San Diego Housing Bubble News and Analysis

Deflating faster than I expected. Much faster. LA is actually deflating later and slower than SD, so SD is leading the pack down...still, declines all through what is normally the strong months of the market. Nov. - Jan. are going to be brutal.

The decline is pretty much what I expected.
The handling of the crisis by those in charge is much worse than it should be. Which again is in line with expectations.

BETTER then I expected.

I think there are too many chicken littles. I went through this as a homeowner in the 1990's and I am not worried. Anybody with a little common sense who can make a decent financial decision in regards to purchasing housing should not be worried either.

California and Florida are on track with what I expected, but Boston/NY are behind. I guess it will take a while for Wall St. bonuses to get hammered and all of the VC money in Boston's biotech corridor to dry up.

I live in Michigan, and think we've seen the worst of it. Values might continue to decline in some areas - especially in some of the higher end suburbs of Detroit like the Grosse Pointes, and West Bloomfield.

We have been "the economic bellweather of the nation" for nearly a century and our decline started in 2002. The price/square foot values in my local area (Ann Arbor)have crept up about 1 1/2% over the last month and a half. Perhaps, it's just noise in the system, but I'm hopeful. The higher end here will continue to get hammered as might the condo market, but the median detached homes are steadying out.

Of course, you can do the math. It's 2007. Our decline has been going on for five years. We aren't going up; we're just starting to level out.

I think it's happening a lot more quickly than I expected. The disappearance of creative financing overnight was something I didn't quite foresee. I was worried that we wouldn't be anywhere near the bottom in summer 2009 when I'll be looking to buy, but now I'm not so sure.

It has been a very interesting summer. Can't wait to see what happens next.

For me, it's both. The tightening of lending conditions has happened much more abruptly than I expected (not sooner, but more abruptly once it finally started).

However, the deterioration of sentiment is happening more slowly than I would have expected. I am continually amazed at the level of stubborn denial out there.

Sorry, that wasn't an A or B vote, but there you have it.

Rich

Denial. Isn't that the river that runs through D.C.?

Well LA--at least the areas anyone want to live in, appears still to be holding up and Boston is actually going up (could be noise). I am surprised how hard and fast FL is dropping, and how slowly LA, Boston, and even parts of DC are holding up.

Durable goods tanked today, so the stock market went up... I wonder if anything short of a good shaker or a truly awful holiday season will perturb the SoCal economy.

-one muggle

"I went through this as a homeowner in the 1990's and I am not worried."

Wrong. Unless you lived through the Great Depression, you've never lived through such rampant real estate speculation fed by non-existent lending guidelines.

"Anybody with a little common sense who can make a decent financial decision in regards to purchasing housing should not be worried either."

Great...find me one, please. I think you'd have better luck finding Bigfoot.

Signed,
Chicken Little #92

...oh yeah, by the way, things are turning out to be just a bit more gloomy than the bird whistling zip-a-dee-doo-dah would like to have you believe, don'tcha think. Good luck with all that.

I did not see the credit crunch coming, but in retrospect, it was obvious. The downturn was moving along about as expected until that development.

Honestly, until that point, I believed that exports to the strong world economy would more than offset the effects of the housing downturn. Unfortunately, the combined effect of the credit crunch and the housing downturn will probably prove to be a bit too much for the US economy.

muggle - This won't be the first time Wall Street has bull rushed into a downturn.

This ain't the 90's. Back then, ARM loans were the exception, not the norm. 100% financing in the 90's? Unheard of.

That being said, I made a sheetload off the SPF stock someone here posted (thanks! After the fed rate cut it went up 18%, I shorted it, it went down 39%) so I'd say this deflation is going GREAT. Depends on your perspective I reckon!

I think Riverside County is worse/faster than I expected and S.D. is slower than I expected. Temecula/Murrieta/Etc is 25% accross the board decline and falling. S.D. seems much more sticky. With the sweeping changes in financing I would have expected more from S.D. since most are priced well into the jumbo range and it was the creative financing/arm/neg am capitol of the world in 04/05. How that house of cards is still standing is beyond me. I guess everyone does wan't to live there and R/E never goes down on the coast or chowderhead's Jedi mind tricks are working.

I have been watching both Riverside and San Diego markets and I have to ditto Tem.Guy's comments! I am shocked at how sellers are holding out in San Diego, even with days on market going up and up. Some that do decrease the list price do so only by 5-10k increments. What are they thinking?? For a buyer needing to finance a loan the 5-10k decrease doesn't do much, so this will not get their home sold.

