This week’s Voice column is an apologia, of sorts, for why bearish housing observers like myself spend so much time obsessing on downtown San Diego. We don’t have anything against the place; it just happens to be the place where the bubble has had the most dramatic effects.
Not so long ago, Downtown exhibited all the trappings of a full-tilt speculative bubble. Inventory was practically non-existent, units were bought and sold several times before even being inhabited, and panicky buyers were willing to pay any price to get on board.
Now that the market has started to exhaust itself, downtown enjoys San Diego’s most obvious imbalance between supply and demand. Inventory is up tenfold since spring of 2004, and has doubled in the past year. We now are entering the seasonal inventory-growth period, so that number will surely climb.
Even using the most conservative possible assumptions, there are over 10 months’ worth of downtown condos sitting on the MLS for resale. Given the enormous amount of supply slated to come online over the next couple of years, downtown is absolutely a glut in the making and may be hardest hit when the bubble deflates in earnest. So like it or not, the state of downtown will remain a subject that is near and dear to me.
I will agree that there is
I will agree that there is quite a bit of inventory in Downtown San Diego but market forces will shelve most if not all of the planned units not already under construction.
Your comment, “units were bought and sold several times before even being built” makes it sound like there was some sort of futures market in place where buyers and sellers were trading contracts. How could this possibly work? There may have been a few double escrows but as far as I know, the developers required that the buyer close escrow on their unit before they could resell it. Closing escrow would require that the unit is actually finished and ready to move into. I don’t know of any lenders who would lend money and close escrow on a partially finished condo unit.
You have acheived a cult-like following by your diciples on this website. Please be responsible in reporting how a real estate transaction actually transpires.
buying and selling in the
buying and selling in the preconstruction phases was very common. anyway, the point of the story is that speculators will be the downfall of this market. they created a false sense of demand and are the cause of the overbuilding. go downtown at night and look at the condo towers, very few lights on at 8:00 PM, most units are vacant. the inventory is going to get even bigger as these speculators grow tired of paying out the nose month after month as they watch prices decline.
You didn’t capitalize
You didn’t capitalize “anyway”.
You didn’t capitalize “they”.
You didn’t capitalize “go”.
Too many grammar errors to respond to. Sorry.
Signed,
powayseller.
San Diego – Please be
San Diego – Please be responsible in proof reading your posts. “Achieve” and “disciple” are the proper spelling, the word “downtown” is not capitalized, and the word “but” is preceded by a comma.
Furthermore, a disciple spreads the doctrine of another, and I, a frequent visitor to this site, have not found any doctrine at all. I have not read any recommendations or actions or sales pitches on this site.
This is one of the few sources of accurate, analytical information about the San Diego real estate market, and the only source of historical data showing fundamental data such as median price/per capita income.
Did you think you’d make any friends by calling us cult followers? If you have something useful to offer, come back and share it. Otherwise, go take an English class and read Miss Manners.
You said:
“…buyers and
You said:
“…buyers and sellers were trading contracts. How could this possibly work?”
Buy selling the contract to a buyer.
You used the word “Buy” in
You used the word “Buy” in place of the word “by”. I hope powayseller doesn’t reprimand you.
You are the moron that began
You are the moron that began correcting people’s spelling and grammar. Keep drinking the Kool-Aid, because you know they aren’t making any more land, everyone wants to live here, real estate only goes up, blah, blah, blah…
i personally know of two
i personally know of two people (both doctors!) – they have a small partnership – that bought and sold their interests (i believe through contracts) in a couple of pre-construction san diego condos and made a nice little profit doing so. however, they’ve reinvested the profits in a couple of other projects that they’re waiting to sell upon completion. i don’t, however, know the actual contractual/operational details of how they went about buying and selling their contracts. and i also don’t know whether that process was repeated by others after such sales. i’ll try to find out the details. i would doubt, however, due to my “impression” of the logistics that such contract sales would occur more than once or twice before the ultimate owner ended up buying the condo, but i could be wrong.
having said all that, i’m a certified member of the “real estate bubble cult”… i was also a card carrying member of the “stock market bubble cult of 1998-2000” – which saved me a lot of money – and will be happy to join any other bubble-related cults in the future as membership becomes available. please keep me informed.
