San Diego Housing Bubble News and Analysis

Where? Temecula has fallen alot more than NCC, and their turn around points will be different. Same as national turnaround will be different than SoCal or Florida or Vegas or AZ.

March 13, 2014.

1:33PM.

22 votes and not a single soul believes in a turnaround in 2009.

I wonder where all the pigg knife catchers are coming from.

Just because we don't believe the market is going to turn around doesn't mean we shouldn't buy. You have to live somewhere, right?. If I can buy at the right price and minimize most of the downside I anticipate then why wait. I hope to buy this year. The plan is to buy at a price I think will minimize the risk. If it goes down 10%, I'll be ok with that. I plan on being in the house till I croak. Well, probably 20 years at least. I don't mind catching a very very dull knife. That way I can resharpen it and use it to carve up my rack of lamb that I'll be cooking!

BTW, my money is on 2011-2016 for the bottom. It's a long flat bottom!

Another point is that it seems pretty likely (from a historical perspective) that there will be a pretty good sized window during which to buy.

Last few times we've seen a bubble (though admittedly never of this magnitude), once the deflation more-or-less ended, we still had a couple of years of the market bumping around at the bottom. In the areas I'm looking to buy, I'm thinking that (barring even more of an economic meltdown) it'll hit bottom (in terms of overall sale price) sometime this year. I expect it will then plod along with no real gain for several years at least before we start seeing year over year gains. I'm ok with buying at or near that point, even though in terms of inflation adjusted dollars the house is still probably going to be losing money.

In other words, when people think the market will bottom is likely to be quite different from when the market will actually turn around. I expect it'll bottom in various areas between 2009 and 2010, but I don't see a turnaround until 2012 at the earliest.

I predict that what will bottom in 2009 are the rates for 30-year fixed rate loans.

We plan to try and catch that bottom, estimating rates might bottom below 4.5% about six months out from here, hopefully housing values (in Silicon Valley) will have also fallen another 10% by then. The other BIG advantage of our waiting another six months before looking seriously at buying is that then we'll have a better handle on HOW BAD this economic recession/depression will get!

The smartest realtors I know in Silicon Valley are predicting a massive wave of IT tech job layoffs will hit in 2009. Obviously that will cause a new wave of foreclosures.

Similar could happen for San Diego.

The keyword is "turn around". I'm a knife catcher because I think the downside is limited in the most likely scenario. But I don't think it will turn around anytime soon. With all the hidden inventory, how could it even be possible for a "turn around" before 2011? But I'd rather wait for the turn around in my house than in a rental, as long as the downside is limited, because who knows how long it will take.

Why?

Is it down?

Previous downturns lasted 5-7 years from peak to bottom. Then spent a year or two in between, and then a couple of years of gradual increases.

Can't guarantee this will be the same, but history does tend to repeat itself. If so, then we're not at the bottom yet in most places, and it won't snap back quickly even after the bottom.

Bottom calling is for suckers. If you're intrested in buying just before prices start to rise then wait until unemployment gets below 6% and stay there for at least 6 months. Then things can improve.

That won't happen for a long long time.

http://www.guardian.co.uk/business/2008/...

As many as a million American jobs could be lost every month by next spring as businesses struggle to raise capital in financial markets consumed by fear, according to a new analysis.

November was the worst month in the US labour market since the oil crisis of 1974, as more than 500,000 US workers were laid off, according to official figures released on Friday.

But Graham Turner, of consultancy GFC Economics, says the rising cost of corporate debt is now flashing a red warning signal that far worse is to come over the next few months and job losses are heading for levels last seen in the 1930s Great Depression.

Unemployment will never hit that number...

Just like everything else...

The Goverment will change the definition...

:P

With the amount of government intervention, I wouldn't rule out a slow decline for 5-10 years. We can be w/in 10% of a bottom in some area, but that last 10% might take 5-10 years to materialize. Can you wait that long in a rental? Does it pencil out considering how much money you're throwing away in rent when you're throwing away less when you buy a comparable house? While you wait 10 years for that last 10%, you're now 10 years older too. If you're 30 now, that mean you'll be 40. If you take out a 30 years mortgage, will you be working until you're 70 or will you have enough in retirement to cover your living expenses and a mortgage?

