San Diego Housing Bubble News and Analysis

Bear in mind though that the banks (and courts) apparently haven't been able to keep up with foreclosures - that's essentially must-sell inventory that is just waiting in the wings.

SD Engineer - That is so true. Today 1844 Law was scheduled to go to foreclosure. I'm not even sure if it actually went. A default was filed in October of 2007. We're talking 6 months before they scheduled a foreclosure and for all I know, it might have been postponed.

That's just one. There's so many more out there.

Holding other things constant, yes, months-of-inventory is a good sign of where real estate markets are headed.

But other things are NOT constant, so I don't buy your implied assumption that flattening inventory means the market is bottoming.

This is why Rich looks at additional factors, and posts data, for example, on the RATIO of inventory that is must-sell, bank-owned.

while inventory may have held flat, that very important ratio has NOT held flat. When a market transitions into one dominated with bank owned MUST SELL inventory, that has a dramatic impact on pricing.

MLS inventory may be flat yet vacancies are at an all-time high. Comparing SD to US is not apple to apple but there's so much evidence pointing to a pending spike in inventory I wouldn't bet one apple slice on a flat trend line.

"Pending spike" in inventory prognostication based on what??? The actual latest hard facts point to a flattening of inventory. No not some inane vacuous diahrrea of the mouth hot air prediction/opinion but the hard facts of actual inventory of homes for sale in San Diego country as of today. No one said it portends a bottom . . . but . . . a bottom will be accompanied, among other things, buy a flat then shrinking inventory. Many other factors would have to be present in addition to flattening/shrinking inventory but such inventory will be one of the factors whenever the bottom comes. We have flattening inventory now for the first time in the past 24+ months. Time will tell what that means.

In search of a crystal ball . . . .

Whoa you really are schizo. So what are you getting at with the op? If you are in denial of a pending spike in inventory then you might want to check out the bubble primer

Read up on some of the blogs here, it might be educational. There's this RE bubble we've experienced, it may help you to understand the pending spike in ways I'm too lazy to explain to someone who doesn't want to know.

S2Buy

You're trying too hard here.

1st Qtr 2007 - 3,939 sales of SFRs through the MLS
1st Qtr 2008 - 2,880 sales of SFRs thruogh the MLS

We're racking up less than 1,000 closed sales per month so far.

Current Number of Actives - 12,512
Current Number of Pendings - 3,577
Total number of both - 16,089

Total sales of SFRs through the MLS in 2007 - 15,443

Do the math - we now have more than 12 months of inventory on tap and we're just a hair's breadth away from having more REOs coming into the inventory than the total number of sales going out.

We're so far from stabilizing that we can't even see the tunnel yet, let along the light at the end of it.

Schizo I know it is frustrating sitting on the fence as you are... (or were if you have already pulled the trigger)

Indeed I do hold inventory as one of the strongest indicators as to my gauge of the market. Yet you cannot gauge the health of the market on that standalone component. You have to also consider active/pending ratios, foreclosure rates, aggregated inventory compared to the sales rates etc...

There are plenty of explanations as to why the inventory is where it is at.. For one, many resellers have punted on the idea of selling. Those with equity and time are simply going to sit the market out. Those who were planning on relocating have replanned. Many have pulled homes off the market and are going to rent the home out. Not everyone has to sell. Many who attempted to sell in 07 with hopes of a turnaround in 08 are now facing reality and dealing with it.

Now yes it is somewhat amusing sometimes to read posters prognosticating 30k inventory levels and such. However we all need to get some amusement now and then. The more I think about it, the more I become concerned of a long drawn out cycle of downwardness so to speak. Without something more catastrophic like interest rate spikes or unemployment I think we will slowly toil our way down and stay flat.

Another wildcard are the ALT A and A paper resets in 2010 and beyond. That will become an interesting situation.

Anyways, your post is the reason I posted my first 20 days of April posting. Personally I think the posting about inflation as a risk factor is something that is important to think about. Not necessarly the inventory being flat or even negative on a yoy basis. In fact I do not believe 07 inventory reached 06 inventory for that matter.

SD Realtor

SD R . . . Amen to all you have said.

I was simply making the observation that inventory which is one factor of many dictating the direction of the market is beginning to flatten. If you read my original post I went to the pains of noting that this does not portend a bottom but simply bears noting and is a shift from where it has been over the last 24+ months. Pending/actives, interest rates, jobs, foreclosures in pipeline, etc. are all equally important factors. I was just noting a direction change in one important factor . . . inventory. Its just amusing to see everyone here jump all over you if you note ANYTHING other than imminent doom, gloom, and market catastrophe on all fronts . . . including inventory. No I haven't pulled the trigger yet. I pulled on a foreclosure but the gun didn't fire (low ball offer not accepted sold at higher amount) so I am back to square one.

