San Diego Housing Bubble News and Analysis

I did read the whole article and found it balanced and informative. The Phoenix housing market is showing numerous signs of a bottoming out process, and I'd be an investor or owner-occupier there way before most anywhere in CA.
What Phoenix, and most of AZ has going for it that CA does not is demography. It still is the destination for retiring baby-boomers from the cold Midwest and East Coast, who now have the added incentive of a cheap Phoenix house or condo to buy. While CA drives taxpayers and businesses to neighboring states, AZ's more sane government and lower cost of everything will attract them. California's demographics are now changing rapidly and attracting tax users and pushing out taxpaying middle and upper income types.
CA will always have its weather and enclaves of the rich. But for economic and demographic reasons, its long-term prospects are bleak compared to other areas of the country.

OK One last Post,

Ever been to Phoenix when it gets to 113 degrees
then drops down to an overnight low of 100,
It's like this a good part of the summer.

Prices have come down in Phoenix, but bidding wars are insanity, and very irritating for first time buyers trying to get a good deal. I'm not sure I agree that Phoenix is a template for what will happen in the rest of the country. As for living or retiring there, it's pretty hot and a bit boring, but definitely better value than California.

Here's Guntermans' website http://knowledge.wpcarey.asu.edu/article...

As far as bidding wars (for buyers) and getting a price well below what you wanted (for sellers), it seems like people forget that the value of a home is what it sells for, not what the flyer out front says. It works both ways.

As far as investors, in the words of Kirk, I laugh at their superior intellect.

Real estate investing only makes good sense in an appreciating market, IMO. Otherwise the rent you get is not going to cover the cost of capital, the maintenance, and taxes. It's sure not going to cover the hassle of dealing with renters.

It is with a heart full of shadenfruede that I smile at all the investor activity in the Inland Empire. They seem to think that the pendulum is going to swing back to the crazy days of free money. They are right in thinking that the average American will spend every last dime they can on a house. They are wrong in thinking that banks will ever again let them.

We're back to 29/39 and 20% down (for no PMI or MMI). We've got significantly more inventory than the last time those rules were in place, about the time Clinton was in office. Not only that, but the boomers are aging and downsizing their housing options. As the greatest part of the population goes from McMansions to assisted living (exaggeration, but you get the drift), demand is going to plummet.

My financial planner told me he has a client that took 7 million dollars and the two of them went around the Southland snapping up $200K houses. Same guy, this December, said our Zip (well, it was mine then) was going to drop only another 10% at the most. I moved out in January and it saw that 10% within two months of my departure. Quite frankly, I can't imagine we are at the bottom.

The optimism of investors like my financial planner's client is going to meet the cold, hard reality of people who can't qualify for loans.

And I am going to be on the sidelines in my apartment, laughing.

Back to the original LA Times article:
This site has long postulated that several conditions must exist before a bottom can be called. Some of them are now appearing in Phoenix: rents higher than mortgage payments, investors outbidding owner-occupiers, bidding wars. I'm adding to those positives the long-term demographic fundamentals of Phoenix and its more favorable business climate and suggesting it is at or near the bottom.

This hasn't been true in the past, and I don't see any reason why it is true now.

When bubbles burst, they overshoot to the downside - there's a window during this period when it is generally possible to find a property - especially at the low end - which will cash flow immediately as a rental.

Interestingly, in the '96-'98 timeframe we saw lots of real estate investor activity (the buy-and-hold re investors, not the flippers of the bubble peak). This activity started well before it was apparent the bottom was in and appreciation had started up again.

This is good, right? It suggests a couple of things:

(1) If most properties are facing the same issues (which is what we're hearing), there's a boatload of money out there willing to buy stuff up at the lower end. And the folks that get outbid are just moving on to other properties.
(2) Foreclosures are selling faster than they're being created, which is why inventory is shrinking.

Don't get me wrong - as I've said many times - I think we've still got downside ahead of us. But clearly the buying activity we're seeing at the lower end is better for the economy in general terms than if we weren't seeing it, right?

Also, almost all of these newly-purchased REO properties will need work done: painting, new carpet, etc. And there will be lots of new furniture purchases as well. And mortgage brokers and real estate agents will get paid here (albeit a fraction of what they were making during the heyday). Again, we're not headed back to 2005, but all of this foreclosure sale activity will put a little boost into the economy that wouldn't have been there otherwise.

As much as I disagree with investors' maths in claiming that this is the best time to buy, I do believe that risk-taking is what is needed to improve our standard of living over the long run. It is very easy to sit back and laugh at others, but these risk-taking investors are helping to put properties in better shape as a shelter for people who couldn't afford to buy. They are doing the society a favor unlike bankers who sucked away trillions of tax payer dollars yet ran away with huge bonus checks.

