San Diego Housing Bubble News and Analysis

I guess since I haven't petrified, I am a damn fool. But on the other hand, I have high blood pressure, a doomer attitude will surely kill me faster so I would rather be a happy gloomer living than a dying doomer.:-)
Agree there are a lot of folks being duped into bidding war right now. But do not agree there is accelerating/impending meltdown. With the government unprecendented rescue of the financial market, I am pretty confident that we will see a short economy up-cycle for a while (at which time, maybe even the GDP can turn magically positive for one or two quarters). The downward trend would continue on the economy after that, but I would argue quite a few inventory would already be taken out by the fools at that time(see my comment in: April 2009 Resale Data Rodeo). So we will never see the dramatical price decline that we saw last year ever again.

"So we will never see the dramatical price decline that we saw last year ever again."

Where? Maricopa and Cape Coral maybe.

Just one snippet of actual, factual information to help with attention deficit.

"More than $63 billion of Freddie Mac's loans were either 90 days overdue or in foreclosure at the end of March, nearly triple year-ago levels."

$63 billion this early in the Alt-a and Option ARM reset tsunami, from just one mortgage provider.

This is uncharted territory folks :(

FOLKS, WE'RE ALL GOING TO DIE, THE LORD IS A COMIN!!!1!
See, I can out do your drama!

Hey, it's ugly out there, but two things happen pretty much every year regardless of what GDP is doing: (1) productivity increases, and (2) the population increases. Over a period of time - this period will be longer than most - time heals economic wounds via the natural increases in population and productivity.

Where housing, specifically, is concerned, we created too many housing units from 2002-2007. Calculated Risk estimates this number to be about 1.8 million excess housing units (which includes apartments). In theory, new housing completions should track household formation, which has averaged about 1.2 million annually for the last 15 years (and household formation is a fairly consistent fraction of population growth over time, as it should be).

Of course, the household formation rate has declined to about 900K annualized due to the crappy economy (folks are doubling up, kids aren't moving out). New housing completions are estimated to be about 500K units this year, and probably will decline to 400K for a few years (the peak was 1.6 million units in 2006). So, holding the household formation rate at 900K (recall that lower rents and interest rates will help offset the impact of unemployment on the rate of household formations), that means we're soaking up about 500K units of excess inventory each year at the current pace. But at this rate it will take another 3-4 years to complete the process.

Which means that while SFR prices may stop going down (meaningfully) by next year, they can't increase on a sustainable basis until the excess inventory is soaked up, which is probably a few years out.

People keep asking where the jobs come from. Increases in population and innovation create their own demand for and supply of goods and services. But clearly we're in disequilibrium right now - we front-end loaded too much demand (via debt). Now we've gotta re-finance debt, charge off a chunk of it, and pay some down over the next decade, and that's gonna lower GDP growth.

It's gonna suck for a while. Really suck. But it's not the end of the world - it's just more pain than we're used to.

But I could be wrong. Wouldn't be the first time.

come on dave... stop that gibberish talk and join us in the bomb shelter. We are going to have 30% unemployment and live in grass huts. The ruling class will live in castles.

Don't forget to blame Japan,China, imports, immigrants (legal or illegal), walmart, honda, toyota, hyundai, elitists (i.e. folks with college degrees), doctors, lawyers,wall street bankers for our problems.

All of these traitors are destroying the middle class.

Buchanan for 2012:
"Bring Pride Back to Americans (some at least)"

It's a classic post bubble contraction. There's been about 5 in the last 300 years. Very rare, but historically documented events that happen when credit gets stupid for 5 to 10 years. Like we did for most of the last decade. Be prepared for a reduction in std of living. That's all. We could probably use it anyway.

we've had a pretty low std of living anyway and it's not that bad! no a/c in summers (take a shower!), no heat in the winter (put ona damn sweater), some gardening, use the library, talk for entertainment, very little meat, cheap wine, yard sales for lesireu/kid clothing, don't eat out much, drive real old cars and old bicycles, rent a dumpy old place...i've been contracted for years and i've been having a good time. it's gonna be all right! might even be better!!! never lost the pride...

And thee shall call me King Charlemagne.

or Pauper Chuck, not sure which yet.

Flu i don't blame Japan or Toyota and I never said ANYTHING about imigrants you nerd. Japan is doing what they need to do, they fight for jobs. I blame people like you. Tiny minded, self-centered, ego nuts that can't see the big picture. You are not alone, there are too many like you.

