.8M for my house, but dropped it to $1.4M for a quick sale. True, I didn't buy it at the absolute bottom, as he sold another one in 1995 for $1.1M across the street from me, about the same size with an indoor pool. That was a bargain! But I feel I got a fair price at the time. But getting back on topic with this thread, I think I sold a year too soon, and dished out $50K in rent on top of it. The Zillow numbers are accurate, because other homes in the area have all increased in 2006. For what I sold my home for, you get 2000 square feet less now. I am very tuned into this market because I've been renting for a year and half now and was hoping to see lower prices by now so I could buy back in. Looks like I'm gong to have to wait much, much longer.

Cashman,

You paid $1.4M for your house in 1994. Someone else paid $1.1M for a comparable house in 1995. That's a 21% reduction in 1 year.

In a correction, price reduction decelerates near the "bottom". 1994 is near the "bottom" of the last correction. I don't think prices (in the LA area) went down 21% in 1 year during that time. I think you paid too much for that house in 1994.

Bear one thing in mind. The median price in southern CA bottomed out in 1996. But the "real bottom" was in 94/95. Here's why:

At the "bottom", prices were so low that one can buy a home as an investment (i.e. to rent) and have "possitive cash flow". As a result many "cash flow investors" jumped in the market and they bought entry level homes (b/c these homes are easier to rent).

Since the median price is the mid-point of the real estate transactions, the activities of the "cash flow investors" dragged the median price down. Even though, in 1996, demand for entry level homes was already up, sowing the seeds for appreciation in the move-up market (mid-range & luxury homes).

I remember this because, in 1996, I lived in SoCal. At that time, I was saving for a down payment. In 1996, I read in the newspapers that the job market was picking up & the number of RE transactions was going up. At that time, I didn't have enough money for a down payment, I remembered thinking to myself: "If prices pick up soon, I may miss this train ..."

Cashman,
I'd be skeptical about the zillow values too. Look at the comps. With the exception of one, the others are lower than your selling price. You would know better than we would about how comparable these other homes actually are. Without your former home actually selling, you don't know what the true value is. Also, what about all of the extra monthly cash flow you have? How have you been investing that? When the time comes, you will have a nice nest egg to put down on the next property at a much lower price.

I'm with ibjames; take your profit, and don't look back.

you made 400k in profit - not a bad sum
what are you complaining about ?

I agree that they have lost lot of money and need to avoid foreclosure.

http://www.thebesthomeoffer.com/

cashman, another thing if you sold for 2 mil, and had your money in a CD or a simple high interest bank account or money market, your interest paid for your rent. Around 5% on 2 mil is 100K in interest, even after taxes that would pay for your rent.

cashman's post is one year old. I don't think he is still complainig about not selling the precise month prices hit the peak.

Right on, I'm not complaining now. I will give you an update, a year since my posting. After I sold in Nov. '05, my house continued to appreciate about 20 percent, peaking in late '06 or even early '07. Yes, it drove me nuts! That was about $600K that I missed, not a small amount at all. But since the peak, it has pulled back about $300K, and still falling, of course. While I didn't time my neighborhood precisely, I can't complain because I took my equity, which was the whole 2 mil, since it was paid for, and parked it in banks safely earning about 5 percent. After all, who can accurately time the markets to the absolute peak?