San Diego Housing Bubble News and Analysis

What about the mello roos fees? Those are usually pretty expensive.

With 20% down, mortgage+property taxes vs rent seem to be approaching parity in many areas. Historically that has always been a good time to buy.
The immediate future though is very murky imo as government intervention and the employment picture oppose each other in quite a battle. Who will win is anybody's guess- but I seem to be running into a lot of folk who are looking to buy in the next six months and looking for "bargains" in the lower price ranges. Perhaps a realtor could weigh in?

uggh! Mello roos- what a rip! I'd do almost anything to avoid it since that money is just down the toilet.
Practically speaking, this year is just such a crap shoot. Why not wait until we see in which direction everything is going? There are a lot of pretty reliable sources predicting some pretty dire scenarios in the next year.
I'd love to quit renting and buy another house this year too. I really want a stable home for my kids, but things are just too unpredictable right now.
We may end up moving to a nicer rental this year if anything.

outtamojo you captured it well. In this corner is a true free market where struggling industry must layoff workers as the economy contracts. In the other corner is the government that seems to think they can tax everyone and now pick and choose what industry they want to essentially subsidize in what can only be characterized as an effort to stall things.

As the economy continues to deteriorate it will be no surprise at all to see the incoming administration attempt to throw yet more tax money and IOUs at the problem.

I do believe higher end areas like the area WFB is looking at will continue to run downhill but the pace will be agonizingly slow. As many of already know there is a tsunami of resets coming, do not FOR A MINUTE think that the likes of Barney Frank and all of the other people in charge do not know of the same thing. I am sure they have plenty of magic money to help continue the great stall.

To me this will culminate in a prolonged period of depreciation with chunks down that could happen in seasonal slow times like late summer. Tough to say. However I think that it will take awhile and those people looking for double digit decline bargains from where prices are now are going to be disappointed. There may be a onesy twosy (see the current listing on Chapalita in Encinitas) but those will get bid up.

If the government keeps quiet and lets the market run then we will see some nice large declines and ALL be very happy.

"My theory is that rates will be low for the next 3-6 months and then inflation will take its toll and we will never be below 7% again - and likely spend many years in 9-10 range."

I have been studying this situation closely for the last 12 months (so I'm far from an expert) but I don't think we will see interest rates in the 7% range for at least 5-10 years. At least.

It is unlikely we will see much inflation (most think we are in deflation) for the next 5 years. Even if we do see inflation, the government is going to be very very slow to act on it.

I think the one thing we can count on during this debacle is low interest rates.

Also keep in mind that 7% rates would destroy this low-end market recovery we have seen which would send prices even lower IMHO.

"Just thought I'd post to see if there was someone out there willing to knock some sense in to me."

I think the extremely strong reactions against buying are mostly a thing of the past. For much of the housing market, potential losses are seriously diminished.The next 30% on lower priced houses won't wipe out quite so much a the first!This is partially a joke not a prediction.

The warnings are still there, but the energy isn't. Most concern is for higher priced houses. People who can afford higher priced houses may or may not need to have some sense knocked into them but it is isn't custom to give the big dogs any guff. Remember raptorduck?

I tend to think some 300k- 600k areas still have a lot of losses to come, but apparently worry over that has diminished too ...at least in pigg land. It wouldn't be polite to go on about it when so many in the group are buying.

In my opinion some of the more bearish people here are starting to sound like broken records in the background,instead of a full chorus ... right or wrong.

The question is whether the Fed can continue to keep (re: manipulate) rates low if and when inflation picks back up. That may not be for a few years down the road, but when inflation picks up again and rates head upward (which the Fed won't have much control over initially, as it'll be a surprise, by definition) that will influence housing prices (re: lower due to higher financing costs, all else being equal) negatively, just as lower rates were one of the sparks that ignited the boom. My guess is that higher interest rates, resulting from higher inflation, a few years down the road is why residential real estate won't head up for a while after hitting bottom (whenever that happens).

I just can't see the government raising rates any time soon. What would be the logic? Is our economy so much better that raising the rates would help it?

Our economy is not the best and I don't see a dramatic improvement any time soon, regardless of how many bailouts they attempt. I really believe the core problem is good paying jobs.

That has been the problem for a while. People made money out of thin air during the dot-com era. That got diverted into the real estate game. Now that the house ATM machine is run dry, we are still back to the same problem. Making money.

If there are no plentiful good paying jobs out there, the government will have to come up w/another get-rich scheme. Or maybe they have. It's the bailout scheme. Get in line. See if there's a way to get some bailout money.

Sooner or later, the rooster is coming home.

As far as buying, if it makes sense to you, then go for it. I'm not familiar w/SEH, but if pricing is close to the 2000-2001 levels and/or your rent is close to what your mortgage would be, then take the leap.

Even if there is still further depreciation in a year, factor in what it would cost to rent for a year. You can probably do that math and see if it makes sense.

We are not at bottom yet, but there are deals out there. Be ready, have some down, minimize debt and have good credit. That will make you a strong buyer.