You will in the next few years come to a point where you feel as though your job is threatened and at that point hopefully you will get a sick feeling in your stomach over calling for hundreds of thousands of folks to lose their jobs because you, from far, far away have judged them lazy, over paid and incompetent. Karhma's a bitch.

No entire work force is like that, including the UAW. There are good and bad workers in every large company and every union.

I never said Drs., lawyers or folks with degrees are elite and you know it. Most people know what is meant by "elite" and I'm tired of trying to dumb things down for you.
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For everyone else, apologies on the Buchanan thing. I only like his trade stance (should have noted that).

Scarlet: You're doing it again. I realize FLU didn't have his Snark button turned on, but his comments weren't addressed to you personally. He was being snide, but it wasn't personal.

Like TG, he's one of the more centrist and centered posters on the board and I can guarantee he wasn't sniping at you. You need to take what's being said with a grain of salt and realize that most of the folks that post here regularly have a finely honed response mechanism.

This is supposed to be good fun and not heavy lifting.

And, for God's sake, don't apologize for liking Buchanan. He's one of the last remaining Paleo-conservatives roaming the earth and, along with Newt Gingrich, represents a solid link to Goldwater conservatism. Yeah, he can drift a little bit into demagoguery, but he's a damn sight better than Limbaugh or McCain.

The turkey gets fed everyday by his benevolent human owners. The cow says to the turkey "you better stop going back there because you are going to get killed". The turkey says "you're crazy, it happens the same everyday so it has to happen that way again." "That is just the way things work, look at my charts of past feeding cycles, the same thing for recorded feeding history." "Now please cow stop being such a pessimist"

-Improvisation of a Nassim Taleb quote

We have hugely expensive debt-addicted governments. Tax receipts are collapsing and a little birdie is squeaking about the debt spigot getting turned off.

Real unemployment will be passing 20% in short order.

The financial surrealism which has been at the heart of stock market trends, financial indicators and political commentaries in the past two months, is in fact the swan song of the referential framework within which the world has lived since 1945.

Wise words again from Allen, well said.

PadreBrian and SD Realtor this is not a gloomers only post. Weigh in with something a little more substantive than a drive-by, or be funnier:)

"What’s your take? If you are sunny positive thinker….where are the jobs going to come from? What will stop the downward slide in housing and CRE? How many folks are gonna keep paying on a house $200k-$500k upside down? How long will they keep paying? How many foreclosures does it take to break the bank?"

I'll add:

How long can we keep buying our stuff from other countries, on credit, before we decide that our National budget deficit is too high?

Tax revenues are a huge issue no doubt! Will the Gov. just print up the shortfall? What an odd concept huh?

I attended a grad cerimony for CSUSM yesterday and at just one of two cerimonies held that day for CSUSM there were a LOT of graduates. This is going on all over the country in every city. I could not help but think about the poor job climate they were entering. Not only are they adding to the available inventory of workers in a contracting market, 401ks being bankered into 200.5ks has dwindled the retirement ranks. More coming in and less going out.

I wonder how students seeking work are included in employment numbers? Anyway, its sad.

I wonder about future grads, too. Not that I'm so old, but when I look at kids today, many have it on easy street and have been shielded from struggle. It's going to be a harsh world when they get out there. They've been given so much and the sense of entitlement has been instilled. Whenever I am in any business, I see how little effort had been put in by young people's jobs and duties. I remember when I first started working, I was so thankful to have a job and gave 100% and went out of my way. The ambivalence of late was surprising and their effort was feeble.

This new generation can work the shit out of an Xbox though...LOL

Here's a qoute that really got me thinking:

"Debt can no longer be sold as an "asset". It's that simple."

Lately selling debt has been THE US industry while we shunned real production of worthwhile stuff.

The same way folks that retire every day are counted. We have new graduates every year entering the workforce and we have new folks retiring every year leaving it. Since our population is aging in aggregate, the percentage of folks leaving the workforce through retirement is increasing relative to the percentage entering it, which is a problem where SS and Medicare are concerned. Also, I assume plenty of folks are deferring retirement - as they should - these days. But, my point is, you can't just analyze the number of folks naturally entering the workforce without taking into account the folks naturally leaving it as well.

