San Diego Housing Bubble News and Analysis

You waited too long, now you're priced out forever.

Actually, you're basically thinking right. The only way the prices work is if you look at your payment based on the teaser rate of the ARM and assume you'll be able to refi easily when the term runs out.

funny thing is, people got those houses and they make less than you!

Wow, an American thats thinking logically, what a shock. You have laid out one of many reasons why housing IS currently NOT worth close to what it should be.

If you want a McMansion, you need to change a few bad habits that you have. First, stop saving your money. It is common knowledge that this will get you nowhere. All the successful, McMansion and Hummer owners use loans. They're easy to get, and you don't even need to prove your income or credit worthiness. The bad part is that you don't even pay of your house, but you shouldn't worry about this petty fact. You will own a home. Second, don't worry about that down payment either, you can finance it all baby!! And finally, you need to get all emotional about buying a house, and stop doing math, that won't help either. Make sure you find a nice high tax area too! Good luck.

Right on, the way I see it either regular people will someday have to be able to afford houses here again, or San Diego must transform itself into a city of 'unregular' well off people for whom current prices are not a problem. A land where everyone has an engineering degree and both parents work 80k/year jobs, for example. Although I have seen scattered evidence of this happening, overall the statistics do not seem to support it at all.

You are not alone csr_sd. I am pretty much in the same boat. I have a career and a small business, my wife has two small businesses, we save as much as we can, yet we still have not been able to buy the home we want due to pricing. We are also saving as much as we can but it still seems like we are just as far behind the market as we were last year and it is super frustrating. I have submitted some lowball offers over the past year, and one very recently but none of them were accepted. All I can say is try to hang in there. I don't think anyone will provide the spreadsheet you want because the numbers do not play out given the income you have stated above. There are however families that have two wage earners, where each of them pulls in 6 figure incomes AND they have money saved up for a nice downpayment. So for those families, it does pencil out much better.

SD Realtor

If Helicopter Ben does what he promised, then we might see interest rates drop to under 5 percent. Remember, they did touch upon 4.875 a couple of years ago. What if the economy really does slip into recession, like Roubini predicts, and it gets uglier than anyone expects, and interest rates get closer to 4 percent? As crazy as this may sound, I think you would have a small window of opportunity before houses doubled in price again to make your move. Perhaps I'm talking out of my butt, but did anyone think we would see the craziness of the past five years in year 2000? I certainly didn't, as I regretably sold four of my investment properties in 2000-2002, barely recouping my losses of the nineties. In hindsight, we all know the market was just taking off, and I made a serious timing blunder. All because of perception. I was duped into thinking it couldn't go much higher. We may all be fooled again this time around if rates dip under 5 percent...and stay there!

I was duped into thinking it couldn't go much higher. We may all be fooled again this time around if rates dip under 5 percent...and stay there!

Like csr_sd, I am making low six figures and 500K is about as much as I can afford. If at some point I am able to get a house that I like for that money, I will buy it. If not, I'll just keep renting and save the extra money for something fun. After all, happiness is not measured in square feet.

So what are you saying exactly? That rate decrease will kick this off again? No, it won't save housing. The Fed cannot drop rates much lower than they are now and certainly not low enough to save all the FBs from their resetting teaser rates.

Chris Johnston

Cashman - It is unfortunate the your exit timing was not too good, but it is water under the bridge. If you study the cycles, the 10 yr cycle in RE has been the most reliable over time. It is very unlikely that a huge ramp up in price will occur now, regardless of what rates do. My studies of rates over time have not shown a dead on relationship to RE pricing, other things have been much more closely correlated, like existing home sales to name one.

Just by being in here it is clear you are doing your due diligence as far as your next buying decision goes. Keep the emotion out of it, and never do anything that does not fit your own financial comfort zone. Chasing a momentum move in any asset class is a dangerous game. Once the music stops, there are never enough chairs, so do not rely on the music like so many people have in recent years.

All these comments are interesting, especially the cheeky ones!! It will be interesting over the next several months to a year to see whether entry level houses, near where people want to be come down in price.