AN,

by your own admission it could only be 5 years to the drawnout bottom. I am more than willing to wait that long. I am not married, I am far enough under 30 that 5 years isnt a big deal, and I have no intention of having a kid for another half decade. Hell, bring a 5 year bottom on, sounds about right to my "I dont wanta grow up........" mentality. I wont even be collecting SS in 35 years, assuming it is even available then. (I have just written off my contribution as a enforced gift to my grandparents.) It is good to be young at heart. :)

I think that the DECLINES might stop in 2010 or so, but prices won't pick up for several years after that.

Maybe, but some things are hard to hide...

NY's unemployment hotline crashes

The state Department of Labor, which oversees unemployment insurance claims, received more than 10,000 phone calls an hour on a toll-free hotline Tuesday, leading to the crash. The department's online claim filing system also shut down under the volume of traffic it received.

http://www.bizjournals.com/buffalo/stori......

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Ohio unemployment hotline crashes

The unemployment claims systems in Ohio and other states buckled this week under an onslaught of telephone calls and Web site hits, officials said Tuesday.

The telephone hot line generally receives about 7,500 calls a day, but has been getting about 80,000 each of the past two days.

Unemployment claims systems in New York and North Carolina were experiencing similar problems due to a surge in callers.

http://www.ohio.com/news/ap?articleID=13...

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Michigan unemployment hotline crashes

Michigan Unemployment Insurance Agency. The phone lines are clogged and some say the internet isn't much help either.

At the Michigan Works office in Muskegon Heights, workers have been told the wait can take hours or even days to register for benefits.

The biggest complaint seems to be the toll-free number that people have to call to register. The number is constantly busy.

http://www.wzzm13.com/news/story.aspx?st...

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Alabama hotline redirects to California

There used to be a time when people who called Linda Jahraus' home in Laguna Beach, Ca., were actually wanting to speak to her or her husband.

But for the past several months, the majority of callers have been trying to reach an Alabama unemployment hot line. The call confusion has added to the frustrations of the state's unemployed and has left at least two California households hoping for a little less ringing in the new year.

"We almost didn't pick up the phone," Jahraus said Friday after spotting an incoming Alabama number from The Associated Press on her caller-ID. "It's a pain in the neck, quite frankly. The day after Christmas we had 50 or more phone calls and they started at 5 a.m."

Industrial Relations Director Tom Surtees said state officials are working hard to resolve the problem.

"I can't explain somebody sitting in north Alabama making a call and it ending up in somebody's private residence in California," he said.

A spokeswoman for AT&T Alabama, which has the department's account, called the problem unusual. Spokeswoman Sue Sperry said the company would be working through the weekend to trace the problem. She said it could involve a number of factors, from the long-distance network to a glitch in the switching center.

http://www.wctv.tv/news/headlines/370843...

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Missouri Limits Jobless Benefits Hotline

JEFFERSON CITY, Mo. (AP) - Missourians seeking to extend jobless benefits will have to start doing that on Monday, Wednesday and Friday.

An unemployment benefits hot line run by the Missouri Department of Labor and Industrial Relations will no longer be available on Tuesday and Thursday except for first-time applicants.

Department spokeswoman Wanda Seeney said the shutdown will allow staff to process the increasing number of unemployment claims. Through November 2008, more than 65,000 Missourians were receiving jobless benefits.

http://www.kspr.com/news/local/37172079....

When you take out a loan to buy a house, all you've done is taken on a big debt for the title to something. Unless you're paying cash, you have not "bought" anything. Total illusion. So let's see, you take out a huge debt on something while it sits in the cellar or heads further down. All the while rationalizing that you "bought" the house you wanted. The industry has most people fairly brainwashed about this.

Check the U-6 number for unemployment on the BLS stats sheet. It's actually believable. So the BLS is not a total fraud, they chose not to advertise the real number, but they do in fact calculate it. Which is why the govt is in absolute panic mode right now.

DWCAP, I said 5-10 years. What if it's 10 years, or even 15-20 years like Japan? The house I got, I'm paying ~$1k/month less in interest vs rent of comparable house (this is w/out even talking about tax deductions). So, a year, I save $12k, and in 5 years, I've saved $60k. That means my house would need to drop another 14% just for me to break even when comparing rent vs buy. If you're talking 10 years vs 5 years, then the house would have to drop 28%. This is also not counting in interest rates. Where do you see rates 5 years from now? Personally, I think it'll be higher. Do you see where I'm heading at?

