San Diego Housing Bubble News and Analysis

The bottom of the market looks like the bottom of the market. Credit terms are tough, underwriting is tough, appraisals are tough and nobody offers the benefit of the doubt. The properties being sold aren't usually in the best shape and the transactions sometimes get complicated, depending on what's happening on the seller's side.

The agents on this board frequently comment that the primo properties you might have the most interest in aren't among the ones that are listed in a bottomed out market. I dunno that I exactly agree with that but I don't entirely disagree either.

I cannot emphasize enough how difficult the credit terms are in a down market. Don't expect the bargain basement interest rates.

Bugs, how about new housing developments? Will new home communities be in abundance here in Temecula and Murrieta since we still have land? I'm not worried about resales at all since I'll probably be buying brand new.

Land in Temecula? Not really, it was announced last year that Temecula was built-out.

Now there are still some projects on the books that have not been started, but basically Temecula is done.

Well, Murrieta is fine. I'm sure there will be plenty of new homes built here.

IMO we are in stage 3 of a 5-stage descent. Stage 4 will begin when more companies announce downsizing leading to layoffs and more foreclosures. Stage 5 (the bottom) is a global divot but China's lookin' good.

I think there will be an over-correction/reaction.

When banks are basically lending no money, they will have over-reacted.

"The bottom of the market looks like the bottom of the market. Credit terms are tough, underwriting is tough, appraisals are tough and nobody offers the benefit of the doubt. The properties being sold aren't usually in the best shape and the transactions sometimes get complicated, depending on what's happening on the seller's side."

I bought in November '95 and moved in Jan '96. The credit was easy, I got a 6% interest rate, the appraisal was easy, the seller's had to fix it up some but other than that, there were no complications.......I got really upset when the interest rates started falling after I bought my house. The houses dropped a little further and I could've got a little bigger and better house. All my friends who bought around that time had the same experience.

At the bottom, the general attitude will be "real estate is a terrible investment. It will never bounce back."

When the prevailing sentiment is very negative (and not "it will be over soon"), then it will be time to buy.

Sentiment is still very positive, or at least not all that negative. This website and others like it are still in the minority.

IMO we are in stage 3 of a 5-stage descent. Stage 4 will begin when more companies announce downsizing leading to layoffs and more foreclosures. Stage 5 (the bottom) is a global divot but China's lookin' good.

I think there will be an over-correction/reaction.

When banks are basically lending no money, they will have over-reacted.

ok, ok, but will somebody tell me when there will be builders building new homes here in Murrieta at realistic prices? Anywhere from $75-$100 sf?

I am mentally worn out!

ok, ok, but will somebody tell me when there will be builders building new homes here in Murrieta at realistic prices? Anywhere from $75-$100 sf?

I am mentally worn out!

Nobody is that clairvoyant but I'd say you have a year or two to chill. Maybe ask Rustico, he's a builder. I don't know whether it's even worth it for a builder to build for $75/sf. Would they even... break even?

Marion, I can tell your mentally worn out - I will now tell you the correct answer: it depends, houses vary and so do prices.

Beyond that, here is the true correct answer IMO: If you feel like you a want to settle in an area, your job is going reasonably well, the family is happy - you find a house you can reasonably afford and like, with a 30 year fixed mortgage.

You still need to be able to save for retirement etc...be reasonable about the price and your expectations.

Then, you move in with your family and enjoy life. Go camping, go to the library, curl up and read a book, watch movies, etc...the things that are really important in life to most families.

Trying to time the market to near perfection, worrying about what your neighbors house is worth, tracking your home value to the penny. For most people, this is a sickness IMO - that's probably why your worn out.

I'm not saying buy a house for a ridiculous price, of course not. In this market and with your knowledge, I doubt you would.

I've posted this before, but I feel it bears repeating...

When home prices start appreciating again, the bottom just passed.

I personally think that due to the magnitude of the bubble and the ensuing economic fallout it will be more severe then any previous downturn.