What is this supposed to mean? One entity's debt is another entity's asset. That's an accounting tautology. Now, if it were reworded to say, "Most debt is trading below its par value and there will be plenty of losses on these assets," well then that makes sense. Or perhaps, "It's much harder to sell debt today on the same terms as a few years back," that makes sense as well. But I can tell you that there is plenty of debt being sold out there every day, even in this environment.

But, "Debt can no longer be sold as an asset"? That's patently absurd. I'm curious as to who managed to get themselves quoted saying that.

Umm....are you suggesting there IS a market for the Mortgage Backed Securities, Commercial Securities, Consumer Credit Securities, etc?

I heard somewhere the market froze up and they were selling for $0.05 on the dollar and there was some historic emergency and something about bailouts and printing presses.

Iceland would love to hear from you if you have some buyers lined up.

I think they were trying to make poignant statement and not stating that is the case in every circumstance today. Three years ago any kind of debt could be package up and sold to Italian retirees and English pension funds. That has changed enough to justify the statement, I think.

There's a market for all types of debt... at a price. If I buy some MBS for 10 cents on the dollar, or 60 cents on the dollar, or whatever... that's going to be an asset to me. Simple as that.

I just bought a senior convertible security with a 9% coupon in a company the other day for my partnership. That's debt. It's an asset for my partnership.

Again, one entity's debt is another entity's asset. What value that asset might have is a separate issue. But debt is trading every day. Boatloads of it. Check the tape. Some of it with liquidity provided by Uncle Sam - but that's completely beside the point where your original assertion is concerned, despite your effort to change the subject. There is a rather large difference between saying that, "The terms on debt are materially worse today than they were three years go and a lot of debt trades at significant discounts to par value," and saying, "Debt can no longer be sold as an asset." Exactly what part of this do you not understand?

Rt66 I know this is not a doomers only post. Actually I think that it is easier to post about gloom and doom then not to. the only person who I have seen postong about it but really ever doing anything about it was someone who talked about going out and buying land several months ago. I am not sure how that came out. Maybe it was partypup but I am not sure.

Arraya posts about it all the time and perhaps ahs taken some steps for preparation as well. Other people talk about having boxes of food in the garage and some investments in gold but in my opinion, if things REALLY play out to where there is serious unrest, menial preparation may be useless. Now if you have defesible land, a well, a couple of gereators with fuel, s network of friends and neighbors with the same, then you have a chance.

Personally my prediction is that some time in the next few years we will be cutoff by our creditors. Much like we are loosing freedom every day, with the current leadership things happen is a slow and subtle way. China will emerge as a new economic leader and we will be whatever we will be. I don't see every engineering job going away or everyone here digging ditches for a living. I think people getting loans on large sums of money at 4 to 5 percent interest may not be in a bad position if inflation does move upward rapidly. I don't see this being the bottom of the housing market at all but I think most people here wildly underestimate the financial resources OTHER people have in San Diego as well as just how far government is sold out to propping up the market.

I also think that there is going to be people who make an absolute killing off if these conditions. Indeed there already have been. So you can cast doubt, curl up and hide, or you can figure out how to take advantage of the conditions and with hard work an ingenuity, make money.

There's folks leaving it, but it's not voluntary.

davelj
It’s not my statement but hows a bout we change it to:

In many/most cases, either way unprecedented, many forms of debt can no longer be sold as an asset for more than a fraction of the previous determined value of said asset, to the extent that the event is historical?

Happy?

You are not saying anything everyone here does not already know, people have a filter that enables them to look at a statement and perceive the most logical intent of the statement maker. In this case I don’t think so many people see it the way you do.

Sd Realtor.
Well said. Believe it or not I don’t disagree with you so much. I’m in between the “defensible land” and “things will be fine” folks, leaning toward things will be worse than 80% of the population can imagine today. But I look at Japan and in most people’s eyes that’s a 20 year complete train wreck, but not Mad Max by any means either.

Temecula being the exception. It’s gonna be the Detroit of CA and is already showing signs. I am already afraid to walk around the new mall without escort (plus it smells funny). New homes are bulldozed, entire new condo complexes are now weed farms with nasty broken chain link gates blocking entry. Schools are closing and MS13 is looking into making an offer to occupy and open a strip club. Beautiful Orange groves are now mowed down stumps or paved over abandoned dreams of more stucco palaces, eerie, surreal places with streets, yards plotted and two foot high block walls, ghostly empty.

RE I think will be the biggest shocker to JSP psyche. And you are right, gloomer news is much easier to find and post about.

