San Diego Housing Bubble News and Analysis

Oh, I think you're absolutely correct on that point. I think people have talked around this scenario, but not necessarily talked it up.

Such buyers still take a pretty significant property tax/mello roos hit and they unfortunately pick this as what will probably be a bad time for a "move up", but it won't kill them financially. Some might go back to living paycheck to paycheck, but they can "afford" it.

I have no doubt that most of the new home purchases do represent move-up transactions for those buyers who generated equity via owning appreciating assets during the first half of this decade. However, I also see an overwhelming percentage of purchases relied upon 80/20 financing and ARMS. I take that to mean that many of those buyers had no significant equity to transfer to the new purchases. They didn't all parlay their equity into stock purchases. I think a lot of these people just spent that equity of Hummers and plasmas.

I wonder how many of the Beemers, Hummers and Range Rovers driving around town were bought with home equity rather than actual income.

Declining sales indicate the pool of buyers is shrinking. Who are these people that are still buying?

1)Sellers with equity in current house. People tend to be risk adverse. If someone sells their house and wishes to avoid risk, (and taxes), the safe course of action is to but another. As pointed out here, this doesn'tprovide a boast to the market because a house goes on the market to repalce the one that was sold.

2)High wage earners? Wothout toxic loan a $1,000,000 house requires about $300,000 family income. I'm not poor, but this is still more than I make.

3) Lotto winners? You better win the big one, cause 5 out of 6 won't be enough money.

4) Immigrants, Columbian drug lords, and deposed dictators? Maybe, but I don't have the data.

cool, I just wanted to get that idea out there. Keep up the chat, it really is a pleasure reading this every day.

Here's our situation and why we played the re market. Lots of equity in our home. Put home on market, bought a new construction home, sold home just in time as to not have to cancel new construction home.

Listed home for $599,000 sold for 529,000 1724 sq ft. home
New construction home bought for 582,000 3700 sq ft. closing costs paid by builder. Same area of South Corona.

We win!

tothjj has nailed it. It's the folks rolling over from the sale of a previous home, combined with the remainder of the clueless 100% financing crowd, people who have come into substantial inheritances, with a few $300K/yr households and TJ narcojefes thrown in for good measure. The financially prudent middle-class first-time buyer is not participating, unless rich Aunt Martha just kicked it and left them a $300K windfall.

sandiegoslide

Bugs you are spot on about the cars. We had a neighbor in North Park (we moved) whose roof looked lke it was about to cave in, but he had a Mercedes SUV parked on his front lawn. The neighbor on the other side was a professor at State who wasn't shy about telling us he used an equity loan to buy a Mercedes and a Land Rover. Last I checked young professors were not making 6 figures at SDSU.

I have wondered about all the new homes I see being purchased here in North Park. After living here for four years, I've seen dozens of the same houses being sold multiple times. Prices are going flat but they're still getting upwards of 700K here in Burlingame for "cute" stucco houses. Who is buying? I only see mention of houses in North County on this blog. Who's buying here in central San Diego?

I've seen a lot of people do this in Coronado - roll equity into bigger place. Problem arises when they cant pay the taxes on that new place! Bought a 300k home, sold it for 800k, bought a million+ home with ARM, didnt figure their incomes would stagnate. Taxes at $1000 a month can become a huge problem.

if i had access to everyone's credit data, i bet i could answer the question. i bet i could answer alot of questions. i'd be freaking fortune teller...

My wife's best friend is a consumer loan officer for one of the region's biggest credit unions. She tells stories of indebtedness among her borrowers you wouldn't believe. I've heard similar comments from several of my clients who are commercial lending officers at some of the community banks in town.

You know the commercial where the guys gives you a tour of his great home, his cars, his new pool and delivers that "and I'm in debt up the my eyeballs" line? Apparently there are a LOT of people like that running around town living paycheck to paycheck.

Even some of the "Greatest Generation" who are now retired are treading on thin ice, maxing out multiple credit cards and buying new cars every couple years. The SoCal lifestyle costs a lot of money to maintain.

One thing that has always bugged me: if they were indeed "The Greatest Generation," how did they raise so many lousy kids (60s kids/Baby Boomers)? Inquiring minds want to know.

I think the equity thing is certainly true in my area (LA-SFV) but in all honesty I think more people spent more of it, than reinvested all of it into a house.

A lot put back it into their house with upgrades, remodels, and ever complete rebuilds, but I really think more people bought new cars, second homes, went on vacations, bought motorhomes, jet skis, or yellow H2s.

You have to understand the mindset most people had, and were brainwashed to believe by every now defunct subprime lender of the past 5 years. In general they truly believed their 300% appreciation was normal. As if they deserved it. Not only that, many believed it would continue.

It sounds so asinine to think now, but people actually thought that. A lof of people probably could have afforded their homes had they used all their equity, because homes were still higher than they could have otherwise afforded.

Enter exotic mortgages.

Now people can buy that house, and take out $150,000 to start a business, buy a car, remodel, eat a very very very expensive dinner, and STILL have a lower payment.

If you look at the mindset that is only just starting to change, the equity bubble made people feel rich, so they lived like it. Only problem was they have to pay that money back.

The greatest generation spoiled their kids rotten. Think about it: you are in a fox hole, under fire, soaking wet, and eating dirt. You don't wish for a McMansion, a 50 in plasma, or a 1200 sq. ft. SUV. You just wish for a quiet little home on a quiet little street with a loving woman and a couple of rugrats. You promise to live your life for the little woman and the rugrats-- to do everything you can for them if you just make it out of hell alive.

You then make it out of hell alive, spoil your kids rotten, and get told that you don't understand anything 20 years later. It is a little pathetic, actually

Excellent points, cooprider14. That was a great read.