I might start making lowball offers in July. In general though when making serious offers in this market would one want to come in 10, 20, 30% lower than the lowest price on a post, Or at this point do you just put in an offer where you feel the house will settle at?

Sorry for the english

San Diego has always been expensive, and always will be. I bought in May 1998 in Carlsbad, and we thought prices were crazy then, even though prices were barely off the low in hindsight. Perhaps prices will continue to decline from here -- the UT reports today we are now down to 2004 levels...factor in inflation and in many areas I think we are off the highs already by 20% --- but don't be surprised if you feel queasy about SD prices no matter when you get in. good luck

Japan's national bank brought their interest rate down to zero and it didn't reverse their downswing. The only thing that reversed it was the price adjustment to wages and rents.

I imagine Bernake recognizes that.

If Helicopter Ben does what he promised, then we might see interest rates drop to under 5 percent.

If interest rates go to less than 5 percent, can he really be called "helicopter Ben" anymore? Didn't he get that nickname because he threatened to crank up the printing press? That would be an inflationary scenario which would mean higher interest rates, not lower ones.

Besides, interest rates were NOT the driver in this bubble, it was reduced (actually, nonexistent) lending standards, nontraditional mortgage products and a complicit MBS market that flooded the housing market with weak hand buyers. This added an unsustainable and unnatural positive bias to the demand curve; with supply held relatively constant, prices went up. Once the bias is removed, prices will revert to their natural level.

Lowering interest rates probably isn't going to have much of an effect at this point other than sending the US into bankruptcy even faster. Remember, the US needs to import billions of dollars every day just to stay afloat. The only way we can convince patsies, er I mean "investors" to keep buying our treasury instruments is by offering good interest rates. If they go much lower, the foreign capital will flee and the US will be doing a 1990s-style Argentinian tango.

I feel your pain, csr_sd.

My husband and I (no kids yet), at 24, don't have terribly well paying jobs (perhaps because we live in the Inland Empire?), but we still have a $90k household income, which I think is probably a little better than a lot of other couples our age.

I feel like we would only be able to comfortably afford a house around $300K, and even that would be stretching it. $300k will get you a tiny, run down house in a crime and gang ridden area. If you want to even live anywhere without living in fear of the roof collapsing or having drive-bys, it'll run you at least $375-$400k.

Yet I see other young people buying these $400K homes, with a Land Rover and BMW in the driveway, and wonder how in the world they are doing it?

Is there something I'm missing? Is wanting to have a down payment, 80% LTV, 30-yr traditional mortgage with a payment that I can comfortably afford the "chump's" way of doing things?

San Diego may seem expensive to you, but I moved here in 2001 from the Bay Area because of the weather and the "affordable" prices. We bought for about $600k during the stock market crash and I heard about how there would be tons of foreclosures and the houses would be worth $300k in a year. Well, the opposite happened. With the recent downturn in prices over the last 18 months, San Diego is again looking more affordable to people from other CA areas - specifically LA/Orange County and the Bay Area.

I'm orignally from the Midwest (Chicago suburbs) and I'm astonished that homes back there are so expensive, but buying a home is what everyone does in their 20's or whenver they get married. That leads in turn to the move up buyers in their 30's and 40's and 50's which fuels the market. There are new $600k homes out there 50 miles from Chicago covered in 3 fet of snow where cornfields once stood. If you had told me 10 years ago that you would have to pay that price for a home in the boonies I would have bet my life against it. There might be pockets where you're going to see depreciation, but prices are not going to crash. You have to look around at prices elsewhere and ask yourself what the premium should be for living here.

Hello there,

Here are a few things that I keep in mind when trying to understand all the madness surrounding housing.

Part of what the Housing Boom did was create a greater gap between generations, economically speaking. In other words, those who have owned homes for a decade or more were made wealthier -- at least temporarily, right? -- by the boom. Many of them used their new equity wealth to move up and that has been a big factor in home prices.

During the boom, every homeowner became a speculator with fantastic leverage, and those who sold and moved up did some serious cashing in. Then there are those who inherited inflated real estate from their parents...

