BizWeek on the new Housing Bubble

[Jazzman]

Phoenix has produced bigger price gains than anywhere else, but then prices corrected, unlike CA. But is it somewhere you would want to live, and would you want to invest in somewhere you wouldn’t want to live. Maybe? Interestingly, Phoenix is featured in Gary Hustwit’s “Urbanized” documentary, in the context of tract homes and suburban sprawl. With an eye on the future of urban development, it’s well worth a watch.

[no_such_reality]

[quote=bearishgurl]
Couldn’t have said it any better myself …. except for one caveat. In SD County, we already DO currently have hundreds of “affordable” residential listings within 20 miles of job centers. The areas they are situated in were “affordable” decades ago and are still “affordable” now.
[/quote]

Minor nit, with 1.1 million housing units, you don’t hundreds, you need ten’s of thousands.

Owner occupied housing vacancy in SD is 1.9%. Owner occupancy housing is 591,000 units. At a reasonable turnover rate, you need 85,000 sales a year, or just over 7000/month.

[SD Realtor]

SK as you know my feelings are much different with regards to the policies that were implemented. The intended goals were met, however I feel they were met at a tremendous cost to the public. I believe that the following should have happened.

Let the foreclosure process run unfettered. No moratoriums, no slowdowns, no HARP, no HAMP, no loan modifications. Nothing. Granted that the delays in servicing were huge and caused by lack of foresight by the servicing entities to deal with the wave of short sales and foreclosures. However I also believe that if the servicing organizations were not pressed by the investors, they can act as slow as they want. If the investors were bailed out, then how much impetus do they have to press the servicers to foreclose or complete a short sale?

No bailouts should have been granted and tax revenues should not have been used to bailout the institutions that held the debt. I understand the magnitude of that statement and that many of the entities that had investments in that debt were mainstays of society. However I would have been okay with the govt keeping those investments above water directly.

I believe we would have had a much more robust recovery. I believe that housing prices would have dropped further to a much more affordable level. This would have enabled many people who were well behaved savers to take advantage and purchase property. This would have also enabled many middle class people who were financially stable to purchase rental properties. We would have formed local price bases in various cities in a much more natural manner. Yes it would have been a harder fall at first but it would have resulted in a firm price level and all of underlying assets attached to the bad debt would have been washed away. The holders of that bad debt would have an asset attached to it that was much less valuable. The govt would refund the difference in the principal to the investor directly.

I believe this would have accomplished several things. First off wash away all those who were underwater and simply could not afford to stay in a home they could not afford. They would move and rent and live within their means. There would be no more bad debt at the investment level. Finally I believe this would have been much more affordable then the trillions used for bailouts. Lastly base price levels would have been reached due to a glut of inventory. That inventory would slowly be sucked away. Now maybe we have inventory shortages but only because of organic reasons, no more of this, if you cannot afford the home, you get to stay anyways.

So yes, I agree with you that the goals of the policy implemented by the govt along with the snail like movement of the investors and servicers, and a few trillion of tax money worked. The market is more or less stable.

I simply believe we could have gotten better results for alot less money.

[Jazzman]

[quote=earlyretirement][quote=SD Realtor]You have to be more specific Josh. The short answer is no. Conditions are not favorable throughout the county compared to the past few years. Not for investment grade, not for owner occupancy grade. It also goes without saying I am talking about low or middle price tiers, not the 7 figure tiers.

Second, the low rates form a double whammy because investors have nowhere to put money. Do they choose an overbought stock market or an overbought real estate market? So now you have lots of investors buying, some seasoned, many not seasoned with regard to San Diego county and that is a bad recipe to create “favorable” conditions. I saw another home purchased at trustee sale for the same sales price as it was sold on the retail market back in 05. Prices will reach an equilibrium in the short term, maybe by the end of summer maybe the end of next summer, and then return to a much more subdued appreciation rate. Right now it is legging up fast and not a good place for buyers.[/quote]

I totally agree SD Realtor. On both the overbought levels of several investment opportunities out there.

I don’t think anyone should be rushing to buy anything. I think it’s different if you are buying something that plan to live in for the foreseeable future that you can comfortably afford and another to be jumping in on investment properties. Lots seem to be the latter picking up investment properties.

The horrible thing is for savers and retired that are getting pummeled and punished and earning anemic interest rates. I for one can’t wait for interest rates to go back up.[/quote]

I also totally agree with SDR. Nice to hear a Realtor tell it like it is. If you bought income properties a couple of years ago or more, hung onto metals, have a good bond manager, hold foreign currencies, and another passport, you are doing everything you can.

[bearishgurl]

[quote=SK in CV]spdrun, are you arguing that increases in population don’t require additional housing?

I don’t think there’s any question that many areas were over-built for their current populations. The last real economic study I did (and got paid for!) almost 10 years ago predicted that same conclusion. That was 2004. But for at least 20 years, changes in sales of new homes v. existing moved almost identically. Through boom and bust. But for more than the last 4 years, new home sales have been roughly half of what would have been necessary for that track to continue. New home construction lingered at it’s lowest level in 50 years. For 4 years. It just rose in the last 90 days to the lowest levels reached 30 years ago. Yet population growth and more importantly, new household formation have continued.