First off, I was talking about bottom pricing, not payment or total cost pricing. The assumption in total cost pricing is that I care about interest rates and such now because I could buy now or choose to delay. I dont care about TCP because I am not in a place in my life where I am ready to buy. So as it would be financially irresponisble for me to buy now, and I would be risking loseing my DP+ credit+ whatever I put into the place, the risk reward to me is still tilted to fence sitting. Part of the money you are saving is due to the higher risks you are taking as a owner. If we are gonna talk about 10-20 Ala Japan, lets also talk about a job loss. That 12k a year savings wont seem so great if the income is cut. (I sincerly hope this doesn not happen to you or anyone. I wish no ill will to other people. But at 600k plus jobs being lost per month it needs to be factored in)

Second off, you were using the long end of your predictions. I used the short end. Considering the massive upheaval in todays markets, 14% off is still within the picture in the next 5 years. As you said, what do you think interest rates will be then? At Trillion dollar deficits, ill bet it is higher than 4-5%. But housing will have to adjust the price to reflect that too. So it is very possible in my mind to do just as well as you have done in 5 years when I am ready to buy, even if interest rates are higher.

Third, I dont understand your numbers. I am most likely off here, so please dont take offense, but if you are gonna use yourself as an example then I will too.
House:433k
DP:87k
Interest:4.8% (I am guessing)
prop tax:4500
insurance:500/yr

That gives us a payment of ~2232/month.

Nice houses are being advertised in MM for between 2200-2400/month to rent. I know they are about 200sqft smaller, but I think one backs up to a canyon with no rear neighbor (I like that).
http://sandiego.craigslist.org/csd/apa/9...
http://sandiego.craigslist.org/ssd/apa/9...
http://sandiego.craigslist.org/csd/apa/9...

So, how are you saving $1000/month over rent before tax deductions? Even if we add 10% onto the rent to compensate for the smaller house, that gives us about 2400-2600/month, only 300-400 more than your payment. Unless you had a huge DP, which isnt exactly the same thing. If you take out the 20% DP, something more akin to rent, it is more like 2800/month. That is still 200-300 less than the no DP payment. I just want to understand you numbers, because maybe I looking at things wrong.

How about just buying when prices actually start going up? Wouldn't that be the most accurate indicator of when the bottom has hit?
I'm not planning on waiting quite that long. I want my kids to actually still be living at home when I buy. I'm thinking maybe when things start levelling out or really slowing down is a good time for us, since we're not first time buyers and have some cash left from our last house.

DWCAP, are you counting in principal payment into your calculation? I also consider property tax + insurance will be canceled out by the tax deduction you get. So, when I say $ wasted, I mean the $ you pay in interest vs the $ you pay in rent. Both of those $ are gone forever and you'll never see it again.

Obviously, if you're not in a position in your life to buy, please don't buy. But there are people who are ready to buy 4-5 years ago and waited till now.

I personally would love to see a major crash by now, but it didn't happen. Especially now, when the government are stepping up to try and stop the massive decline, I think we'll see a slow decline and inflation eating most of the decline rather than in nominal $ term. That's just my personal prediction.

By the time you start to buy when it is rising, you may not be able to pick the perfect orange you want at the price you desire.

Don't worry this time such ride is not going to be happen nor even possible. No one have enough money nor any inverstors looking this can yield much in future for a while

I am counting principal. Mostly because there is no guarentee that you will ever see that money again. There are plenty of people who have been paying principal for years now who have no equity and hence, no enforced savings. That money is gone. HLS just posted about someone who was paying on a 15 year loan who cant access his liquidity and may loose out on alot of future value having to sell now. I consider your entire payment as part of the cost, atleast for the first 3-5 years. You dont consider the principal payments on your car loan 'saving' do you? You will never see most of that car money again, though it isnt interest either.

If you wanted to put the amount of your pricipal payment into an "investment" catagory and say you are saving or investing X% of your income then Id agree with that. Investments go up and down and it matters more when you sell vs buy then anything else. But I dont call it saving, cause it isnt money in the bank.

In the very least you need to be adding in the cost of your dp if you want to count principal. The foregone interest on a minimum 100k you have put into the place or will very soon should be included. Taking a longer term view of things (going back 3-5 years, interest rates BLOW right now) you should be subtracting atleast 3-4k in foregone interest from your 12k number. If you used historical stock returns, it should be closer to 8-9k off. Still money in your direction, but not 60k in 5 years.