Again . . . simply bringing to Pigs attention (with link provided) an important piece of information which is beginning to shift direction.

I agree on inflation. On a closely related note the tanking dollar at some point will also have to be factored in. I don't buy the notion that rich Asians/Indians from overseas will sustain the SD RE market but I have to believe that they will have at least a growing influence if the US dollar continues to tank. Having lost 15% of its value already this year, SD RE is all the more cheaper to someone whose cash is in Euros, Yen, or Pounds. Again a factor which by itself is not market shifting but has an influence. This and all the other factors is what makes predicting the direction of Adam Smith's proverbial "invisible hand" so hard to predict. Thus the need to continue . . . . In search of a crystal ball . . . .

Yeah I know you have taken a beating on this site but I admire you for hanging in there. I did note that your post did not call for a bottom or anything of the sorts. I guess we all have our own bias when we read peoples posts. I find that my posts never seem to correctly display my intent many times as well.

One thing that concerns me about the inflation hedge, is that there are many things that tie into it. Right now as long as real estate depreciates faster then inflation then I am okay. While I am slowly watching the value of my lump of cash go down (and it sucks) the intent of that lump is to buy real estate. Thus the asset for which the lump will be exchanged for is still depreciating faster then the lump itself. Thus I am okay with the lump being the lump and the asset to keep depreciating. However we do NOT need hyper inflation to swing things the other way, all we need is the depreciation of the asset to run slower then the depreciation of the lump of cash.

Furthermore what is also not discussed at all, is the widening of the gulf between the have and have nots. If we do run into an inflationary spiral, I very much believe we will see a situation of the rich getting a HELL of alot richer by scooping up real estate with cash or very high equity stakes. Will real estate valuations fall? Of course... however will real estate be affordable and will the valuations scale with the interest rate hikes? Hard to say. I do not think it is a slam dunk to say that real estate depreciation will be commensurate or even exceed the change in monthly payment needed to overcome substantial rate hikes. It becomes very iffy and again will have severe variances by areas. The problem becomes much more unpredictable, especially when those with large reserves start to get involved.

SD Realtor

"The problem becomes much more unpredictable, especially when those with large reserves start to get involved."

They are involved. Cash or close to cash transactions seem to be the norm nowadays on the best coastal properties with the best schools. While there have been a few good deals struck on the coast for most of us they are an illusion because we didn't honestly have much of a shot at buying them. That's why the normal sellers are holding firm. They know that some buyer is going to get tired of playing games with the banks and come looking for something they can actually buy.

Ten years ago folks that got priced out of Carmel Valley, Del Mar and La Jolla had the option of buying in the sleepy towns called Carlsbad and Encinitas. Those that took the risk and bought up north have now been substantially rewarded as these areas have IMHO now become premier areas to live and most owners have deep equity positions.

Instead of asking the question of what are good affordable areas that have perhaps not yet been discovered, most people on this board seem obsessed with hoping the train comes back to the station. Once the rich folks get involved the train rarely makes a second pass. I have seen this happen with countless areas around the country.

Sorry, but I just don't see how the one number flattening can be considered indicative of anything.

This is another example of the folly of comparing the two datasets against each other as if they're the same. They aren't.

The gross number of all sellers is more or less stable, but the number of compelled-to-sell is increasing every month. The sellers who have left are those discretionary sellers who weren't selling anything last year anyway.

This is happening against the backdrop of a declining rate of sales. If anything, the current supply/demand dynamic looks a lot worse now than it did last year.

What you're looking for is an increase in the number of buyers against an equally decreasing number of sellers. Even when that happens it's going to take a while. This aircraft carrier is not going to turn on a dime.

Messrs Case and Shiller send their regards.

How long can those with substantial equity gains watch those gains whittle away by 3-5% each month, month after month, until they start looking to pick up REOs on the cheap to bank what remains of those gains?

More trouble ahead

Additionally, lawmakers in Washington, D.C. are at work on several plans that would deliver foreclosure relief to distressed borrowers.

All of these foreclosure prevention efforts may not be able to stand up to the tsunami of foreclosures on the way. Sharga says that a record number of hybrid adjustable rate mortgages (ARMs) - worth $362 billion - will reset in 2008.

These so-called "exploding ARMs" usually have low introductory interest rates that reset much higher after two or three years, and then re-adjust as often as every six months after that. Unless these loans can be reworked, many will fail.

"We expect to see another foreclosure peak in the late third or fourth quarter of the year," said Sharga, "because of the record number of resets coming."

a few days late, but here's my response to schizo's concerns:

http://bubbletracking.blogspot.com/2008/...

oc-
I've browsed through the San Diego MLS a bit over the last few days, and I'm seeing quite a few spec-type owners who bought in the early years of the decade looking to cash out. You might want to keep an eye out for that phenomenon. If owners start to buy into the idea that "there's no sign of a bottom," as many national commentators have suggested, then the cash-out/trade down mindset might take hold. If that happens, look out below.