I suppose its to late to
I suppose its to late to entreat everyone to get along so I’ll just add this. I have seen several intances of someone on CL selling a contract to buy a condo, not the condo itself. Now I realize this doesn’t constitute hard proof, but I have seen this scenario with my own eyes. It wasn’t a friend of my cousin’s accountant who told me about it.
What this means is that someone entered into a contract to buy and placed a deposit on a condo. They then tried to sell the contract for the condo. I believe that satisfies this scenario.
As to a disciple, I am still at level 12. I don’t think I get that title till level 16, with pre-emptive strike capabilities and a few more hit points.
Why be ungracious about the information here, even if its dead wrong? If we are wrong then we will reap what we sow.
Josh
Buyers Unite!! Leverage Over
Buyers Unite!! Leverage Over Greedy Builders.
As we have consistently seen in Rich’s articles, very soon the reality and imbalance of supply over demand will create very anxious and desperate builders that have to drop prices and give away incentives to move inventory. This certainly drives leverage to the buyer. Well this reminded me of an article that I recently read in the WSJ that in China there is a grass roots movement among consumers that “organize” an informal cooperative to leverage the buying power of a group versus the individual. For example, if I want to buy a car and find 9 friends who also want to buy a car, the 10 of us organize ourselves and go into a dealership and demand a price concession. The dealership 9 times of 10 gives them what they want. As they do not want to loose the 10 sales, the volume makes up the individual reduced margin.
So I was thinking why could I not apply this same model to buying a home here in San Diego? Why could I not gather and organize everyone else that is interested in the development that my wife and I like and “organize” ourselves. Determine who wants what lot and how much we are willing to pay for what we want. Go to the developer as a group ready to buy and demand what we want. This model would certainly not work a year ago but has a fighting chance as builders become desperate and need to move inventory. They are not going to walk away from selling multiple units in one fell swoop while still making excellent profit margins. This would shaken things up and drive a more equitable sales model for the consumer. Let me know what you think about this idea. Do you think it would work? I think if we are organized and have done our homework and have a finely tuned attack plan, we will be successful and can take back the leverage and demand reasonable prices instead the rediculous costs that builders have been charging. If you are interested, let me know. This is a thought worthy of further discussion. Email me at bobd21@hotmail.com.
It is very material to the
It is very material to the point of the article. Please tell me of one actual situation. Were there hordes of speculators standing on the street corner offering bags of cash to the lucky few who were fortunate to tie up a “first phase” offering? If so, those speculators apparently would have several hundred thousand dollars of equity in each unit and could possible withstand the financial ammegeddon that your diciples seem to be praying (or preying) for?
First off, the grammar and
First off, the grammar and spelling corrections are annoying, no matter who is doing it.
Second, let’s take an even-keeled view at what San Diego said.
Rich bristled at the comments about being “responsible” and his “cult-like following. I don’t blame him for that reaction, but let’s ignore it for a minute and address the points San Diego made.
He has a legitimate question. I admit that I was a bit surprised about units being “bought and sold several times before even being built.” I have no basis for judging whether or to what extent that’s true, and I am inclined to take Rich’s word for it, but would be interested in hearing more details about it. I would encourage him to investigate that further and return to it.
Second, regarding the “cult-like following”, if it’s true I don’t think it’s Rich’s fault. I do sense, somewhat here but more in other blogs, that people are waiting on the sidelines hoping for Armageddon, motivated by the same real estate frenzy that drives people into bad speculation schemes and prices into the stratosphere. People have their knives sharpened in anticipation of a glut of foreclosures, or are waiting six months or maybe a year for prices to plummet 50%. In other words, there seems to be as much irrationality growing among the bubble-believers as there is among those responsible for the bubble.
However, my experience reading Rich’s columns and comments is that he has a pretty even-keeled view about how this is playing out. He can’t help how people interpret what he presents. Frankly, if it can be done without the veiled insults, I’d really like to hear more around here from people like San Diego, or others skeptical of the bubble, and I’d venture to guess that Rich feels the same way. My fear is that that viewpoint would be shouted down, and that would be too bad.