Oh - important. As much as you can, make sure your job is secure and you have some savings.

Yes agreed, just learned today that HELOC's are considered revolving charge accounts by FICO. So even if one is on the ball, has a good job, may still not be able to refi as FICO may be lowered without one being aware of it because of debt-to-income ratio. Many negative reinforcing cycles such as these, may create a reinforcing down cycle. How will the government collect more tax money with fewer people working?

Inflation is still pretty far away. IMO. No multiplier effect and wages stuck. Unemployment rising. Defaults rising.
Debt in a depression is a recipe for financial failure. If you're not in a position where you have to buy a house, I would wait until there are a few positive trends in the market....like unemployment decreasing instead of increasing.

Isn't "waiting for bottom" the name of a movie?

Just imagine what those rates and a battered economy will do to your comps!

It is explicit to everyone that if you don't have a job, you don't want to buy a house right now. But I don't understand the reason why when you have a job, you want to wait for other unemployed people to get their jobs as well (thus competing with you on the house), before you decide to buy a house.

If you wait for the robin, spring will be over.

It's just amazing to me that anyone who is somewhat informed would be calling a bottom now. It would fly in the face of all statistical, historical and common sense evidence. The real estate boom that just ended, the biggest in San Diego history, will be followed by a bust of commensurate size and duration. Every boom was and is followed by one.

An 85-year-old, wealthy, lifelong San Diegan told me at the peak of the market that the time to buy would be when everyone knows it is a terrible time to buy.

My guess is that sentiment is still 2-4 years away.

But good luck to all buyers...

It's not about calling a bottom. Who knows when that will come? Who knows how long the market will stay at the bottom before it ever starts to rise. Real estate moves at a very slow pace. Investment 101, follow the trend. Why get into this market before it shows any sign of improving? You can easily time the real estate market. It does not turn on a dime.

To find 2001 pricing in SEH, look at the older neighborhoods/ streets:

Archer
Dolphin
Coral
Sagewood
Beechtree
Windemere
Sandbar
Glencrest

Most of the above were built in 2001/ 2002 and if you look at the following examples, those homes havent hit 2001 pricing but some are closer than others.

http://www.sdlookup.com/Property-254C2F0... 395k in 2002, currently in the 600s

http://www.sdlookup.com/Property-C2A5097... 370K in 2001, currently at 519K

So in the newer areas up the hill, I guess use their 2001/2002 price per sq ft and pricing as a baseline and find a happy medium value for those homes.

Will you ever find true 2001 pricing in SEH? Probably not but getting closer each day.

Foreclosure Count (Preforeclosure included)

Antilla - 6
Orion - 3
Clifftop - 3
Brightwood - 2
Baylor - 3
Tara - 1
Corbel - 1
Genoa - 3
Hollowbrook - 3

Im sure there are more but the Questhaven corridor has a lot of room to move..

It of course is understood if you don't have a job, not to buy. But some people's position are precarious. They may be in a company that's downsizing or business is slowing/lagging and job cuts could be on the horizon.

That's why I mention that the job be secure. If there is a lot of uncertainty, then wait. I know some people who have extremely good job security. Pay is ok, not vast amounts of money, but there is no risk of job loss.

Everyone is different and that needs to be evaluated by yourself.

I don't see anyone calling a bottom here. It's just that sometimes the last 10%-20% isn't worth waiting for if there are non-financial considerations and the price available today isn't eggregious.

I agree with Peter and Mark regarding timing the bottom. I also agree that everyone is different. I more or less timed quitting my job, which I hated, with closing the purchase of my second house. It made sense at the time and worked out well. I'm not telling anyone to buy . This is more relevant if you can buy a house with added security of a likely bottom.My housing cost have been incredibly low for all my life in part because of this decision. I also locked in a price that was likely to benefit from appreciation and it did. Food for thought.

I guess nobody can speak with absolute authority about how easy it is or isn't to time the "bottom". I do think that when buying a house seems like a "no-brainer" that will be pretty near. I would not say buying a house right now is a no-brainer by any realistic stretch but I imagine most of those who are buying are not going to get viscerated competely by the knife.

Yes, but my point is prices could drop, easily, another 30-50% before we hit bottom in 2012...

Anything is possible. But the probabilities for various scenarios vary significantly. A 20% decline from here isn't a stretch. A 30%-50% decline is a bit of a stretch, based on where prices would be relative to rents and income (even assuming some measure of decline in both). Doesn't mean it can't happen - anything is possible, after all - just means it's unlikely. Also, more importantly (and more relevant to this thread), I'm guessing the folks here aren't buying "average deals" - they're looking for "bargains," and today's bargains (all relative, of course) will fall less than the median. Hell, even OCRenter ("renting sucks") is buying. It doesn't mean he's right; just means a lot of the risk has been taken out of the equation if you do your homework.

It's easier for some folks to sit in a dark corner full of fear and afraid of the future. Some choose to stay there. Others see opportunity and create their own bottoms by doing lots of homework and finding a home they love at price below current market conditions.