Good work OC.

"Despite having 9 NOD filings within a week in the 92127 zipcode, only two of these homes are on the MLS. This fits with what we are seeing with our foreclosure/pre-foreclosure tracking data as well as our inventory tracking data. In short, the distress is increasing, but the distressed owners are not listing.

Market psychology is a very important factor. Here we have 7 out of 9 distressed homeowners simply giving up and just letting the clock run its course, what does that say about the seller psychology? More impressively, of the 5 homes owned by REALTORS®, only 2 out of 5 are bothering with a listing. If even the cheerleaders are tossing away their pom poms, oh boy..."

So people are going to live free for a while then walk. The current psychology indicates it is utterly futile to list right now (why bother), so inventory is not giving a true snap shot of the distress. It makes you wonder if an area does see an uptick in activity then you will see these distressed properties go onto the MLS increasing supply and then ultimately depressing prices, rinse...repeat until the market eventually clears.

I used to live in a building downtown. There were 23 units on my floor. Since I moved out this is the activity.
1 sold in foreclosure
3 listed and subsequently pulled
3 with active NOD
3 people who told me they will list whent the market recovers
2 Active listings

So on a high level using this floor as an example it looks good one recent sale and two listings. The reality is quite different. There are at least 9 units wanted to be sold and with the NODs pending (as a proxy for unpaid HOA) there might not be banks willing to lend in the building due to the financial status of the HOA.

This is the creeping effect of the psychology of deflation. Mark my words, it is coming.

The current psychology indicates it is utterly futile to list right now (why bother)

That's only true if we're nearing a bottom. If the bottom is nowhere in sight, though, it makes much more sense to sell now and bank whatever gains still remain, assuming one's current situation allows for a sale.

So...how low do each of you think it will go?

In other words, how far off the 2006 peak will the bottom be, percentage-wise?

svelte - That's the question I've been asking. Will it go to 2001 levels? How long before it goes that low? Will it stay low/flat or go down futher.

Speculation about the next reset in June 2008. Then Alt A and option ARMs. People talk about 2010-2012. But we also have baby boomers that will start to trickle in their inventory gradually.

It seems inevitable that the prices cross the long term trend line shown on Rich's signature plot. That's a fair drop from here.

Amen to all the common sense (a.k.a. "doom and gloom") shown here. It feels like the piggington blog again!

IMO because banks got burned, investors got burned, buyers got burned, RE will be an ugly duckling for some time.

No one wants to guess as to what percentage off the peak we'll fall (peak to bottom) here in San Diego county? Or in San Diego city? Or in the city of your choice?

Does the % drop really matter that much? No one really knows how much it will drop. 50% off peak gets tossed around alot.
Now different areas had differnt peaks, so the remaining % drop in Del Mar will not be the same as the % drop in Chula Vista. Why? Cause the % increase wasnt the same either. So % drop in NC coastal or SC inland? Or how about Oside drop vs La Jolla? Both are NCC, but they dont relate to each other much. It wont be the same everywhere, cause the fundamentals and demographics are totally different.

The real point is that the market is tanking in a way that is historically unpresidented. To assume that comparisons to previous well presidented busts is, well, to assume. The Market is going down, and it will continue for a while. This bubble took alot longer then 18 months to inflate, and itll take longer to deflate too.

If you want a percentage, take your area of interset, find out the underlying fundamentals (ie income, interest rates, age, views, etc. (you can usually assume 2000-01 prices isnt far off)) and then extrapolate from there. Some will have farther to go than others, but all are still going DOWN and will continue to do so for some time. Do you really need to know more than that?

Here's my guess, with an "IF" condition:

if (job_growth > 0) then
re_bottom := "11001110" -- 2's complement for -50%
else
re_bottom := "10110000" -- -80%
end if;

I guess what I'm saying is IMO it depends on jobs and wages. Since most economists believe we are heading into or already in a recession, I don't think job growth will fare so well.

"is historically unpresidented. "

yes we would have been better off unpresidented, historicaly speaking.

Assuming interest rates in the ~6.5 to 7% range and rents keeping up with inflation, we could be within 10-15% of price points where buying in Central San Diego (e.g. Clairemont/Mira Mesa) would be sensible in comparison to renting.

"...and rents keeping up with inflation..."

Yes, just keep ignoring the 800lb gorilla in the corner of the room.

Here We Go and DWCAP have the right answers.

Nostradamus: Hear, Hear. I was getting pretty concerned myself a couple of weeks ago and thought that this was going to turn into SDCIA II if I didn't start to poke holes in some of the posts.