SDR: I agree with some of what you said, but would definitely disagree regarding China. China is not nearly the economic powerhouse that they are made out to be. If you were to catalog the various issues confronting China, ranging from mass unemployment, serious health problems (AIDs, SARS), lack of natural resources (esp. energy resources) and a growing discontent and disconnect between the entitled classes (either politically or financially entitled) and the peasantry, then you would see that China is not nearly as well positioned as they represent.

In spite of how badly the US is shooting itself in the foot, the fact remains that the other significant players out there, including the Euro zone and China, are actually doing worse or are more poorly positioned to muscle their way out of this. Wait until one of the major Eastern European countries pulls an "Argentina", or Russia decides to turn off the energy spigot to Western Europe and then you'll see things get really dicey.

Same thing with China. The US is China's largest market, but we're not buying their products like we were previously. They're trying to stimulate consumer demand within China, but Chinese consumers don't buy like Americans do and are probably one or two generations from becoming "trained" consumers like we are.

Not to sound nationalistic, but America is still America and as stupid as we can be, we generally find a way to "Forrest Gump" our way back out.

Forrest Gump" our way back out. LOL!

My momma always said, Life is like a box of Mortgage Backed Securities…you never know if you’ll get paid back!

Scarlet: Glad you enjoyed that one. I coach football and I use that expression with some of my players (generally the ones that like to turn their brains off during games).

Allan I don't disagree totally. I agree with you that the achilles heel of china is indeed the purchasing power of the usa consumer. Without us they don't have enough consumers to fuel the train. In fact the same may be said for the entire world. I am concerned though with regards to the Chinese resource power play, military expansion, etc...

All in all I am much more concerned with our loss of personal freedom then anything else. Soon my government will tell me which health provider to use. Since they are doing that they can tell me what foods to eat or at least tax the hell out of those that they feel are not in my own best interest. I know that most people read this and laugh and I hope in the future I will to. We will also soon have advisory panels telling radio stations that they need to provide more diverse programming... Oh I guess having the freedom not to listen was my choice, not my governments choice. My bad....

It is just so scary watching this entire transformation and nobody seems to care. Those that do are labelled right wing crazies. In my entire life I can honestly say I have never seen such a cowed media as well.

So actually I AM PETRIFIED and I AM PAYING ATTENTION. I guess the things I am petrified about are much different then what everyone else is petrified about.

Sorry for that deviation...

Rt 66 sounds like we are actually more on the same page then not. Yes I made light of daveljs analysis but I do believe to be very rational by the way.

Yawn, this wasn't personal but since you decided to take it to that level...

I'll tell you what I think the problem with America is. There are too many damn hypocrits like you that bark about patriotism on one hand and who's actions going completely contradictory to what you preach.

Folks like you complain about losing jobs, complain about getting outsourced, complain about how opportunities escape you...How foreign competition is killing the U.S. And folks like you suggest to regulate the hell out of imports, remove "choices" that american consumers make everyday on what they want and what they don't want (the fabric of this country), and instead install a totalitarian system of "trade" for which the government has tremendous oversight in what citizens can buy/can't buy and whether they have to buy or not.

....But at the same time, folks like you, aren't willing to give up any of the modern day advances for which the majority is made by everyone in world.

....You're not willing to give up your TV, your computer (which you conveniently are using to blog your patriotism hypocracy), your cell phones, pdas, almost all of which are made in China/Taiwan/Japan.

....You drive a cars from a US company that where made by overseas imported into the U.S. and didn't contribute 1 iota to the "U.S. assembly line workforce", and yet you shun those that purchase an import Honda/Toyotas made and assembled in Ohio. You still shop at Walmart for cheap clothes, cheap crap, all made overseas, you buy your food from discounters that import things from overseas rather than spending "more" on organic grown locally because "it's too expensive"

....You want most of the modern day conveniences but don't want to pay nominal dollars for it....You want to pay less than $800 for a computer that is 100 times more powerful than a computer from 14 years ago that I paid $3000 for, and then you wonder why companies keep trying to move assembly/manufacturing to places that can pay people $.10/hr to assemble these things.