Oh, I agree:
But regarding
Oh, I agree:
But regarding the ins and outs of pre-con sales, it just doesn’t matter. I wrote that in an attempt to convey that there was plenty of speculation, volume, and rapid price rises
And those are verified facts. It’s just that if there is a phenomenon where condos were being flipped multiple times before they were built, that’s an interesting thing in my mind, and it would be worth looking into. I understand that you have other fish to fry.
Let’s not stray from the
Let’s not stray from the facts. Whether or not units were sold several times before being built is not the issue – the issue is increasing inventory and decreasing sales. In an attempt to discredit those of us who believe that a housing correction is on the way, I often see people like “San Diego” attack one small part of an argument and claim that the whole argument is therefore false. Attacking ones grammar and spelling is sometimes used, as well as attacking us personally (i.e. as members of a cult).
I have yet to see a strong, well-constructed, facts-based, objective argument as to why we won’t have a significant housing correction in San Diego. Perhaps “San Diego” would like to offer us his argument. I’ll be checking for grammar and spelling…
Skip the grammar and
Skip the grammar and spelling and hope instead for a well-constructed argument. I have yet to see one from any of the permabulls, and that includes the developer’s pet (as in, paid) economists who are so often quoted in the Union-Tribune.
About the best they can manage is the “it hasn’t happened yet” gambit. The values have kept increasing and they haven’t dropped yet; the unspoken premise being that if it hasn’t happened yet it isn’t going to. But that’s an hugely erroneous premise because it HAS happened before, and it happened exactly the way us uberbears think it’ll happen this time. The past predicts the future. Just ask the dot.bomb losers about how their “new paradigm” worked out for them.
One more thing about Rich’s “cult”. Whatever degree of support he has here is not really of his own making. He gives a voice and a forum for people who already had these views before he came along. People are making the connection between the points he makes and what they’re seeing at ground level. For example, I’m a professional real property appraiser with 20 years in the business – property valuation is the only thing I do, all day long. Do you really think I’m so gullible and naive as to allow myself to be led around by anyone, let alone an amateur (no offense intended) like Rich? Get real. He has factual data and analyses, and the permabulls don’t; it’s just that simple. If you’ve got it, bring it. We’d all love to see it. Otherwise……
A comment on
A comment on “Responsability”. Rich has no responsability for the behavior of the people who come here and participate in this forum.
Unlike some of my fellow cultmates here, I also happen to hold no grudge against the builders, realtors, and anyone else who has profited from the rising market. Great for them! They didn’t hold a gun to anyone’s head and force them to buy property. If people lose their wealth to housing, well that’s their own fault. Boo-hoo! Hopefully, if indeed the market does crash, next time they won’t be so dumb.
This is what a free market is all about people. Go live in North Korea if you want your government to regulate your housing or economy. (Actually, Cuba is probably a better bet for you San Diegans.)
One other thing, as I posted in the forum, we don’t know how this bubble is going to be unwound. There might not be a crash, but instead a massive inflating off of debt. Its a very plausible possibility and I think its not a scenario that us bubbleheads want to hear, because indeed, it would be much harder to profit from such an unwinding of our asset bubble.
Personally, I am hoping for a big housing crash. I like to be able to buy assets cheap and I want to own a house in San Diego. I think most of us are here for our own personal reasons and there is no shame in that. It is the basis of free market capitalism, which I hope we as a country continue to embrace.
I would also like to hear from San Diego his predictions on what happens to this market going forward and his rationale behind them. Though I suspect he will not share this as I’ve found most of the people in the real estate industry privately acknowledge a big fear of what’s ahead.
One thing that I think Rich does exceptionally well is that, even though he obviously has a bias and reaches a conclusion about the current state of the market, he does not predict what is going to happen. He also uses a wide range of objective facts to tell his story and support his thesis.