Also, I heard Henry Cisneros speak a few years back, and he made some interesting points. He pointed out that most of us middle class Americans look at housing prices and think in terms of "What will our one or two incomes buy?" Cisneros, who has been working for KB Home, stated that a great number of recent first time buyers are recent immigrants, many of whom buy as a family, pooling incomes and resources. We have this where we live: just across the street two Philippine brothers and their wives bought a big place. I count at least four incomes paying that mortgage, and the driveway is always full of cars. Maybe their visiting cousins kick in too?

The LA Times has an article today about banks offering special mortgages for people who want to buy second homes in partnership.

I believe in the bubble, but I also try to keep in mind that people really are incredibly motivated to buy homes.

JS

I believe in the bubble, but I also try to keep in mind that people really are incredibly motivated to buy homes.

Let's see how motivated they are to buy homes once they realize that prices are falling.

Prices are way out of wack and need to come back down to earth, but with 100K income you can buy a home. You just have to be resourceful. I don't recommend buying a home right now, might want to wait at least a while. I make about 30K a year and so do my co-workers. Many of whom, including myself purchased homes when they were 150k-250K. We were also only making 20K a year at the time, but worked as much overtime as we were given. Some of us rented out extra rooms and or lived with extended family members. I also ran a booth at the local swap meet on weekends to save for a down payment. So if you really want a home it's possible. At first I was scared to buy, but now it all seems to be easy. As long as you can afford a fixed 30 year loan, and you don't see yourself getting laid off anytime soon, it's possible. Also your payments will stay the same, but your income will rise along with inflation. The people that are losing their homes took loans that they couldn't afford. They also tend to spend more then they can afford. You see a lot of forclosures with Hummer's or BMW's in the driveway and wonder are these people nuts or what. So be patient, save your money for a down payment, and the market may just play into your hands.

recordsclerk, back when houses were $150k-$250k, how did you qualify for a loan on your $20k salary? A $200k house was 10x your salary. Did you have co-borrowers?

A large down payment and my fiancee had good credit. They actually sold the home to us under her name, but with my earnings. She was a student at the time and did not work. I was able to use one of those stated loans since I was selling items at the swap meet. I had to pay a higher interest rate, but refied about a year later.

Nor_LA-Temcu-SD-Guy

Yea same boat as you almost, Want MacMansion in North SD or Ventura (whatever come my way first) but will only part with about 500K for it. At least until inflation does a real number on my pay anyway.

I own a home now, so no hurry for me,

Still waiting ......

Nor_LA-Temcu-SD-Guy, same here. Would like to move to better digs but have plenty of patience. If needs be I can remain in my current home forever. I'll wait 'til you buy first. :)

I can see the points everyone here has made. For several years I was discontent with San Diego. Two years ago, I decided it was time to move. After 1 1/2 years after relocating to Chicago I have decided to move back to San Diego no matter what it takes.

For me, the quality of life is a major factor, one that I believed would not be affected by moving. Prior to moving, my researched showed the job market was better (higher annual income) and cheaper cost of living. After living in Chicago, I realize my analysis only took into account many factors, and I did not consider unquantifiable factors such as availability of fresh fruit, noise pollution, and sophistication.

I am sure people reading this are thinking I am being petty. After 25 years of living in So Cal, eating fresh fruit every day of the year, and enjoying stories from educated professionals that have traveled the world, Chicago is really backwater and extremely provincial.

So if you really are interested in moving take some extra time to figure out if the values you have (other than money, job security & growth, and owning a huge new house) will really work somewhere else.

From my experience, I would rather work 60-80 hours a week in So Cal, eating fresh fruit, enjoying the sun than work 20 hours a week in a city where people are not worldy, have never traveled outside the midwest, and have to put on 4 layers of clothing so when you go outside your skin does not fall off.

So I will be seeing you all back home in SoCal very soon.

p.s. I wish I had $2000 a month after rent/mortgage to "play" around with. Consider yourself lucky or spoiled. That is $65 a day to spend on food and misc.

p.s.s. My mortgage (the same as your current rent) and misc housing expenses (water, trash, basic cable, elect) was 75% of my take home income (prior to moving) and I still managed to feed myself (though not well) and do some remodeling on the house.

