Why do you say it’s happening quickly? The downturn started in the summer of 2004, so it has been in process for 2 years. Inventory doubled from 3,000 in March 2004 to 6,000 in June 2004, and then doubled again to 12,000 in September 2004.
The inventory doubled because buyers were squeezed out. Prices were getting too high for first time buyers.
Lenders are even more lax than ever, and the Fed funds rate does not affect the exotic loans. So I don’t buy the story that the Fed’s raising of interest rates started the slowdown. I think, and I don’t really know, that prices were simply too high and people couldn’t afford to buy.
The ripple effect of longer times on market started at the low end, and
took over one year to get to the mid end.
From preliminary data, isn’t August holding up fairly well? Sales are the same as July, so they are not decreasing further.
I have some ideas for why it appears to be happening faster this time. Exotic loans are leading to foreclosures among new and older homeowners, putting more motivated sellers and REOs on the market. More speculators this time created a greater frenzy and perhaps more building, creating a further glut of condos and homes. This cycle is national in scope, so the impact of cooling housing is having a stronger effect. Internet via blogs like this and realty web sites are speeding the flow of information; consider how many potential buyers chose to rent thanks to piggington. I can think of a couple people who cancelled their escrow due to getting data about housing from this website.
Last, and MOST important: with prices so much higher this time, we have 50,000 people per year leaving San Diego, shrinking the pool of buyers. Did people leave San Diego before the layoffs in the last cycle? No, they left due to the layoffs. Likewise, when construction workers and lenders lose their jobs, they may leave too. But notice that in this cycle, people are leaving BEFORE the recession, simply due to the high prices. We can’t attract people to come here. “Hardly anyone wants to live in San Diego” is more like it, as few are willing to pay 50% of their income on shelter. At today’s prices, fewer and fewer people are coming here, and more are leaving. I think the exodus of middle wage earners has the greatest negative impact on housing prices, but it is not discussed in the media at all.
The high prices were the cause of the bubble popping, as 1) people couldn’t afford the loans anymore, and 2)people started moving away selling their homes to cash out or plain refusing to pay so much to a mortgage. It was just too expensive to live here, so buyers started moving away. If the media ever covers this, it will make my day!
On a related note, we need some accurate forecasters, because our government officials have got to be educated on the dire situation facing us so they can act with a proper plan. If we could get a meeting with the County officials, we could perhaps persuade them to provide incentives for companies to come here. We can solve the housing issue with our knowledge that prices will drop a lot in the next few years, thus attracting workers who would be willing to rent for a couple years. It is critical to bring in recession proof businesses as soon as possible, so we can minimize the impact of the recession. Esp. biotech.. gov’t officials have to be prepared for less revenue in sales tax, property tax, and human suffering that goes along with foreclosures and bankruptcies (homelessness, suicide, bankruptcy counseling, social services). They must realize the population exodus, but I am afraid they do not. If they pay Alan Gin for forecasting, they still
believe this is all temporary. This is a huge disservice to our population. Does anyone want to get together with me to schedule a meeting with city or county officials?