I read a lot of research from a lot of high paid analysts and I would say that Rich’s analysis of the market is right up there with the best of them. The fact that we are cult-like in our following speaks to the exceptional quality of his work. Most of the biggest well known authors started with cult-like followings just like you see here, so I think Rich should take that as a big compliment. 🙂 I expect one day soon you will be richly rewarded for your good work. Please don’t let trite comments as those from San Diego bother you. I expect that there is going to be a lot of the real estate industry start to backlash against the bubbleheads as business slows and starts to hurt their pocketbooks.
One thing is for sure, interesting times ahead…
And remember, Rich, his
And remember, Rich, his proof that such pre-construction transactions don’t exist isn’t any better than your proof that they do.
actually you’re wrong
actually you’re wrong there… you can’t prove a negative – it’s logically impossible. but, having said that… i agree with the bubble thesis entirely.
As a former Realtor in San
As a former Realtor in San Diego for the past 7 years ..I would say there were very few instances of pre-construction contracts being re-sold before the actual unit was ever BUILT. The builders would not allow the contract to be assigned to a 3rd party during the original escrow period. The builders also would not allow the flippers to put the condo listing (with a Realtor) in the MLS until they had completed the purchase.
Now there are ways buy/sell property by “assignment” or “subject to”…But those are more informercial things you might see on late night tv and not very realistic for the downtown San Diego new construction market.
What obviuosly happened a lot was not the property changing hands several times before being built…BUT changing hands several times before anyone actually ever moved into the property after completion. It was (and still is) common for the units to be vacant or professionally staged with furnishings while on the market.
Keep up the good work Rich…I love the website!
Kevin
I need to archive everything
I need to archive everything I read because I cant remember the source for pre-sales flipping condo in Florida. It was either Time June 05, Forbes, Businessweek or WSJ in the last year. They quoted, without details, stories of people selling their condo lot resevations. One specific example I remember is a person who “won” a reservation and by cajoled by upset “loser” to sell his spot to them for 20-50K!!! Of course he did! These respected papers often do not quote sources or provide details which really chaps my hide. I thought at that time that Florida market is crazy because many builders in San Diego dont allow a sale until one year after move-in. Thus, FL developers are complete morons and I hope they go bankrupt.
OK, I found one source for Fl market condo flipping:
http://www.kevintomlinson.com/invest_pre_con_faq.asp
“Can I re-sell my pre-construction purchase before closing?
The practice of flipping or re-selling your unit before the building is complete is being discouraged increasingly. Developers are more wary of buyers whose potential re-sales can undercut the current value of their units, thus creating competition within their buildings. To control inventory, some developer Contracts have a clause stating that buyers who market their units prior to taking title will be in breech of their Agreement, and risk the forfeiture of all their deposits.”
Wow. Selling a
Wow. Selling a preconstruction condo is soooooooo complicated – you can do it on the internet. Sounds impossible.
If it was the intention of
If it was the intention of “San Diego” to start a flame war in the forums then I think he may have succeeded.
Regardless, I found The Professor’s site by reading the UT article last year that profiled Rich. I don’t want to sound corny or mellodramatic, but this site was like an oasis for me. For quite some time now I have been harrassed by my family almost incessantly:
why haven’t you bought a house!? you are married don’t you want kids!? do you want to rent forever!? don’t you know you are throwing your money away on rent!? when I was your age, it was very difficult to buy a house, too!! It is no different now!! Real estate is always expensive because everyone wants to live in California because the weather is soooo beautiful……BRRRAAAAACCCCCKKKK!!!!! Polly want a cracker!!!!!
Holy crap!!! The in-laws, my parents, my siblings….it just wouldn’t stop. My wife and I would just hunker down because we knew something was so terribly wrong with the housing market that it just defied logic. How could a house suddenly triple in value in a few years just because someone threw down some granite in the kitchen!?!? We lived in San Francisco right before the dot.bomb and a few years after the fallout. What I was witnessing with SoCal real estate exhibited exactly the same pattern as the dot.bomb stocks. No one could offer me a rational explanation as to why home values were suddenly rocketing into orbit.