Wow the midwesterners get blasted for being provincial. For every interesting person here telling stories of worldly travel, there is a snot-nosed wuss in a Beamer, with a plastic wife.

CB
I think his point was not so harsh. The town I grew up in on the East Coast was a wonderful place to be as long as you grew up there and were part of it all from the beginning. I can't imagine moving there as an adult or teenager and enjoying it. One of the things that I love about SD is that it is a very easy place to move to and settle in nicely after 2 to 3 years. Back East I just dont think that is as easy, as everyone already knows each other and really aren't interested in newcomers to the same degree as here.

SDR

at home in so cal, are there really no fresh fruits in Chicago? The cherries and peaches from Chile are not imported to Chicago in the winter?

A good buddy of mine lives in Chicago. It's no wonder he keeps putting on weight.

I agree with cardiffbaseball that Californians are a little plastic.

wow,

I did not mean to suggest that people in So Cal dont make a choice to live here, or that the tradeoffs that you describe are not important.

I am from the east coast (Manhattan actually) and know a little about putting 75% of my take home to rent, and to figuring out how to make very little money go a long way.

I think all hometowns are parochial, be it Manhattan (you would never go to staten island, or Jersey) or southern california (san diegans dont seem to like lala land much).

This area is no more intellectual than anywhere else, if it were prices would not be what they are.

My point is that for all the developers here that are making pseudo tuscan villas, with no property to speak of, or horrendous condos with "resort style living". People are making a choice to believe their line and that they can have their cake and eat it as well. You cant do that at 750K starting and a 100K income and starting from scratch...period.

When I am not being 'spoiled' with my 65$ a day or all my travel (all seven continents this year alone... not fun by the way), I like my cake. My cake is that I rebuild old cars, try doing that with some as@#$le HO association telling you what you can or cant do, and then paying MR on top! So for me, paying 450K for a 1951, 987sqft, 3 bed, 1 bath, house in clairemont is what I want. It also the most I can afford! It is also all that WE need!

Thus, whether you move here to surf, eat fresh fruit, get a plastic wife or whatever, you cant believe that the prices here arent out of whack with what normal people (like me and you) can afford.

So my comments were that for very risk averse / conservative investors (like myself) that are starting late blogs like this provide a lot of interesting advice. But it seems to be skewed towards these mcmansions.

When will the bottom come? Will older starter neighborhoods fall faster, deeper, than newer developments? These are the questions I am interested in. Because we all dont necessarily want a mcmansion or resort style living, especially when we have an ocean, mountains, and trails!

I know some Chicagoans who have come to So Cal to visit and think our pizza sucks and ask , "where da heck are da brats, I want a brat. Don't give me none of that fru-fru food."
(Brat pronounced "brot" as in bratwurst).

I like Chicago ... for about 1-2 weeks in late June.

Here here, csr_sd!

We bought a futon from someone on Craigslist last night, and when we went to pick up the futon, we found that the seller lives in a McMansion development (in the IE). It was really kind of creepy how the houses all looked like they were made of plastic, and couldn't have been more than 10 feet apart from each other. They kind of look like all the fake buildings in Toontown at Disneyland!

On top of it all, they had absolutely no furniture or decorations- fair play to the minimalist style of decorating, but you'd think you'd at least have something to sit on-- like a futon! It looked to me like he didn't have any money to make his payments.

I'm with you csr_sd, I want a regular home, with some semblance of a backyard in a regular area. No Toontown for me!

I don't mean to defend Chicago, there is really no way I'd consider moving there. I just don't think "the people" is why I choose to stay in California. The weather, the things to do, the weather, the topography, the sunshine (starting to sound like a broken record)...

I'd take almost any major midwestern city before Chicago, because it's just too damn big and expensive. If I went back to Cleveland it's more that "provincially speaking" I fit in a little better, lifestyle is a tad slower, and you don't have to live so far out of town, to find an affordable but good community. There are some really expensive burbs near the city in greater Chicago.