There probably are still some areas that are over-built. More houses than are necessary. But not everywhere. And current construction levels, though a full third higher than the bottom of the trough, are still a third of the peak construction and would still require a 50% increase to get to average construction levels of the last 50 years.

You make some good points about the type of construction needed. I’m not a big fan of huge homes either. But that doesn’t mean that all new home construction is bad. Some of it is needed. People gotta live somewhere.[/quote]

Yes, SK, “people gotta live somewhere.” But the over-social-service-burdened, under-water-righted CA jurisdictions are not responsible for housing the potentially-incoming masses who are only seeking out *new* construction.

There are hundreds of rental vacancies and at least 5000 resales on the market right now in SD County. If you happen to find yourself “new in town,” go get yourself one!

I’ve always been of the mind that “if you build ’em, they will come” (the “they” usually meaning low-income families who currently need or will eventually need social services). IOW, residential building out in “bumblefuck” actually begets population influx of this sort.

Look at Stockton, Modesto and Temecula and surrounds. Do you actually believe that all of these hundreds of thousands (1M+?) of *newer* residents (who previously lived closer to the coast) would have flocked to these areas over the last 8-20 years had it not been for the “affordable” *new* construction available there?

What happened to the rental homes/apartments these buyers left behind? Did their exodus create more residential vacancies in CA’s urban counties?

Like you, I’ve seen the doubling and then tripling + of the population of SD County over the years. The “quality of life” here is NOT better than it was 10, 20 or 30+ years ago … it is MUCH WORSE. What used to be a “short commute” (=<10 miles) to work is now ridiculously long due to commuters from the outlying CFDs using the same freeways as closer-in residents do.

CA’s population redistribution resulting from CFD formation in (primarily) the last 25 years has done NOTHING for the quality of life of residents of existing communities. In fact, community services (now stretched thin, due to layoffs) are even scarcer for the older areas, due to having to “share” tree trimmers and street/sidewalk maintenance crews, for example, with the residents who live within the distant CFDs.

Another effect the MR CFD Act had on CA was a redistribution of its low and moderate-income families from established cities to what were once rural, outlying areas. In recent years, many of this population influx have found themselves in need of social services that these communities were never “set-up” to provide to anywhere NEAR this large of a population.

If the cheaper *new* construction in CA’s lizardland or farmland has lured in ANY out-of-state families at all (who otherwise would not have moved to CA, had it not been for “cheap” new construction), then those families were “borderline” on needing social services when they first moved into the state and are possibly eligible to collect some services now.

CA doesn’t NEED to be “attracting” this kind of “transplant” from out-of-state. We’re already FULL of “poor” people with their hands out, so much so that the state and counties neither have the personnel to properly handle these applications nor the funds to administer programs to more “needy” people.

AZ has more “water-rights” to the Colo River than SoCal does but I think those leaders in Maricopa County and the cities within it are screwing their own longtime constituencies by approving one subdivision after another. From a traveler’s point of view (who has been going back and forth thru there for 35+ years) it looks grossly overbuilt to me. When AZ officials find they are running out of natural resources (water?) and have a VERY large population in need of social services which they have neither the personnel nor the funds to provide, they are going to be in the same boat as CA and hurting very badly, indeed.

[The-Shoveler]

[quote=no_such_reality][quote=bearishgurl]
Couldn’t have said it any better myself …. except for one caveat. In SD County, we already DO currently have hundreds of “affordable” residential listings within 20 miles of job centers. The areas they are situated in were “affordable” decades ago and are still “affordable” now.
[/quote]

Minor nit, with 1.1 million housing units, you don’t hundreds, you need ten’s of thousands.

Owner occupied housing vacancy in SD is 1.9%. Owner occupancy housing is 591,000 units. At a reasonable turnover rate, you need 85,000 sales a year, or just over 7000/month.[/quote]

I was going to say,
And the next 4-6 million people SD expected is to grow will fit where?

[SK in CV]

[quote=SD Realtor]
Second, the low rates form a double whammy because investors have nowhere to put money. Do they choose an overbought stock market or an overbought real estate market? So now you have lots of investors buying….[/quote]

I missed this little nugget yesterday. My technical trading friends are pretty confident that we’ll see a pullback on the S&P to the 1,460 level, maybe a 30 pt pullback from where we are now before recovering to more than 1,530. But they pretty much ignore fundamentals, and fundamentally that market is not overpriced. We’re maybe a few hundreths of a percent over average historical P/E ratios for trailing earnings. And that ratio historically moves the opposite direction of interest rates. It’s pretty low when compared to historical periods of similarly low interest rates. Only a couple times in the last 100 years has the market tanked more than 5% from this level . And both times that was coincident to sharp increases in interest rates. Most recently in the late 70’s. Might that happen now? Seems unlikely in the near term.