Now, with the help of the professor, I can fight back against the evils of illogic and irrationalism (word?) when my family comes to town and demands to know why I haven’t bought a house.
Thank you, Prof. Piggington!!!!
Yes, thank you Prof.
Yes, thank you Prof. Piggington!
San Diego, you wrote “please be responsible on how a real estate transaction actually transpires.” Are you kidding? Seriously, this market has been plagued with ‘pump and dump-like’ transactions by the very real estate agents themselves! And don’t even mention the loan agents – they are the most unscrupulous of all and have been taking many unsuspecting buyers to the cleaners for a long time now! You think all these transactions were on the up and up???
In fact, just last weekend, I heard a story from a mortgage lender about a buyer forging loan docs so he could buy a condo for his girlfriend, without his wife knowing about the transaction. And the loan agent (my acquaintance) turned a blind eye to it all. They have all been into it for a good long time now.
Oh, and that reminds me: about 3 years ago, when I thought the market couldn’t get any higher, I figured a good idea might be to buy a tri-plex with some girlfriends and convert it to condos myself. I started researching zip codes, and making inquiries. I finally found what I thought was a good deal. The listing was photographed, and printed in a local Mission Hills newspaper. I called up the agent, went into see him, and he told me, “oh that’s off the market.” I said, what do you mean? He told me, “Well, I know I listed it, but I decided to buy it.” Effectively the listing was now just being used as bait, and in any future transactions, how would I know if he wasn’t actually bidding against me? The whole scenario was rediculous! And this guy is licensed, and ‘successful’.
You have the tone of a bent-out-of-shape buyer – someone who is worried the jig is up, and real estate values might get realistic. And yet, you have a holier-than-thou attitude. Sheesh.
So to close, here’s what really gets me: I have good friends in construction who have worked their you-know-what’s off these last few years, and have finally been able to save a little money, so they’re not stretched paycheck to paycheck. But because of the greed, and the lack of business ethics involved in so many of these transactions, in six months to a year, my hard-working, nose-to-the-grindstone friends could all be living off their savings. Or worse.
No one on this board wants things to get really bad for anyone. I think we’re all just trying to make sense of it all. And Rich provides the forum for it.
Look, TOTALLY disregard your
Look, TOTALLY disregard your in laws, parents and colleagues…..RETAIN your good credit and rent until sanity (or market correction) returns, THAT is where you make your best deals and make the most of your money. Let them ride the “Irrational Train”…dont get on board.
People in this country (and the world) are “sheeple” they definitely posess the herd mentality, let em do it ! …capitalize on their lack of due diligence and flagrant disregard for common sense.
Fortunes are made everyday, but not by “Sheeple” but by shrewd minds, unless your an inventer or own a printing press, somebody has to LOSE a million dollars for you to MAKE a million dollars. Let it happen, dont educate or argue with them, capitalize on them.
I have done this for many years and have QUITE well for myself.
Like PT Barnum said so many years ago, “A sucker is born every minute” God bless em !
LookOutBelow – right on!
LookOutBelow – right on! That’s why I felt so guilty selling my house, because the money I made was not earned, it was traded from their liabilities side to my asset side. Nothing was created, yet I have more money. Only the perception of value changed. Interesting how you put this, so I must ask, Do you have any more bits of wisdom?
Could “Bubble Theory” be
Could “Bubble Theory” be wishful thinking?
First, let me say that I agree with Rich and those who believe that SD housing is now a risky proposition. However, I’m posting this question just for purposes of discussion. In some of the “Bubble Theory” commentary posted by people on both this site and others, I’ve sensed a tone of wishful thinking that makes me wonder if some of the comments are being made by people who want to be first time buyers but are locked out due to the high price of homes.
On the other side, I wonder how many of the “Anti-bubble Theorists” are those who purchased homes in the recent 12 months. They would be most inclined to defend their decisions.
When making an assessment of any investment, it is so critical to be aware of your own personal biases. I learned this lesson the hard way a long time ago when I purchased silver while the price was declining and then only considered info that supported the theory that the price of silver would go up. That was an expensive lesson, and one I am not going to forget!