The top ten ways to know that the bottom is here:

(Drum roll please)

10. No sellers are offering “free” plasma TV’s -- just lower prices.

9. Buyers with bad credit are called renters.

8. RE professionals act professionally.

7. Time magazine’s headline “Housing will never recover”.

6. Your waitress and your barber no longer brag about how they made a fortune in real estate.

5. People buy houses to actually live in them.

4. US Attorney convicts Angelo Mozilo.

3. Democrats establish a commission to “cure” the housing problem. Republicans issue a press release stating that there may be a housing bubble. Libertarians are busy building bomb shelters.

2. No more bombastic ads for get rich quick real estate seminars.

And, the number one way to know that the bottom is here: all the Piggs have bought their dream houses!

It will look like "water, water everywhere, but not a drop to drink."

Prices will be low, but even though the extrememly tight credit markets of the last couple years have started to loosen up, you will have difficulty scraping together a down payment and qualifying for the loan you want.

People "in the know" will say sharp things like "cash is king, baby."

P.S. Nice post, contrarian. #3 is a classic.

"Did anyone say "wow housing is a great buy, I think we should buy"? "

3things I kinda remember:

1) News shows commenting on early 90's being a buyers market
alot

2) People you would talk to would comment on how it was cheeper to buy than rent

3)My brother bought his first house in '89

My brother bought 2 in '05! When he buys, I am thinkin' sell sell sell!

Bottom still not reached yet

I know the market is getting worse as I recently saw a friend of mine at church who happens to be a RE agent. She was trying to get me to buy a house and told me that soon all brokers and lenders will require a 20% down payment and good credit. No more funny money or numbers will be available. I told her politely thats fine as I am biding my time and putting money away for the down payment on a townhome and that the savings would be well worth it. Few Americans even save and live on credit so I know it will be good to buy in 3-5 years time.

You won't know the bottom until after it has happened. That being said it is still a long way off. We have these stupid threads about if the bottom is just around the corner every month.

I suggest everyone wondering about "botttoms" go read Rich's primers and take a look at his charts to get and idea of how the typical housing correction runs its course. That also being said, this wasn't the typical housing boom, it was the largest housing boom in US and probably world history. I suspect it may take longer to correct or to bottom than smaller booms did the in past 40 years. And we are facing even tougher economic problems now than in previous corrections. It will be amazing/miraculous if we can avoid a recession, and a recession will only prolong and amplify any housing crash. Also the inventory levels need to drop DRAMATICALLY before even thinking about the bottom. Inventory will be the best indicator of future housing prices. Right now the massive inventory guarantees lower home prices to come. There is no shortage of housing, there is a huge shortage of qualified buyers. My guess has always been and still is sometime around 2011 or so, obviously this is a guess and I think that if anything, later than that is more likely than sooner.

You'll know it's the bottom when the NAR reports bad news about housing.

According to RatherOpinionated on December 2006, this is what it will look like:

"Timing the Bottom
User Forum Topic
Submitted by RatherOpinionated on December 6, 2007 - 10:15am.
Rich,
the same way you know that buying CFC or FNM or FRE or C for any of your clients is one of the smartest things you'll do all year. Markets go to extremes and get extremely oversold or overbought well before the bottom is ever identified. By the time you "know" you've hit bottom, it is already too late.
For example, Countrywide stock with rumors of bankruptcy etc. hit a low of 8.21 recently. Well, it's trading at 11.49 right now - that's a 40% bounce. Had you waited for "confirmation" of a bottom or that all their bad news was behind them - you would still be waiting and made nothing. I also recognize you can't be the one to buy at 8.21, but if you bought anywhere under $10/share, based on knowing there is too much BAD news out there for the thing to be priced correctly, you would still be sitting on a great return.
I'd take this same philosophy to REO's and the Real Estate market. Everyone KNOWS there are months of inventory and the pipelines are growing, they KNOW there are a bunch of REO's that haven't even hit the market yet - and simply because EVERYONE ALREADY KNOWS, the current prices are reflecting that already. "Efficient Market" - I'm sure you remember that from your Series 7 exam last year.
Oh, and what isn't "priced in" yet is all the ways our nifty government will come to the rescue of lenders and borrowers. This should help support the market as well.
This is fun...."