....You grip about how your skills/labor/expertise is gradually eroding because the economy/industry has changed but you don't do anything about it to keep up with the way the world is turning...You don't send your kids to get technical degree (you look down on people who decided to invest in their brain in meaningful technical way by calling these folks "nerd" whatever). You'd rather tell your kids it's ok to pursue things like Shakespearian History in college or some other bullshit major... or you conveniently tell them why even bother going to get a technical degree or learn... just go to work and be an assembly line worker , and after 10 years you can expect the company and the government to take care of you without any active management on your part to keep up with the world is going, keep up with where the opportunities are,etc.
Meanwhile, you can't understand why those people put their mind and effort into continuously self-improving can't relate to you and why they aren't afraid of being completely outsourced...Because you haven't figured out that all your learning/knowledge/etc/opportunities doesn't just come by you sitting on your fat ass munching a double whopper while watching Jerry Springer without doing anything else....and that if you don't continuously work on improving your situation (whether it's your career, your financial situation, relationships, whatever), no one else will be looking out for you and eventually you will atrophy and be a piece of trash thrown out on the street. Folks like you focus on a day to day "job" rather than building a "career" (possibly not even knowing the difference), and as long as you get a paycheck and can pay the bills in the short term, that's all that matters.

..Gradually as the world around you changes and internationalizes, your world gets smaller. It's harder for you to relate, it's harder for you to provide what everyone else needs, and pretty soon you find your no longer in tune with the rest of the global economy. Your quality of living deterrioates because suddenly there are others than can do what you can do for a lot less, you are no longer bringing anything else new to the table that someone else can't do...If you were one of those smarter people, you would have mastered your finances all during this time so that when this day of reckoning came, you wouldn't be screwed. But a majority of folks don't, after you pissed away your finances on all that bullshit you bought from overseas.

...Then it hits....Your up a shits creek...But it's not your fault. It's the government, it's the foreign companies, it's Americans who are traitors that don't buy the products you need them to buy for your own well being. It's all the H1-B people how can do the work that you didn't want to do that you didn't want to go to college for because it "didn't pay enough." It's employer's fault for not hiring you. It's rich people's fault for not paying for more taxes. It's the government's fault for not bailing out your company. It's everyone's fault and responsibility for taking care of you except yourself.

Yes, you're right.. Karma is a bitch, and it came back and bit people like this in the ass.

FLU: Good post. However, there are some areas where you broad brushed it somewhat.

One of the things that enabled Japan, Inc. to become as "competitive" as they were in autos, technology, etc was the fact that the US essentially picked up the tab for their defense and, in so doing, also ensured (with the US Navy) that they would have an uninterrupted source of resources, materials and supplies (including oil) for their use.

Combine this with a completely protected domestic market (Japan employs some of the most brutal tariffs and import control systems in the world) and unstinting governmental support from bureaus like MITI (Ministry of Int'l Trade and Industry) and you have a situation whereby the Japanese can effectively undercut and under price their American competitors. Admittedly, Detroit in the 1970s was a lethargic, backward looking dinosaur that set itself up to be overtaken, but still.

I remember the semiconductor dumping scandals of the 1980s and I also remember my dad, who was an aerospace engineer, telling me stories about having to keep an eye on Japanese engineers because they thought nothing of a little friendly industrial espionage and would take photos of whatever plans or specs were laying around.

We've steadily watched our competitive advantage shrink and largely because we haven't done anything to stop it, but, the story isn't that simple, either. Those Japanese vehicles that are produced in the US enjoy certain tax, trade and manufacturing advantages that their US counterparts don't. Combined with the legacy costs of US auto manufacturing, it becomes prohibitively expensive to compete, especially in an industry that is as cutthroat as the auto industry.

We remain tremendously innovative and creative and productive. Our colleges and universities are among the best in the world. And, I for one am actually all for protectionist trade measures right now and mainly because our competition could care less about the rule of law, or intellectual property rights, or just playing fair. I work in high technology and emerging technology and with one of the top ten research universities in the country (UCSD). I disagree that the majority of Americans are just sitting on their asses eating fast food and watching "Springer". Our labor forces and the population at large have been let down by our government and its high time Uncle Sugar stepped in and stepped out and started using his muscle in a fashion that helps and not hinders US competitiveness.

I don't embrace the European model of protectionism as I find it self-defeating, but I do think the US should be willing to tell other countries and trading zones to piss off and that we should start taking advantage of rising wages, ballooning resource costs and economic dislocation in countries like China, India, Japan and Russia. They'd screw us over in a heartbeat and have in the past. I say we return the favor.

I also say that we use this stimulus money to retrain American workers, rehab the infrastructure (including vital industries like energy, power and steel) and get us back to building things. There was a point that the entire world was built with American steel. No reason we can't do it again.