I’ve been following some of the threads on this site for a couple of months, and have been closely following MLS listings in Scripps Ranch, Sabre Springs and Carmel Mountain Ranch for nearly a year. At the risk of serious buyers remorse (and receiving a heinous blog-flog from other contributors to this site), I closed escrow on a home last week. I find sdrealtors latest data very intruiging, I guess I am one of the idiots contributing to this bullish trend.
As everyone points out, market psychology is impossible to predict. And I take some serious issue with macro trends that are oriented towards averages and medians, when many micro-markets are probably driven more by the tails of the distributions. So I just thought I would provide some perspective from someone who decided to go for it:
I grew up in San Diego, and have had the distinct displeasure of watching the price of the modest run-of-the-mill house that I grew up in soar to seemingly unattainable levels. This happened right as I started a Doctorate program, and knew that I would be living on slave wages for the forseeable future. This was the most frustrating experience, because if I had just gotten a job with my B.S. and skipped grad school, I would have probably bought in 2000 well before the market went absolutely insane.
Since that time, I have basically accepted the fact that San Diego will *always* be an unaffordable market, just as the Bay Area has always been unaffordable ever since the inception of Silicon Valley. There is very little virgin land left, and my general feeling is that as long as the regional high-tech economy creates six-figure jobs at about the same rate that existing homes in “nice” (counting that Stepford-esque kind of way) neighborhoods come up for sale, these upscale neighborhoods will continue to remain unaffordable for the “average” San Diegan. Just because the median home price is well out of range of the median income does not necessarily mean that the prices in any particular market has to come down! There are plenty of areas nationwide with chronic affordability problems.
It’s no secret that areas of San Diego are way more overpriced than others, but some areas have already dropped substantially, while others may still have a ways to go. In Scripps Ranch, for instance, the prices have barely moved. There is alot of stale inventory though, so that may change. The Carmel Mtn Ranch area, on the other hand, has dropped at least 10% in many cases.
We watched these markets very closely for a year, and saved a lot of money for the down, while hoping to find the right opportunity. Our goal was to afford 4 bedrooms, or else we would grow out of the house right away, and I definitely do not want to be in a situation where I have to sell anytime soon, just in case! There was a house we particularly loved that went up in April, but was out of our leauge. When they slashed the asking price by 10% right during the holiday slumber, we jumped on it. We were a little too late the first time around, but it fell out of escrow due to the contingency sale. For whatever it’s worth, we got it for 25k under our appraisal, and 60k under the current ‘Zestimate’.
The other major factor in my psychology to buy is the interest rates. I found a house that I love, at a price I can just barely afford, but will be happy to stay in for 30 years with my fixed-rate mortgage if I have to. Had the rates been half a point higher, I couldn’t have done it. Although it’s generally better to get a good price at a high fixed rate than the other way around, a further 10% drop in home prices (which seems unlikely in areas that have already fallen 10%) would be largely cancelled out by a modest rise in long-term interest rates, which are still near historic lows.
If the prices do in fact fall another 10% while the interest rates remain steady, then I will definitely feel some serious buyers remorse. The current indicators tend towards stabilizing prices, although a significant rise in short-term rates would tend to squeeze the ARMs alot harder, potentially causing a more significant wave of foreclosures.
Given that the high-end San Diego RE market (above the median) is probably being driven by the economics of the wealithest 5%-10%, I personally think that a true meltdown in this sector would require some combination of high unemployment *at the highest income brackets* and/or a significant hike in the rates. If this high regional unemployment were part of a broader national trend, I don’t think Bernanke would allow both to happen simultaneously. Basically, I figured I would be better off getting into my dream home while I can afford it, rather than preying for an economic catastrophe.
What I forsee happening (and you can already see the signs of it) is basically an evaporation of new middle class homeowners in cities like San Diego. Hopefully the Dems can turn this around without taxing me out of affording my own house. This real estate bubble has helped create alot of wealth, which has furthered this disparity, but the short fact is that the rich are getting richer, and nice places to live (like most of San Diego) are really paying the price because of it.
In short, I think a lot of fools like me will rush in his year, as long as the prices and long-term rates remain stable, which will further help keep them so.