I wonder if this is fun now?

I think the bottom is easier to identify than people think.

The middle class makes up the largest majority of home buyers. When the middle class can actually afford an average home, we have a bottom.

I've heard and read too many stories, myself included, where people making 6 figure incomes cannot get into a STARTER home.

So if you break the numbers down, a 100k combined family income (ie middle class-upper middle class) = 6k per month after taxes. currently the median sale is at 420. thats a good sign because it means that the mortgage payment is falling in line with a middle class wage.

I think we're still off on the median sale price by a good 50k, so look for the median to hit mid 300's on an average home in socal, before we officially have a bottom.

Remember as well that banks are requiring about 10 percent down with good credit, and the middle class will be hard pressed to come up with anything more than 5 percent these days.

The bottom will be hit this year, but it will sit at bottom for a very long time. what we are seeing is a return to the fundamentals that make average living in socal sustainable.

Nice and round, hopefully firm if it's been to the gym at least 3 times a week.

Giggity giggity giggity...oh yeah

Sorry, I know, serious topic, couldn't resist the release of my inner Quagmire.

RatherOpinionated came back as iseedots... and hasn't changed.

OK. I get it. Change your name when your posts prove to be incorrect. Thanks for the information.

Marion, I can tell your mentally worn out - I will now tell you the correct answer: it depends, houses vary and so do prices.

I'm not saying buy a house for a ridiculous price, of course not. In this market and with your knowledge, I doubt you would.

Hi, Paramount. Thanks, I'm just tired and sick of renting. In a year's time prices will probably be where I want to see them. I will say I am so surprised by the huge price drops I'm seeing everyday on realtyzip. It is really bleeding in my area now. Not blood on the streets yet, but it's obvious it's gonna get there soon.

Long way from bottom, yet. Met a nice couple at an alumni event last night. "We're renting in PB now, but will be looking to buy a house in the summer. Actually, maybe a condo, that we can rent out when we go to buy a house." I told them my story about my landlord losing $1,400 a month on my house. They mumbled something about tax breaks.

Yeah, a long way from the bottom. When the gleam is gone from absolutley everyone's eyes, that's the bottom.

Dow getting absolutely FLOGGED!

Jumpin Je-HAY-sus !!!

-306.95 or 2.46 %

yikes.

Voz

FYI- rather opinionated’s prize listing at Yokohama Ct. was marked down $20,000. Over 60 days have passed without anyone grabbing that incredible bargain. I guess we're all idiots for passing it up.

back on topic. . . the bottom will not be near until the number of foreclosures drops dramatically and bank "non-performing assets" start falling. There will be no bottom until "must sell" inventory is too small to have a real impact on prices.

We may be close!!

I'm still waiting for #4 and #1. (Forget about #8 -- it will never happen. What was I thinking?)

Very enjoyable post, from the distant mists of history, contrarian. I see #3 is not happening either. Instead, pols from both parties have lined up behind the greater govt efforts to pour money into housing in a powerful scheme to keep prices high. Consider all the expanded GNMA, FHA, FNMA, FHLMC, FDIC etc programs, and then add the mortgage loan interest deduction and relief from capital gains taxes on house price gains, and the Fed's bias to lower interest rates....

It actually isn't necessary for a good economy to have ANY of these ridiculous supports for home prices. Germany (post-WW2) is a decent example. Whatever else you may think of Germany, it's hardly an economic or political basket-case.

Great list.

Looks like your #1 is surely happening. I wonder what percentage of Piggs have bought already. From the posts, it looks pretty high.

Still, too much of #s 10, 9, 6, and (not) 5 going on to believe it's really a bottom, but that's just me.