without addressing attacks from others regarding my screen name (was the attacker anti-Asian perhaps?), I think the buyers for this Dwane home still paid too much. If you calculate 3% inflation from their original purchase price in 1987 ($485,000) you still only get to ~$880,000 and 1987 was a high year for real estate. I believe the current buyers in today’s market are still fooled by the high real estate prices jet fueled by lax lending standards, easy money, and speculators. The market still hasn’t stabilized from all the speculators and the now bankrupted mortgage lenders who gave loans to people who didn’t deserve them—families and speculators aloke. What you’re seeing in Chula Vista I believe will play out in other areas of San Diego. In 2003 if you paid $700,000 for a home (probably a 3500 sq ft home) in Chula Vista that home is probably selling for approximately $650,000 today. If you bought a $700,000 home in Del Cerro (~3100 sq ft) they are asking for over $1 million. Why do the delusional sellers in Del Cerro think their homes are worth so much more than the luxury homes in Chula Vista?
And yes, Del Cerro is a nicer area than the new parts of Chula Vista, but you’re still getting a big, new house in Chula Vista and the price per sq foot should still be lower than Del Cerro, but the gap has widened since 2003. Also, the price run up in Chula Vista also fueled the run up in other areas of San Diego, but somehow some people in other areas of San Diego don’t believe that their homes should go down in price. I believe lower prices throughout California is going to be a reality. Banks are no longer going to allow people to put no money down on a home and making the bank take all the risk if the price of the home goes down. Banks have lost so much money on mortgages and home equity loans; you think they’re going to continue with this stupidity? Sure, guys like Mozilo at Countrywide got rich giving toxic loans to people who couldn’t afford to pay back the loans, but that’s not going to happen any longer. When banks start requiring 20% and a reasonable debt to equity ratio before people can buy a home, home prices will have to go down. No longer will people be allowed to have 40 to 70% of their gross income going towards their house payment. There will be much smaller pools of money chasing the home supply, even if there will be more buyers.
And the only winner in this transaction is the seller. They lived in their home which appreciated substantially, while the new homeowner is paying a higher price for the home than they should because stupid lenders changed the game and people now think $1 million for an ordinary, large home is not outlandish.
I’m paying $3.90 for gas, I’m not happy about it, but I have to drive to work. Am I “winning” for paying at this price? I don’t think so; I think the winners are the ones who produce the oil. The real estate market will continue to decline and while $258 a square foot may seem like a bargain today, it wasn’t a bargain in 2001 and I don’t think it will be much of a bargain in the next few years when people will have to pay more for gas, groceries and other necessities leaving less to put towards a house. There are still many speculators hanging on to their homes waiting for a rebound and are only able to make their current payments because they are using the cash from their home equity loans.
In short, buying a home should not be a risky endeavor. The dumb mortgage lenders and speculators pushed housing prices to a point where people put their whole financial future at risk in order to buy a home. Now that houses have stopped appreciating, the game has changed—we’ll just have to see how things play out.