Asterix
Data supports the “bubble
Data supports the “bubble theory”. See the reports such as the Bubble Primer and Risks of a Home Price Decline on this site.
There are other sites, I won’t name them, where a few people are gleeful about the price decline. They are mad at the speculators, investors, people who bid up home prices, because that group priced them out of home ownership. In Phoenix, over 14000 of the 33000 homes for sale are vacant! Talk about a lot of building done just for the speculators!
People who don’t own homes by age 25 are labeled as losers by society. It’s worse when their own parents turn against them in this way. That’s why some of the people who weren’t in a position to buy before 2001 are so upset. I would be, too. They wanted to buy, but were priced out. They didn’t avoid buying because they sensed a bubble. I’m sure there are exceptions.
This site, by focusing on data and not stories, has attracted a different group of people, and I haven’t seen these kinds of comments.
By focusing on the data, you won’t be blinded. Keep an eye on the days on market, a leading indicator of price direction. Keep an eye on inventory, on sales price/list price. Keep reading Rich’s reports. You’ll know when it’s time to buy.
Good point, about blinding ourselves to what we want to see. This happens in relationships, too. It’s human nature.
I can’t speak for the other
I can’t speak for the other cultists, but a downturn in the local real estate markets will hurt my interests. My business volume will drop off because of a decline. I’d be better off if we had a soft landing or prices took off again. So yeah, I have a bias, but I believe in the bubble in spite of that bias. There’s too much evidence in support of and basically no evidence against.
I’d say that Rich’s analysis
I’d say that Rich’s analysis is one of the more thorough reviews of the SD real estate market that I’ve seen anywhere. He certainly got my attention.
Rich – don’t let someone rattle your cage because they have a need to discredit your conclusions. Anyone who is willing to take a definitive position on a hot topic will often be subjected to ad hominem rebuttals.
However, if you want to really stir up a hornets nest, try to find a way work the concept of Intelligent Design into your analysis! (Just kidding)
Asterix
Firstly, Richard is the
Firstly, Richard is the writer I trust, his article not only displays his wide knowledge about the 92101 but also he uses statistics, not just words but facts, so his comments cannot be treated lightly, I thank him here because I learned the dark side of 92101 housing condition through him, well, Will Carless should be given
credits as well.
I was looking to buy a preconstruction high rise condo unit in Miami early last year, I have learned that some investment firms actually bought a block of preconstruction units from the developers in a very low price and a very early stage, then they flip the “right’ of their units to retail buyers like I am before the condo is actually breaking ground. So, there is a small flipper, there is a BIG flipper with truck load of money.
As for 92101, I plan to move there in 2007-2008, Rich’s
stories make me a better buyer, if I actullay becoming a 92101 resident as I wished, I would send Rich a box of candy for providing the educated knowledge here.
To be a participant of this
To be a participant of this blog, I better equipt myself with some facts.
I started tracing some units in some condos which I am interested, for example, The Grandes in 92101:
My interest is primarily to follow the price, see how much and how often they have been reduced because I want to verify Rich’s view that 92101 condo housing is in deflation mod.
Unit 1601: for sale for over 111 days, price before I started trace was $1,135,000, I checked it out on 3/3/2006, it dropped to $1,035,000, a reduction of $100,000.
Unit 2702: in the market for 132 days, price before I
started following was $1,180,000, on 3/3/2006, it has been reduced to $995,000, a drop of over $180,000
If 92101 is a seller’s market, you won’t see this kind of drop for sure.
92101 Treo:
Unit 2300 was asking $898,000 before 3/3/2006, is now
asking $849,000. being there for 150 days so far.
Cityfront terrace #1205 has been in the market since 3/8/2005, asking price has been reduced to $849,000 on 3/3/2006 from $889,000.
Let the facts speak for itself.
Speaking of a bubble in the
Speaking of a bubble in the downtown condo market, did anyone else see all the ads in the home section of the newspaper with all the incentives and price drops? I saw several projects downtown with reductions of anywhere from $20,000 to $90,000! Prices never go down? Well I am just glad I didn’t buy two weeks ago.