From an investment aspect, this is extremely risky. RE is a highly leveraged and illiquid investment. It changes trends very slowly and is easily identifiable when it's starting.
It is much safer to wait until RE shows a solid YOY rise and other fundamental economic factors turn positive. Sure, you dont get in at the bottom, but far more importantly, you dont get in before the bottom. Because no one knows where it is until there's a solid and consistant rise.

Blackstone announced this last winter they have a HUGE fund to buy some of this stuff up.

What I hate is the idea that all these "investors" will run out and snap up the affordable properties before the wannabe homeowners can, then rent them right back to those same people who wanted to buy in the first place. In other words, force people to be renters against their wishes.

Right now I am seeing investors come in and make money at the trustee sales. Making generalized statements about the real estate markets such as you cannot make money in a down market is incorrect. Savy investors saw this shortage of inventory and are turning properties over fast. This is not a rookies game however. Those that do it, are indeed making money if it is done correctly.

Those that sit on the sidelines and say it cannot be done are incorrect.

It can and is being done. Those doing it correctly are making strong returns, especially in this inventory starved market.

This is exactly how I feel as well. We have enough money to buy up a few of these distressed properties and rent them out for income, but I have a moral problem with doing so. If we believe communities are better off with owner-occupiers, then it would be best for these people to be able to buy their own homes and improve them as they see fit, instead of having to compete with wannabe landlords and flippers.

Housing is a basic necessity, and even though renting provides shelter, I do not like the concentration of real estate in too few hands.

Disclaimer: We absolutely may buy investment properties at some point in the future, but if we do, we will buy very low so that we can pass the savings on to renters who truly cannot afford to (or shouldn't) buy.

What I hate is the idea that all these "investors" will run out and snap up the affordable properties before the wannabe homeowners can, then rent them right back to those same people who wanted to buy in the first place. In other words, force people to be renters against their wishes.

Don't worry about it -- once those "investors" snap up all of the "great deals" and turn them into rentals, guess what, the supply of rentals goes up which of course pushes the price of renting down. These wannabe Donald Trumps will be chasing each other to the bottom in an effort to attract renters -- this is especially true of all of the foreclosure stock which is currently withheld from the rental market. In places where there is significant oversupply (downtown SD comes to mind), it is going to be a renter's paradise for some time to come. I say to those genius investors -- "we've hit bottom! there's never been a better time to buy rental properties."

I don't like to see it either as a potential buyer. However to be 100% honest, I am more envious of these people then anything.

As sticky as rents can be, if this economy continues to contract at its present rate, there will be increased vacancies and downward pressure on rents. Especially with foreclosure moratoriums allowing many people to live in their homes without paying anything.
How much loss can the investors/LL take before they decide it's time to send the keys back to the lender?

The investors I am talking about flip the properties right away. They are not holding it for a rental. Other large investment groups making bulk purchases for rental income generally do so with a pretty serious margin for downturn on rents and such margins are built into the purchase. This is why they get substantial discounts on the homes. One bulk investor I had spoke to earlier in the year was looking for approximately 40-50% off on the homes the homes that they were negotiating with Citibank on.

The good thing is that our tax revenues will cover any shortfalls in the scenarios you or I or anyone else comes up with.

The investors I am talking about flip the properties right away. They are not holding it for a rental.

Of course, but who are they flipping them to? My guess is that many of the folks that they're selling these properties to are "investors" that are going to try and rent them out. If they're buying at those steep discounts and then getting out from under them right away with a profit, they're the smart ones. The ones buying the properties from them? Probably not so much...

Sounds familiar. If you have enough capital and buy houses at its low (or when it is coming down excessively). Once the downturn is ride out. These investors can sell the houses for profit. Why not.

If the economy continues to contract at its present rate, our GDP will go to zero by 2025.

Actually, if you keep compounding it you'll find that it never reaches zero. Just a mathematical observation.

Which reminds me of a friend of mine who got divorced for the third time several years back. Each time, he lost half of his substantial net worth. "The upside," he told me, "is that if I keep dividing by two, I still won't get to zero."

The only thing that pisses me off IF it really is just flipper/invester's and not people buying a primary residence is that it is our tax dollars holding Fannie and Freddie together so these guys can do it. I thought the point was for us to help people become homeowners, now we have a synerio where those subsidies (the fact people can get 10 TEN! loans) are prob the reason these people cant buy their primary residence right now. Total BS.

On the other hand I question these potential owners. They seem to have the idea that they should be able to log online, see a price and go out and get it just like they would a TV or table or something. It doesnt seem to dawn on them that this is a starting price. I am sure if they keep only offering on the lowest price short sales, prob at the asking prices which obviously are intended to start a bidding war, and not bidding on true home values, they are gonna stay renters. Who is there damn agent?