And I have absoulty no intention of buying right now. (Thank you for your concern though. :) ) Infact, I am looking for a new rental right now. I hope to own a house someday, but am not dumb enough to let my emotional attachment to buying a house ruin the hard work I have done saving like an idiot and the lucky advantages i have had (some of my future dp is from an inheritance). I do not mean to come across as either jealous or frustrated if I did give those hints. I believe that right now is the first time in a long time that buying a house is not a financially horrible decision unless you are flipping.
I find no real fault to your decisions. However I have noticed what you said about being ready to buy 5 years ago but having to wait due to the bubble as a common trait around here. Delaying your life now for future small returns, if any, is not a smart decision. However, that does not mean that waiting in this market is a bad idea either. Many many good buys are in the future, and IMO not just in 2009.

I guess if you buy now to have a home for a few years and don't see it as an investment property you will be ok. However, in my opinion the prices here in SD are still very high in most areas and further declines are very likely over the next 2-3 years.

DWCAP, short term, yes, the principle you're paying cannot be accessed. However, to count principle as "wasted" money, then I'll have to disagree with you there. Even a car, a depreciating asset, you still can get some of your principle back when you sell it. But you can't get any of the lease $ or the interest $ back. A house, over a long term, is a appreciating asset. So, 30 years from now, all the $ you put into principle will not disappear.

I know 2009 will have more good buys and 2010 will have more good buys than 2009. I'm not saying waiting is not a smart decision. For you, it definitely is. Everybody is different and there's no one "yard stick" to measure when is a good time to buy for everyone.

Asianautica makes a good point. If declines slow enough, rent could be pouring money down the drain, but I think Fredo4 hits the nail on the head. When prices start to go up, that's when you'll know where the bottom was. However, informed opinion is part of what this forum is all about.

I just moved into a new rental. 2/2 w/a 2 car garage and a panoramic, albeit distant, ocean view for 1800 in Bay Ho.

There's a house up the street that's bank owned that just listed for 428k w/no view.

Would it make sense for me to buy and settle on a place w/no view and end up spending more on a mortgage than the rent in a declining market w/unemployment rising and more Alt-As on the way and Option ARMs recasting/resetting w/more NODs and foreclosures to come?

Eh. I think I'll pay another 20k more for rent this year. Something tells me that I'll see more than a 20k reduction on a place I'd want to buy by year end.

We'd not only need to stave off this disaster but some kind of wonderful, spectacular thing to happen to see any rise in prices any time soon. I agree the bottom will languish and flatline for a while.

calling Enorah - you have an amazing pulse for such things - what's your read?
rbeast

Who knows what will happen. I am guessing while you are guessing too.

Exactly! Why guess when you can follow the indicators and be sure of the market when it starts to moves up? Anything else is gambling.

This is a recent article in MarketWatch:

Home buyers advised to look before they leap
Building analyst warns 2009 is a 'bad time to buy a home' as jobs vanish

By John Spence, MarketWatch
Last update: 3:46 p.m. EST Jan. 7, 2009Comments: 473BOSTON (MarketWatch) -- Fox-Pitt Kelton home-builder analyst Robert Stevenson said Wednesday he thinks this year will turn out to be "a bad time to buy a home" as the U.S. economy loses more jobs, especially if buyers don't plan on staying in the house for at least several years.
"While some suggest that now is great time to buy a home given low mortgage rates and falling home prices, we believe that for most homebuyers, the opposite is true," Stevenson said in a report to clients.
The analyst's bearish outlook is based largely on escalating unemployment, and jobs are the lifeblood of the housing market.
"As if 2008 weren't bad enough for housing -- given the mounting foreclosures, falling home prices, and a tightening credit market -- millions more Americans are now in danger of losing their jobs," said Stevenson at Fox-Pitt. "As unemployment heads towards 8%, we expect foreclosures to spike, taking home prices down materially."
Investors will be closely watching employment reports later this week to gauge the economy's ailing health. The Labor Department's unemployment report for December is set to be released Friday, and the weekly jobless claims report is due out Thursday. On Wednesday, the ADP employment index showed U.S. private-sector firms shed 693,000 jobs in December, far worse than expected.
"If unemployment can be held under 8%, we believe the housing market will start a slow recovery beginning in 2010," Stevenson said. "However, if the bears are correct and the U.S. experiences 9% [or higher] unemployment in [the second half of 2009] or 2010, we believe the housing market could experience a meltdown even more severe than the one we've experienced in the past few years."
On the supply side of housing, there remains a sizable overhang of unsold homes on the market. The supply of both new and existing homes is massive by historical standards, and a surge in foreclosures would only add to the glut if the government can't find a solution to the foreclosure problem.
Buyers who do jump into the housing market should consider the possibility that they may need to stay in the home for many years in order to come out ahead, assuming home prices fall substantially further.
"Given the likelihood of a meaningful decline in home values in 2009, we continue to wonder why anyone would buy a home today," said Stevenson, the home-builder analyst, in a loud and clear warning to buyers.
The housing market "is likely to remain significantly oversupplied into 2010," he said. "Given the likelihood of incremental home price declines, we see little reason for most Americans to rush into buying a home today."

