San Diego Housing Bubble News and Analysis

I guess the first point of contention would be if homes were fairly valued back in mid 2002.

My guess is that prices need to fall to 1998 levels before it is considered a fair value.

John

I like the site, thanks for the link. If it is esmith, nice work, again. In his writings he links ocrenter on BMIT, another nice piece of work, I need to get out more and see what others are doing. Both have more credibility every time I look at their work. When this housing bubble is all over with there will be a serious waste of writing talent, these guys make newspaper reporters look like third graders with crayons.

So if I read the analysis correctly, the last bastions of high pricing are set up for a fall and my beloved outskirts doesn't have many exciting things in store for me, oh well. It's not like things will be turning around anytime soon, especially if CV and the coast goes into the tank and gas breaks $5, I'll be O.K. and you 52 corridor folks will have a nice year watching it fall.

It is indeed my blog. I agree, the biggest point of contention is whether houses were fairly priced in 2002. Almost all appreciation between 2000-2002 (especially in the top tier) can be explained by falling interest rates. Before that real estate was probably still recovering from the 1990 bust.

You could also say that houses weren't fairly priced because interest rates were abnormally low, and that they are still abnormally low. Who knows, maybe they will shoot back up to 8%.

Finally, interest rates are only one part of the story. The other important factor is availability of down payments. A good chunk of buyers does not have cash for a 20% down payment. In 2002 you could get a second loan for 20%, but today your only option is a FHA loan that's hard to get and you're penalized by paying a slightly higher rate. OTOH, in 2002 lending standards weren't as lax as they were at the peak.

This reasoning is very general and very approximate, it's best to watch prices and see where they are going.

esmith, very interesting & informative blog!

Do you have graphical data for the false bottoms of 93, 94, and 95? From the first and second figures, it really looks like many neighborhoods have leveled off, and some have even begun an uptick. I'm curious what those earlier false bottoms looked like at this timescale.

Thanks for the blog & analysis!

Great Work esmith.

Isnt it nice that we are talking about Real Estate again? I'm gonna go back and look at 2002 pricing of individual home sales for areas I know well. It will be anecdotal but I'll try to comment on the pricing levels relative to typical incomes for those areas. It may take a couple days though as I have a ton of work to catch up on.

Anyone else with something to pitch in here would be appreciated.

Cant we all just git along?
RK

Do you have graphical data for the false bottoms of 93, 94, and 95? From the first and second figures, it really looks like many neighborhoods have leveled off, and some have even begun an uptick. I'm curious what those earlier false bottoms looked like at this timescale.

I don't have good data prior to 99, unfortunately.

Levelling off is partly a seasonal thing. You can see that there's usually an uptick around this time of year.

I see what you mean. From this figure:
http://bp3.blogger.com/_F-Z51q1pTp8/SGnd...
It looks like the four areas that are experience an uptick now, Encinitas/Carlsbad, Clairemon/Linda Vista/MM, CV/4S/Scripps, RB/RP/CMR, were also the four that experienced a slight uptick in the spring of 2007. The uptick was earlier last year, maybe the glut of foreclosures earlier this year postponed this year's spring bounce.

Interestingly, percentage wise relative to 01/2001 pricing, all the various areas are now at a very similar level. It could be a coincidence, and it's possible that they will all fall together some more. But it's also (worryingly) possible that maybe they are all converging to some fundamental value.

From Rich's historical data, it looks like housing prices were growing 5.5% on average in nominal terms. If that's applicable in general, and assuming 01/01 to be the last time we had "fair pricing", then current "fair pricing" should be 1.055^7.5 = 1.49, or 149% of 01/01 price. esmith's 2nd and 3rd figures make it look like the mid- and low-tiers have fallen very close to 149%, as well as areas like Clairemont/MM.

About that 3% inflation figure. I would be interested to see the nominal numbers right next to it and drawl my conclusions from the two together more than just inflation adjusted numbers. What was the cost of living in 2002 and how much of that supposed wage infation is available for paying for housing? I often hear that wages relative to the cost of living have not kept pace since 2000, though I have no factual proof of this statement. What I do know is the two links below are about the same subject and yet show that everything isnt equal outside of housing either.

2002
http://www.10news.com/news/1411431/detai...

2008
http://www.kpbs.org/news/local?id=12154

While I agree that the lower-end areas have come down significantly, and might present some buying opportunities **based on current rents and economic activity,** we are still just entering a recession and credit contraction (I think we still have a long, long way to go in a deflationary credit market reversal to early 90s, or even early 80s levels). Rents may well go down. That's deflationary for housing prices.

The "inflation" theory isn't taking into consideration the buying power of the dollar. Cost inflation is way up, compared to 10 years ago (think about healthcare, housing, education, food, gas, etc.) and wages are pretty stagnant for most of the middle class. This leaves less money for housing costs. At some point, people will wise up and realize the best way to live within your means (and make room for future cost inflation in non-housing expenses) is to get your fixed costs as low as possible...housing being the most significant fixed cost in most budgets.

Additionally, Boomers are nearing retirement years, and will be looking to cash in some of their investments (housing, stocks, etc.) to help sustain their lifestyles, IMO. This will be deflationary.

As others have mentioned before, job stability is a thing of the past, and at some point, people might begin to discount home "ownership" because it ends up being an anchor when you least need it.

Neighborhoods have also changed as a result of the transient nature of today's families, and you no longer have the nice, clean, safe, middle-class areas that were once prevalent. It's either very safe, nice and EXPENSIVE; or you get the run-down, multi-family SFHs with dirt front yards and too many cars parked along the street. This is one of the most significant changes I've witnessed over the past 10-15 years...rich vs. poor, and no more middle class. As neighborhoods deteriorate further, will people be willing to spend even more for those houses?

did those frauds impact the overall price?
Foreclosures bringing cases of fraud to light
http://www.signonsandiego.com/news/metro...