I'm anxious to see Rich's analysis of the Shiller Price index for Sept/Oct. as I think the credit crunch and after summer sales months will show a sharper decrease in prices even for prime parts of SD.

Temecula/Murr. declines have surprised me a bit on how fast things have gone down there. We were looking at buying in that area and held off, now I'm very glad we did. The values are coming down, and because we really like Temecula, it's getting tempting again...but I still believe this area will continue to deflate for awhile...too much inventory and more funky loans to reset!

Time will tell for all us bubblesitters!

Thanks everyone for posting great responses.

Thing I love about this wacky forum is that it is obscure enough that it attracts a smart, savvy crowd, with opinions worth reading

Actually I consider August 17 as "the" moment. So, it is not yet 3 months in my calender. Now, even @ half time, the game looks interesting enough. The right time for your survey is around Thanksgiving-Christmas-New Year. By then, there will be enough data to extrapolate for next year. So far, I consider the damage is smaller than expected. My scale is rather simple. Less than 5% unemployment = Good, 5 - 6%: Moderately bad; More than 7% = Really bad. On that scale, it is still good time now.

This ain't the 90's. Back then, ARM loans were the exception, not the norm. 100% financing in the 90's? Unheard of.

BUT, they did have 100% financing back then. Also, instead of option ARMs, the killer loan back then were loans with balloon payments. No rate adjustment, nothing, you HAD to refinance after X years or pay it off completely.

It's pretty much where I thought it would be. Condos would be first to take some hard hits, then the outlying areas of SFR's.......then it will work it's way towards the more desirable areas. I think it's going to take a long time (mid to late 2011 or mid 2012 to hit the bottom). Time will tell.

ECONOMIC REPORT
New-home sales plunge 8.3% to seven-year low
Median sales price down 7.5% in past year, biggest drop in 37 years
WASHINGTON (MarketWatch) -- Sales of new homes dropped 8.3% in August to a seasonally adjusted annual rate of 795,000, the slowest sales since June 2000, the Commerce Department estimated Thursday.
Sales are now down 21.2% in the past year, with no sign of a bottom in the crippled housing market. Read the full government report.
August's sales pace was weaker than the 825,000 expected by economists surveyed by MarketWatch. See Economic Calendar. In addition, sales in May, June and July were revised lower.
The sales figures do not account for canceled sales contracts.
The median sales price fell 7.5% to $225,700 compared with a year earlier, the largest year-over-year decline in 37 years. The median price can be affected by the mix of homes sold between and within regions, and the price does not include nonmonetary incentives, such as upgrades, free vacations and new cars.

http://www.marketwatch.com/news/story/ne...

WORSE WORSER WORST.

I expected the credit crunch to start in January of this year, not August. The banks knew it was coming late 2005 (first payment defaults in the pipeline get spotted pretty quick.)

What other bloggers are Saying... read on

http://www.haloscan.com/comments/calcula...

It is happening FASTER than I expected.

As of July we are already down almost 14% from the peak on an inflation adjusted basis
see here ...
http://piggington.com/july_case_shiller_...

At the peak we were at a point where one would expect about 45% correction in price + inflation to return to "normal".
It seems we are just getting started, but are already a third of the way there (not counting the rotten conditions in August-September).

I expect to see another 5% or more taken out by the end of the year in HPI, based on seasonal factors and mortgage turmoil. Combined with another 1-2% of inflation from July to end of 2007, that would put us nearly half-way through the magnitude of decline expected (assuming we were 45% overvalued in real terms).

At the end of 2007, we'll already be half-way down the hill (or more), in my opinion. Definitely faster than I expected.

In terms of percentages I think we're about on track for what I expected. Some of you may remember at the very beginning of the year we were speculating that the third quarter of this year was when we thought it would get really interesting and things would start moving more quickly.

However, I was wrong about which of the fundamentals would have the most impact. I thought the foreclosures would go to REO resale more quickly and I didn't think the financing would dry up as quickly as it did. It's been a little shocking to see the volumes dry up so quickly, looking in hindsight I should have realized that was the only way it could really go.

Some of you may think it's moving real slowly but you have to keep some perspective. The bust of the 1990s took 6 years, and the price spike it corrected for was only 1/3 as distorted as this one.

The other thing I think is messing up some people is when you make a distinction between s/w Riverside County and San Diego County. Some of you go beyond that and focus more narrowly on your favorite neighborhoods, which by definition would be among the last to show declines.

Sure, there's a county line separating the two counties, but economically it's still basically one region operating off the same employment base. Actually, s/w Riverside is about split between our weaker employment base and the stronger employment base of LA/OC. I have a feeling that if s/w Riverside had to rely solely on SDs employment base it would be doing even worse than it is right now.

