4 Reasons San Diego RE has gone Up

[powayseller]

Interesting, sdrealtor… I admire you for putting your family ahead of money. The world needs more men like you!

It sounds like the high-end ($450K in 2000 was high end to me) moved slower. In 2000, we were looking at $320-$330K homes, which had sold for $250K the year before. I asked the realtor for comps, so that’s how I know. The low end took a big jump from 1999 – 2000. Although my husband was earning close to $100K at that time, we only had $20K to put down, so that was all we could afford.

I think the people with $100K – $200K to put down must be commended for their success and commitment to saving. They are at the margin, I would think, based on median income data.

Personally, I expect a return to 2000 pricing. But your point is well taken – each area of the county, and each price range, will take a different hit.

[privatebanker]

While we’re talking about real estate’s demise, has anyone noticed the 10 yr. TSY yield has really broken through it’s resistence levels? It closed at 4.855% yesterday. That is killing long term mortgage rates. My bank’s 30 yr fixed with 0 points was around 7% yesterday. There appears to be a major uptrend occuring.

http://www.theprivatebanker.blogspot.com/

[barnaby33]

Where do you go to monitor bond yields? I have read a few primers on the bond market but am still in the dark on it, do you have a good link or two? Say bonds for dummies.

Josh

[sdrealtor]

Speaker,
Your comments are more than a bit smarmy and you seem a bit uniformed as to how to interpret real estate stats so here’s a primer. A decrease in inventory by 9 doesn’t mean 9 homes have sold since Halloween, it means there are 9 less homes for sale now than before. Hundreds of homes have sold since Halloween. The homes on the market now are not the same that were on in Fall in most cases. With 521 active listings and 168 pending listings, we have a 3 MONTH supply. By definition, a buyer’s market is a 6 month supply. In the MLS there are 10,660 active single family home listings and 3769 pending listings as we speak.. Also about 3 months. These are real live numbers! Are we in a soft market? absolutely! But with 3 months inventory a dramatic “hard and fast” crash just doesnt seem likely to me.

As for prices equating to rents, that ignores alot of the benefits of home ownership. I can paint my house any color I want, I can plant what I want in my yard, my children feel safe and secure in their home and it is a large part of their identity and the secure feeling they hold in their hearts. When you rent you own nothing. When you own, you get to experience the pride of ownership. None of this justifies paying double to triple what you could rent something for, but it certainly justifies paying considerably more than rent. There’s also the tremendous tax deduction I get each year which makes my $3000 PITI (mortgage payment, taxes and insurance) feel like $1800 in rent. I could go on and on but I think you get the point.

As for why it goes up faster and down slower…the answer is EMOTIONS! Emotional buyer’s chasing their dream of homeownership will raise the bid quickly because “it’s just a few more bucks each month”. Emotional seller’s will resist taking less because “I love my home”, “my house is worth as much as the one across the street that sold last Fall” and “It’s my chance for a big payoff and every $10,000 less I take comes out of my payday in 30 days!”

Emotions working in opposite directions make prices rise much faster

[seniormoment]

sdrealtor,

I agreed with what you said about owning a house.

How about this? The downtown normally fas 47-55
units available in a monthly inventory for the last few years, well, it perks up a lot since last spring, it has about 570 units now, that is a 1 year supply, your 3 months supply figure must be a different math in a different zip code.

Soft market is a sure thing for now, I see a bigger
discount for sold units than last year, bigger reduction from the same listing, sometime multiple reduction within a month, maybe this is only in downtown?

As they say about the stock market: “Don’t fight the Fed, don’t fight the trend”, and we all know the Fed is going to continue raise rate for at least 2-3 times to 5.5%, we know that 47% buyers in SD last year using
adjustable or interest-only loan, so the trend in SD real estate is flat to down, for how long? your guess is as good as mine.

[sdrealtor]

Poway Seller,
I just went back to 2000 to check what was selling for 300 to 330 in a good area like Encinitas/South Carlsbad/RB/Scripps Ranch etc. Around March that year you could get a 3BR/2BA 1500 sq ft single story home built in the 70’s. That is what we refer to as entry level detached housing in SD. Those same homes are selling for roughly double today which doesnt make sense to me. In mid 2003, they were selling for 450 to 500 which does make sense to me. A young couple moving up from a condo with a little equity and good jobs (lets say combined income of $125 to $150)would be able to put 10% down (I think thats doable for most people like that) and could get a 30 yr fixed rate mortgage of about 2500/month. Add 600 for taxes and insurance and their paying $3100 PITI which after tax in their bracket is like $2000 in rent. They would have a nice home in a nice area to live in for the next 5 to 10 years. As for $450K being high end in 2000, I’d disagree. It’s what I would equate to Upper Middle class. High end homes today start around $1.2M and were around $600K in 2000.

[sdrealtor]

Senior Moment,
My 3 month supply stats are for the entire MLS which encompasses SD County. As for Downtown, ITS A MESS! Inventory is now over 600. Unlike tract builders who can build in phases (10 homes at a time), high rise builders have the whole enchillada to release at essentially the same time. All bets are off downtown particularly with all the speculation there which is extraordinarily higher than anywhere else in SD County. The one thing I will say about downtown is that I was very pleasantly suprised when I spent a night down there two weeks ago. Hadn’t been there for more than a few hours (ballgame with my 6 year old or Stones Concert with the wife) in many years. In the early/mid 90’s before kids I wanted to live at the beach. If I was a young professional today, there is nowhere I would rather live than downtown. It has gotten very hip!

[speaker]

I apologize for sounding smarmy. I can assure you that it is not my intention; I’m just guilty of laying on too much sarcasm.