If this thing keeps going in this direction, everyone on this board will get their wish. I remember in 1996 when almost no one wanted to buy a house and that was nothing compared to what this recession is shaping up to be. I wonder how the RE landscape will look in 2013? How many people will be chomping at the bit to buy a house when they've been constantly grinding down in value for the next 4 years??
Here's a little forecast from the FRB:
http://www.frbsf.org/publications/econom...

2013 is optimistic, given the way that government is delaying the price decline. I plan to be a real estate investor in 2016.

Concho the ones I have identified bought the home at trustee sale and had it back on the MLS in a matter of weeks. The buyer of each one was not investors, they were regular buyers. One even has posted on this board.

I am not saying that the GDP will not continue to fall or that the economy is in bad shape. That is not a challenging prognostication.

Anyways, tell you what, all I can tell is what I see actually happening verses your predictions of what will happen. Back in 06 lots of people who posted here were cracking lots of great jokes about the 30k inventory levels we would see. Lots of talk about how the lenders would go out of business. Lots of talk about how we would all get fantastic deals. Not much talk that the government would through 12 trillion of our tax money at the lending industry, insurance industry, or *insert industry here*. Not much talk of regulatory moves by the government to stem foreclosures.

My point is that I can only tell you what is happening not what will happen.

However I will go out on a limb and say none of us here, not you, or me, or most anyone else, will get the deals that investors get. Not now, not in the future. When you finally acknowledge the game is rigged you stand a better chance of understanding how to play it, rather then waiting for a level playing field.

SD, you had the balance of understanding of the big picture a few years ago to ignore the rhetoric that R/E always goes up, it's nice to see that you are somewhat immune to the opposite rehetoric that nobody will have a job and houses will cost less than cars, that nobody will buy. But don't get upset about the rigging of the game. Those investors are playing with cash, not gov't loans, that is how they can buy and flip, they offer both assurance and speed to the bank or go trustee sale where they are somewhat alone, they can buy places that nobody can finance, fixing them to the point that they can be financed and clearing a profit in the process.

You have an advantage, you get to see what's happening before everyone else, you see money moving and it contradicts what people write on the boards about everything going to hell and we will all sell apples on the corner. We need you to tell us but we also need you to interpret it, why are these investors going into r/e, what are we aremchair quarterbacks missing.

On the inventory front, it's weird, I don't have an answer, I need yours. In my zip there 160 non shorts for sale, 160 shorts (shorts are impossible to tell if they are pending) and 160 pending. 40 sales a week, it's dropped to a 1 months supply from an 18 month supply, what the hell is happening and why are people with boatloads more money than we have doing what they are doing and more importantly, why aren't they listening to to the same music we are. piggies are supposed to be ahead of the curve, we used to be. Are too many buying and fading off, leaving the more bearish behind to sway the overall sentiment.

Aren't the cash investors supposed to be smarter than us? they didn't win that money in the lottery, they got it by getting in front of the curve. Did you actually believe the gov't and powers that be wouldn't put a floor on things, or that the market's invisible hand wouldn't step in. Do people here really believe that macro economics matter more to buyers than affordability. So it's rigged a little, now that you realize it's there, how do you make it work for you or for us.

The most important question isn't what is going to happen to the economy, it's which laker team will show up tomorrow and how does a basketball game relate to investing. I'll tell you, Denver will double Kobe and leave Ariza free, and he will go off, if uncontested, his 3 pointer is on target, if you ignore him defensively he will slash. How does this matter? The lesson is the same, going blindly bearish is like doubling Kobe, you've seen what he/it can do, you've watched the film so you ignore the other forces at play, don't ignore the role player with the open look from outside, Ariza is the inventory (doing things that defy logic, how does he hit the outside three when he is a horrible outside shooter, why is inventory at record lows when we are supposed to be in armageddon), Shannon, Fish and Jordan are the investors (you thought they were gone or they would fight over starting, but they aren't), Pau is the government (steady and predictable) and Bynum is the banks (they looked to be injured and stupid, they need help, but they'll get it), lamar is well, he's lamar (I have no real estate analogy for lamar) do not ignore them or they will catch you napping, the worst part is, you know it in the back of your head that it doesn't make sense right now. Kobe has the media's attention and the numbers, shouldn't that be what you worry about (Kobe is unemployment). I say you look at the whole picture and understand that there is more going on, which you already have touched on. Then again the lakers could get swept and this whole diatribe ends up worthless and we could all be selling apples.

Of course, but who are they flipping them to?

Other investors, of course! Just like on the way up. It will be an ugly circle.