It also very easy for someone who benefits from real estate transactions to recommend people take action no matter what the outcome. "...to sit in a dark corner full of fear.." This is a completely non-analytical statement.

Consider the source and follow the money.

In all of my wisdom my wife is really against buying now, she used to be a chick that needed a house because "darn it, we deserve it!" type chicks.. now she's a house nazi. I couldn't get her to buy now no matter how sweet the deal is.

I think higher priced homes still have to go down in price. There is a lot of room for contraction. I can't help but think that if the more expensive housing in nicer neighborhoods declines, it will also affect the middle/lower income areas again as people may be able to afford better neighborhoods.

Needless to say we are sitting on our hands/wallets for a while. Plus, why not wait and see what happens when all the smoke clears, we've waited 3+ years already!

I must say I'm shocked at all the recent purchases from members of this site, OCRenter, etc. And now another is thinking about pulling the trigger.

It seems like not long ago I was wondering when the general attitude on this forum would start to shift towards pro-buy.

About the ONLY "plus" I see at the moment to pulling the trigger are lower rates. Everything I see and read points to prices going down significantly, the only question is how quickly. Even Forbes is predicting a ~20% decline in San Diego this year.

If you wanted to live in SEH, I would agree it's probably seen the majority of it's punishment. But I don't get the impression that is where you really want to live.

Wage inflation? Anytime in the immediate future? I don't see it.

I've got major wife pressure, and I was thinking to myself Q4 of this year would be the earliest I would even consider it. I think that will probably be early as well for the price range, but will remove hopefully another 10-20% of price decline risk.

What did Forbes predict for 2007 and 2008 ?

sdr,

It's not so much fear as it is being alert and knowing what's going on all around you (including global issues).

For some areas, much of the risk has been eliminated over the past few years (like O'side, Escondido, Vista, etc.). In other areas, the risk is almost as high as it was during the peak.

Some of the "safest" jobs are in govt, and I can assure you the axe is being honed right now. Can't imagine the private sector is any better off. We still have a lot to work through in the financial world, and there are greater negative demographic and wage pressures that we didn't have during the last few RE cycles.

There's no need to sit in a dark corner in fear anymore. We all know that in the short-mid term houses are greatly depreciating assets.

If you find your dream home and can afford it and almost nothing will make you lose it in the next 10-15 years then you should seriously consider it. That goes for anyone who is sure that they are totally fine and unfazed financially from any of the following possibilities and puts at least 20% down:

1) If you are married you know you won't get divorced in the next 10-15 years or if you will then you can make it through the divorce without liquidating the house.
2) You will have a job that allows you to stay in the house or you don't need a job at all to make the payments.
3) Your career won't force you to relocate in the next 10-15 years or you have the cash (Cash not investement cashout, see #5) or company benefit that will allow you to get out from under the house.
4) You are comfortable in the fact that you got a nice low interest rate but will be fine with comps getting heavily trounced with the inevitable rate increases at some point in the not-so-distant future. (As long as you stay in the house for 10-15 years you will likely weather the loss in equity).
5) You know you will make out fine in a deep recession or even depression and the likely resulting losses in all asset classes you invest in. You won't need to depend on these assets to make payments on the house in case of job loss.

These are all very realistic possibilities in the current economic environment. If you know none of these things will affect your homeownership and find your dream home then there is no reason not to jump in. No fear involved but instead a realistic approach to buying into that asset class in the current heavily negative economic environment that even the "experts" don't know the outcome of.

cheers

Capeman.......................Great post! Well said.

Since the 70's (and maybe before), there has been this "California thing" of rushing to buy before the other guy beats you to the deal, Primarily in CA and rarely in any other part of the entire USA would you see people camp out to pay for ridiculously priced, tract homes, In fact, most people in the country have laughed at Californians when they would show footage of people camping out and standing in long lines. Like I said, it's primarily a CA thing. Now that prices have dropped substantially, the old greed & fear factor of beating the other guy is once again, rearing it's head among otherwise, rational people. All anyone has to do is watch the news on tv, read the newspapers and major internet sites to realize that the economy is going to take an even greater hit over the next year-plus. Just look at what has happened in the Temecula-Riverside areas. They're simply ahead of the curve and even if prices don't drop as far as they have in those areas, anybody who can read or hear damned well knows that San Diego real estate prices are going to drop this year. Whether they drop 10% or 30%, you're playing with fire and you'll be paying back the excess money plus interest and higher taxes for a long, long time.
It's obvious to me that some are simply tired of waiting and they're making an emotional decision rather than a rational one.
Hey, I'm not knocking those people but it sure is interesting to watch the behavior of these potential buyers, rationalizing their purchase of a home in such turbulent, economic times. It's their money and more power to them. Good luck to those of you who have recently jumped in and also to those who are going to do so this year.

capeman, can you say yes to 1,3,5 in the best economic times? Economic cycles comes and goes, probably a few times in 30 years period. Does any first time home buyer ever not need a job at all to make the payments?