“As for why it goes up faster and down slower…the answer is EMOTIONS!”

This logic is confuses me because emotions is what caused the recent price run-up in home prices to unnatural heights. Emotions were influenced, as we have come to find out, by speculative buyers snatching up multiple properties with sketchy, short term loans (ARMs, I/Os, etc.). People were emotionally driven to buy a home no matter what the cost because they feared being priced out of the market forever. Their emotions drove them to make some pretty bad financial decisions as prices went up. So again, how will emotions not play into all of this as prices go down? Especially when ARMs are going to reset in the next 2 years (trillions$) and those people that are stuck in homes that haven’t appreciated enough (or depreciated in some places) to where they can refinance? Can you imagine the emotions that would influence someone’s financial decision making process as they watch their mortgage payments go up, a lot, when the ARMs reset and they can’t refinance? How then, can emotions not influence people into repeating an equally bad financial decision as prices go down? If more and more people start placing their homes on the market it will add to the inventory thus driving prices down. Emotions can’t be charted and recorded. Therefore, to claim that the market won’t crash in a short period of time because of their emotions influencing them to hold on to their properties doesn’t hold a lot water.

“my children feel safe and secure in their home”
Now that sounds like you are being condescending. Are you implying that children growing up in a rental home are not as secure or safe? I’ll take that statement as payment for my smarmy remarks.

“End of line.”

[sdrealtor]

The “safe and secure comment” was anything but condescending. If you can rent the same home for 20 years and have your children grow up on the same street with same neighbors you’ve accomplished the same thing. It’s just a little harder to do when you dont own the house.

Emotions and pride prevent people from making good decisions. When buying a good decision is not to over pay or get yourself in over your head. When selling in a declining market a good decision is to take your lumps now and get out before it gets worse. Most will hold on as long as they can whne they shouldnt. A good percentage will find a way to maintain the outward appearance of their diginity and will survive the bumpy ride. Of course, some will fail also.

Have you never fallen in love with a stock and not sold when you knew you should have?

[powayseller]

RE prices are sticky on the way down. Check out Rich’s charts in the Bubble Primer. The ride up takes 5 – 7 years, the ride down takes 6 – 8 years. While someone who is excited about a new house and the prospect for future appreciation will pay more than they should, that same person, when faced with morgage lates, doesn’t put up a For Sale sign, doesn’t reduce his sales price, and holds on as long as he can.

An analogy is this:
A kid, on a hot summer day, gets to the pool. Excited, he jumps in. An hour later, dad calls him in to dinner. The kid takes a few minutes to slowly swim over, and then gradually pulls himself out of the water. Maybe someone else has a better analogy 🙂

We all need to be patient. I expect the ride down to take 5 – 7 years.

[sdrealtor]

Good analogy! If you try to apply pure economic and financial concepts to understand home prices….you never will. This is a good site with one major fundamental flaw. Rich says “In God We Trust. Everyone Else Bring Data”. The data sucks! There is no such thing as good data in home sales because there is no consistency in reporting or data collection. We are also comparing a constantly changing asset. One of the major reasons the median has been rising the last two years is that larger/newer homes are now in the mix of resales. There was very little building between 1985 and 1997. Since 1997 there has been a building boom of newer larger homes. What we are seeing in the stats is different (i.e. more newer and larger)homes selling not increasing prices. make no mistake about. Home prices peaked in April/May of 2004. The data also includes top producing high volume agents refreshing their listings every 45 to 60 days. Average market times if you add the previous failed listings are probably closer to 80 days not the 55 to 60 days you see quoted. These are just a few of the many problems with the data.

[powayseller]

Doesn’t the OFHEO data show the price of the SAME house? Of course, that results in dated data. Another problem: the data doesn’t tell the whole story. Median price is going up, but like you said, it’s because the mix of houses is changing. Also, it happens because fewer lower-end homes are sold as first-time buyers are squeezed out by rising interest rates. The distribution of homes sold is changing, making the median go up.

The MLS is not concerned with giving the public accurate data. A realtor can check the history of a property, and find out the total DOM prior to the buyer’s offer. But those of us trying to follow the market only get the most current DOM.

Another problem: what happens to the pendings which disappear? Is a reason ever given?

[sdrealtor]

I wouldnt say the MLS isnt concerned with giving accurate data. A more accurate statement would be that the MLS is incapable of giving accurate data because it would be extraordinarily difficult to compile accurate summary statistics.

[sdrealtor]

Have to disagree on that one Rich as I have my feet on the street as well as my hands on a keyboard unlike you. I’m watching homes that sold in Spring 2004 come back on the market now after 2 years and the same exact house is selling for less in many cases. When I think of homes that I listed and sold in Spring/Summer 2004, I cant think of one that would sell for more today. I know there are always exceptions, but most homes that sold in the peak of the frenzy (Feb 2004 through June 2004) would have a hard time selling for the same price today.

[sdrealtor]

The data isnt perfect is a huge understatement! It is inherently flawed to a significant degree.

Saws and straps to hold patients down were “the best tools available” to surgeons in the 18th Century. Try as you might to crunch numbers, the best information on what is going on will always come from an honest, ethical, well-educated Realtor who understands the local market. Beleive it or not there are a few of us out here.

I can speak the truth without fear of bringing the market down because I have no stake in it. My mortgage is affordable and will always be. I don’t care whether prices go up or down because I’m not going anywhere for at least 20 years. I represent my clients best interests to the best of my abilities every time as if I were representing my mother. If I can’t earn a living doing so, I’ll suck it up and go back to the corporate world to make at least 50% more than I make now.

[Author]

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