I actually always puzzle at the following question: what if, and God forbids, that sdr was actually right and we indeed see a rebound in house price in the coming spring. What would most piggs do? "you'll know where the bottom was" or you will just enter into another angry mood cycle against the housing market?
No one can argue that affordability has improved here in SD. And no one can argue that mortgage rate is at historic low. Peterb says "follow the indicators". Yeah, right. But what if the indicators say otherwise. Now what?

From the article:

"However, if the bears are correct and the U.S. experiences 9% [or higher] unemployment in [the second half of 2009] or 2010, we believe the housing market could experience a meltdown even more severe than the one we've experienced in the past few years."

You can pretty much book the greater than 9%. We could easily be 12%+, officially, by the end of 09. The natives should start getting restless in 2010.

By the way, I have this puzzle because I always think future is unpredictable, whatever the maths or media makes you believe. I think most pigg knife catchers have positioned them to accept further price drops. But I don't know if the reverse is also true.

Many people have quoted the idea that one should buy when "everybody knows it is a terrible time to buy."

Does it seem like that's now?

I think that outside of geekdoms like Piggington.com and OCRenter's blogs you can find nearly universal acceptance that real estate really sucks right now.

The problem is the "nearly" part. These conditions can persist for a long time until the "nearly universal" becomes "completely universal"

The bottom line is, nobody know what will happen in the near future. Most likely, it will take several years until we see a meaningful recovery in the housing and job market.

You can never get a unanimous agreement on one thing. You didn't get a unanimous agreement on the top of this cycle, what make you think you'll get a unanimous agreement on the bottom?

You're right, nobody knows and there can be no agreement...

I think real estate will definitely turn around, quickly, if Gold crosses 2K (or Oil crosses 200). Bernanke is working hard to achieve that. I believe, he and Obama, working together, will be successful (in 3 years max, before 2012). At that point, housing inventories should melt away like snow in spring. All monies now flowing into treasuries and agency paper will turn around on a dime and jack up real (physical) assets.

You're on the point. As long as these conditions are not met there will be no turnaround. Hopefully we'll see it in our lifetime....

I agree with you on inflation, but it doesn't necessarily correlate to rising RE prices.

Home prices are dependent on incomes; gold and oil are not.

BB can fly his helicopter over every failing company in the world, and BO can borrow from our children to pay people to dig ditches to China until 2016, but if none of that translates to incomes that can afford a home, RE prices will continue to fall.

2008 saw rampant inflation in oil, gold, commodities, etc., but housing prices fell the whole time.

Have you seen the thread about the house I'm buying?

I can tell you that my PITI after tax deduction comes out around $2650/month. Of these, $600 go to principal (forced savings). I probably could have bought with 3% down and my PITI would still be under $3000.

If I just wanted a house in a decent safe area - there's a 4-bedroom house not far from where I currently live. I could've bought that one with 3% down and PITI of $2150. Poway school district.

How many people in San Diego can afford to spend $2150/month on housing?

Does that tell you anything about affordability?

I believe, that in the current environment less than half of people in SD can afford to spend more than $2,000 on housing.

Under normal conditions (no housing bubble), how many people in SD should be able to afford Poway School District?

Only as many as the capacity of the school district allows. I just wonder if the Poway School District is currently at capacity or not.

Which means less than 1/2 of the people in SD, right?

Yes, much less than 50%, perhaps 5%.

Np, it's closer to 50% of families...

The median family income in San Diego: 72,407
(source: Census Bureau)

Percentage of income represented by the $2150 monthly housing costs : 36%

$2150 is maybe a bit on the high side compared to median income, but the answer is much closer to 50% than 5%.

Also, considering that San Diego traditionally has between 50-60% home ownership and that a significant fraction of that is condos, I am shocked that a 4 BR single family home in a desirable school district can be afforded by anything close to the median income.