When you become un-bored, please post more on what you find out.
I have always thought San Diego is the toughest market in California – not enough good jobs translate to so many difficulties including growing the city with a strategy worthy of it’s size, rather than the willy-nilly develop and develop at any cost, without giving real consideration to the impact on our freeways, beaches, open space, and schools. (Does anyone really think it’s reasonable that the traffic should be so bad here? When will the city planners actually promote business building in North County so the impact on i-5 south is reduced?)
I remember trying to get a marketing job here a few years ago, but because there are so few companies headquartered here, I gave up. I think the biggest 3 employers at the time were Qualcomm, UCSD, and SAIC – none of which were a real match for me.
I too would love to know how a city can keep giving out permits to build fancy high-rise condos downtown, sprawling McMansions in North County, and yet focus on the hospitality and leisure industries as our ‘growth’ areas. Even the middle managers of these industries can’t afford a median-priced home.
We do have bio-tech, but I’m unclear how much these R&D companies actually impact our local economy. Some of my friends employed by those labs have second jobs, to afford living here.
It seems like my friends who are successful (rich) are all in business for themselves, with landscaping or roofing contractor-type companies they own. Or they work for Qualcomm.

These are excellent points. The RE bulls forget that our 1.x% rise in population is mainly from illegals and births (net exodus of 40K San Diegans), and those people don’t create effective demand. Sometimes I hear quality of job comments, but those are rare.

Today’s median household income of $65K should buy a median house 3-3.5x that income, so that’s $215K. The actual median of $500K-something shows how far people have stretched with exotic loans.

Argument for rental drops:
The glut of vacant homes will be exacerbated by the exodus of people. Remember that in the year ending June 2005, 44K people left San Diego. I assume that was the beginning of a trend, and trends like this have a way of picking up speed.

Perhaps by June 2006, another 65K people will have left. Add to that the contractors who are out of work, the people who are foreclosed on who don’t have money now to live in San Diego, and we may hit 85K people/year leaving over the next few years until prices drop and jobs pick up again.

Here’s an intersting factoid: In LA and Orange County, 20% of rented untits have more than 1 person per bedroom (11% in SD, 6% in US). So a 2 br apartment has 5 or more people. Despite crowded housing, rents have not gone up because the demand just isn’t there. Why will this change? Only an increase in wages can cause rents to go up in high-priced rental markets like southern CA.

Argument for rents going up:

In the past, when housing prices dropped, rents went up. People who are not buying homes are instead renting. This is why the CPI went up more than expected last month, and economists are expecting it to continue going up, since rents are about 30% of the CPI component.

Will rents go up or down? Since I really don’t know, and I don’t want my landlord to sell this house from under me, I am signing a 2 year lease this weekend. Am I foolish?

“Affordability” ignores existing equity and only applies to first time buyers.

As an example, let’s say someone bought a house in 2000 for $300K. They put a bit of money down, had a regular mortgage (how old fashioned), and now they owe $250K. They sold in 2005 for $600K and bought another house for $800K. Their new loan amount is 550K, assuming they didn’t get stupid and take it all out in HELOCs (BIG assumption!!!!).

Sure, first time buyers were stretching too, but they are not the “median buyer” and so the “media house value” shouldn’t apply to them. That’s my opinion anyway…

Ultimately, affordability for first time buyers will catch up to the market. How long that takes, I have no idea! Could take 2 years, could take 20 years! Maybe all the baby boomers will have no buyers to sell their houses to when they all retire and expect to cash in their House-01K?

Bugs, are you saying that since homes prices are so out of whack with rental rates, that home prices must fall a lot, and get back down to rental rates, before rents can be affected? In that case, it will be many years before rents decline.

The rental market is dependent on wages, not on fancy loans. Even the housing market is dependent on the mortgage payment someone can make. Let’s say the median family can make a $2K rent. That would get them a $300K home with a traditional mortgage, but a $800K home with an exotic loan. But the family still only pays that $2K.

Now assume there are layoffs, out migration, and we are left with a reduced median income. Now people can only afford $1800/month in rent. Wouldn’t that reduce rents, regardless of the housing market? Whether there is a housing glut or shortage, the renter can only pay $1800. If he can’t find a unit for that price, he’ll move in with his parents or leave SD. The layoffs and out migration will put downward pressure on rents. The bad news is: there is no new industry in sight to save the SD job market. You may see a few jobs in port construction and Homeland Security, perhaps a few in biotech. But the massive 10K/year new jobs, which went into buying, remodeling, and furnishing our homes, will reverse.

Not crazy, their interest rate is adjusting, and so they’re passing the costs along! 🙂