The unwinding of this distortion will come from the outskirts in, so I'm not at all surprised to see all the action in s/w Riverside and the outlying areas of SD County and relatively few problems in the central areas. I do think that some of the "coastal will never go down" folks will come to realize differently before this is all over.

Given I am a glass half empty type of economist, the liquidity meltdown was worse than I ever expected. I did not realize that mortgages were packaged in CMO's and CDO's that were then leveraged in REPO's by "un-educated" hedge fund managers.

I expected prices to fall quicker as interest rates increased, but did not expect financing to all but dry up.

Now I am truly worried about what happens to the dollar - at its lowest level ever - with further interest rate cuts from the FED pending. Could it be that the FED intends to let inflation remedy the mortgage default problem by inflating prices above the "break even" line?

From a perspective of three years ago it is happening more slowly than I expected.I certainly thought there would be bargains for rehab and rental type deals by now. Things still don't pencil out for much in the way of detached houses for those purposes. In the last downturn the market was flooded with VA and HUD Repos. This time those two agencies are not holding many SOCAL properties. As we know the holders of distressed properties have been adverse to dumping properties of any type.

From a perspecitve starting 6 months back, which is about when we were having discussions about "big chunks" coming off prices I am satisfied with the pace as compared to my expectations. I expect the holders of distressed properties to continue to capitulate faster and more broadly from here on out. It would be great to know what the inflationary vs deflationary components of the return to affordability will be.

Yours truly is shocked that we basically have a good interest rate situation at this time. I thought that issue would have gone to hell by now. I still expect it too, but would be happy to be wrong.

Rustico Just a matter of time. The rates have to go up. helicopter Ben is "The Great Appeaser" haven't you noticed.Its election time,dollar plumetting.Must go up.

Prices have fallen as I expected but the credit situation defintely happened faster than I expected. We are in for a cold Fall/Winter over the next 3 months but I still believe we will have a relatively good Spring. I agree with FSD that we will be about halfway through the downturn by years end.

I'd have to say it's been better than I expected, though I must say I expected my area, LA to see at least 10% drops, and it's been at the most that much.

Then I step back and think, it took 5 years of reckless buying and lending to get here, it's going to take at least that to get it right, particularly when Congress and the FED step in the try and smooth things over.

However all that does is delay and worsen the inevitable in my opinion.

I did some research about previous housing downturns as I began observing this market, so I was mentally prepared to watch ice cream melt. The slow process did not surprise me. As many posters have pointed out the credit crunch was probably the most profound event that resembled a true POP. To me that's the point that it really hit home this was a credit bubble, housing just happened to be the asset of the day. I knew that people couldn't make these mortgage payments but I hadn't connected in my mind exactly what that would look like in the financial markets. In that regard the credit bubble is far worse with greater reaching consequences than I had anticipated. We are not at a post mortem on this event just yet.

With the death of the liar loans and zero down, I'm not surprised. It's what enabled prices to artificially be inflated by people "buying" homes that they didn't worry about selling because “the value would always rise”. So they tended to buy a house that was too expensive for what they could afford. This enabling the flippers to feed off of them. A vicious circle.

Credit explosion took me off-guard--I wasn't looking for the Wile Coyote moment in the CDO markets. Live and learn, I guess.

As for price declines, these seem to be accelerating in the more marginal areas (spectacularly in some), while more affluent/desirable areas are going down ever so slowly by comparison. I was anticipating an initial fall, followed by years of stagnant nominal prices/real price erosion. Clearly the dynamics of the decline are going to vary by region and within regions, with possible false bottoms here and there. Predicting the bottom for a particular area will take careful analysis of local conditions combined with global conditions. In other words, knowing when next to invest in RE will be obvious only in retrospect.

My sentiment is kind of with Rich's... The credit collapse was swift but for people to not acknowledge that the secondary market has already loosened is denial. There still are financing vehicles out there that provide easy money. The fundamental sacrificing of traditional limits for FHA will exascerbate the problem.

My biggest miscalculation was the significant reluctance of people in power (both political and economic) to actually let this country endure what it needs to go through to become strong again. In my estimation this will only serve to prolong the current condition rather then let it run the desired and much healthier natural course.

From the housing standpoint I am satisified with the pace of depreciation of speculative areas, condominiums and lower/middle neighborhoods. I am very disappointed with the pace depreciation of the more desireable neighborhoods. My second biggest miscalculation was that even in conditions like this, many people still will buy homes in these areas. Perhaps not as many as there used to be, but way more then I thought would be.

SD Realtor