Buy property, mark up, put back on the market. Another investor buys, marks up, back on the market. The difference this time is that there isn't much room for prices to keep going up in a declining market, without liar loans and foreclosure sales keeping the area comps low.

The guys "first in" might do well, but the second/third wave is gonna get hurt.

I have had rentals before and I am building one now and will buy more. At the "mom and pop" level it is one of the grittiest, blood sweat and tears ways to make a living. Nothing to suffer moral dilemas over at all. Give your tenants and nice place, treat them well and be done with any moral apprehension.

Once upon a time someone posted, perhaps Russell about opportunity and that with opportunity there is risk.... let us start there...

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I need to delineate between investors and little guy investors. The type of investors I am referring to are one of two categories. The first are groups or syndicates of investors that buy in bulk. These groups may or may not have intentions to sell the properties or possibly hold onto them for awhile.

Rich has placed guess posts about a VERY astute investor here in San Diego who does this.

The second type of investor is a smaller group or perhaps even an individual who purchases at trustee sale and then flips.

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Now I know in some cases individuals may indeed make a secondary purchase from one of these two types. This purchase may be for a primary residence or it may be for a rental. From what I have seen they have been for primary residences. However I am sure many more lower end homes purchased in this manner are for rentals. That doesn't concern me though. If some of those start losing a bit of cash flow due to rent then so be it. I don't see alot of them going belly up a la our current market. I do think mom and pop landlords of today are alot more astute then many people give them credit for.

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TG a brilliant post. You have not ripped off one of those for awhile and to weave the lakers into it... well I consider that a special treat just for me so thank you for that.

If some of my bitterness at the system showed up what can I say. That is the buyer in me, just like you, just like many here, who is frustrated with the system. My personal strategy... not sure yet. I am still wrestling with the mrs about staying in Cali or pulling outta here. If they could saw the state at the OC boundary then I think I could get her to stay but it doesn't look good. So honestly I don't know... Anyways I am not as upset about the game being rigged as I am about prognostications that prices have to be at certain levels in the future because they HAVE to. Because of unemployment or because of the GDP... I don't see that anymore because of the sheer number of people out there with money. Again I think the arguments make sense within a limited set of parameters. However when you bring a wider set of parameters in, these arguments don't hold up anymore in my book and they are not discussed. I am not saying buy now but I am saying ... Hey wait a minute, something is happening here and maybe things need to be considered within a wider scope... maybe the home price nirvana that we all are hoping for is not going to come like we thought it would, or in the form we thought it would.

To be honest... I just do not know.

A few more thoughts... I don't know how to make the interpretation you referred to. On the smallish side, I can only offer what I see which is some homes I have seen that went to trustee sale, were then purchased by an individual or a trust or an llc, and then put on the market. There are some losses and some gains. A sale I had last year San Marcos was corporate owned by a company that made trustee purchases in like 07 I think. They took a bath. Another I had last summer in CV was bought at trustee sale and the guy did great. A few homes I have seen for sale in 4S were purchased at trustee sale and flipped for profit. These were not the bulk purchases. Another home on Vista Palma in Carlsbad was purchased at trustee sale and is in escrow. Again my interpetation of this is that right now, there is tremendous upside if it is done fast, if the analysis is done well, and if the buyer does his homework. You have to get it at trustee sale, you have to make sure the numbers work, and it is not for joe first timer to try. However, with this piss poor inventory and these interest rates... it is I believe a risk worth taking.

As for what is happening in your neck of the woods... not my part of town my friend so I actually defer to you. All I can say is that the numbers do not lie and your numbers were pretty damn scary.

Yes the guys with boatloads of money... As sad as this is gonna sound, I think that there are a ton of smart people here. There are even quite a few who have good money. I seriously doubt those with boatloads of money post here, and I don't think they subscribe to anything posted here. These people make money because they took risks, because they round up investors, and because they can identify opportunity better then us. They do a great job making money, WITH OTHER PEOPLES MONEY. Now what works for them or what is good for them may indeed not work for us because of the deeper pockets they have, and that the loss is not their loss. Obviously they see opportunity where many of us see fear. Conversely they may lose but if they do it may not affect them personally at all. Yes the rich do get richer. It is arguable that there sure the hell are not many decent income generators right now, bonds suck, parking money in cds sucks, the equities markets? jeez who knows where they may be... so maybe these captains of the ss moneyboat see something we dont.

Anyways... I guess that is it... I am not sure of anything at present. I am so worked up about the way things are in this country that I cannot see straight. The real estate market is cuckoo for cocoa puffs right now... Unemployment will indeed go up but to be honest with you, it is a lagging indicator and I have already been contacted by old engineering buddies that some hiring will actually start again later in the summer and picking up in 2010.

As for Lamar.... well if you can figure him out let me know.