[spdrun]

People were saying the same this summer when the Dow kissed 12k, and in fall of 2011 when we hit 10.4k. I could easily see 13k or even 12.5k. Don’t underestimate the power of spin, negative headlines, and psychology. The markets have been VERY volatile the past few years. (And thank G-d — more monnnneh to be made that way.)

[bearishgurl]

[quote=no_such_reality][quote=bearishgurl]
Couldn’t have said it any better myself …. except for one caveat. In SD County, we already DO currently have hundreds of “affordable” residential listings within 20 miles of job centers. The areas they are situated in were “affordable” decades ago and are still “affordable” now.
[/quote]

Minor nit, with 1.1 million housing units, you don’t hundreds, you need ten’s of thousands.

Owner occupied housing vacancy in SD is 1.9%. Owner occupancy housing is 591,000 units. At a reasonable turnover rate, you need 85,000 sales a year, or just over 7000/month.[/quote]

nsr, where are you coming up with SD County needing “tens of thousands” of (affordable?) housing units?

Why am I seeing some of these “affordable” local resales (SFRs AND condos) sitting on the market longer than 90 days (short of structural defects)?

Does SD County currently HAVE “85,000 sales a year” (incl new construction units)? Has it EVER??

How many of SD County’s annual residential sales are of an existing county resident vacating one home for another? Perhaps 85-90 percent??

nsr, ask yourself what would happen if SD County and its various city officials suddenly decide they will not approve any more subdivisions (some no doubt already have).

Are we suddenly going to fall off the map?

Actually, if there is no more building, this “population influx” we’re supposedly expecting will have absorb the resale listings and rental vacancies currently on the market. That’s the way it’s always been in CA coastal counties.

Do I hear violins? Cry me a river.

I suppose if it comes to the point where there is “no place to live here” (highly unlikely, due to natural mobility of existing residents), then these “potential newcomers” will stay put.

Is there something wrong with that?

Marin, SF and SM Counties don’t seem to think so. And btw, the quality of life is VERY high for the residents of all of those counties :=]

[bearishgurl]

[quote=The-Shoveler] I was going to say,
And the next 4-6 million people SD expected is to grow will fit where?[/quote]

They can stay back in their double-wide in the state of MO, where they likely have family to help them in the event they are in need of “social services.” CA doesn’t need any more people, ESP of the “low to moderate income” variety.

There are plenty of Gen Y/millenial young people, (the children of longtime CA residents) here, along with hundreds of thousands of non-residents with work permits, to take CA’s lower-paying service jobs.

It’s actually pretty hard for a young person to find a minimum-wage job these days.

[SK in CV]

[quote=spdrun]People were saying the same this summer when the Dow kissed 12k, and in fall of 2011 when we hit 10.4k. I could easily see 13k or even 12.5k. Don’t underestimate the power of spin, negative headlines, and psychology. The markets have been VERY volatile the past few years. (And thank G-d — more monnnneh to be made that way.)[/quote]

That’s kind of my point. Technical adjustments happen. If it falls to 1,460 and recovers to 1,530 within a few months, that’s a technical correction. It will recover to the mean. It always has. The crash in 2007 wasn’t technical, it was fundamental. P/E for the S&P was over 120. Before the tech crash it was over 40. Both times it reverted to the mean. So despite the technical corrections that will happen, today’s valuation is pretty conservative based on trailing twelve month earnings.

Of course earnings could fall. It very well could happen, maybe even more likely than interest rates rising quickly. But that doesn’t mean todays prices are too high.

[SK in CV]

[quote=bearishgurl][quote=no_such_reality][quote=bearishgurl]
Couldn’t have said it any better myself …. except for one caveat. In SD County, we already DO currently have hundreds of “affordable” residential listings within 20 miles of job centers. The areas they are situated in were “affordable” decades ago and are still “affordable” now.
[/quote]

Minor nit, with 1.1 million housing units, you don’t hundreds, you need ten’s of thousands.

Owner occupied housing vacancy in SD is 1.9%. Owner occupancy housing is 591,000 units. At a reasonable turnover rate, you need 85,000 sales a year, or just over 7000/month.[/quote]

nsr, where are you coming up with SD County needing “tens of thousands” of (affordable?) housing units?

Why am I seeing some of these “affordable” local resales (SFRs AND condos) sitting on the market longer than 90 days (short of structural defects)?

Does SD County currently HAVE “85,000 sales a year” (incl new construction units)? Has it EVER??

How many of SD County’s annual residential sales are of an existing county resident vacating one home for another? Perhaps 85-90 percent??

nsr, ask yourself what would happen if SD County and its various city officials suddenly decide they will not approve any more subdivisions (some no doubt already have).

Are we suddenly going to fall off the map?

Actually, if there is no more building, this “population influx” we’re supposedly expecting will have absorb the resale listings and rental vacancies currently on the market. That’s the way it’s always been in CA coastal counties.

Do I hear violins? Cry me a river.

I suppose if it comes to the point where there is “no place to live here” (highly unlikely, due to natural mobility of existing residents), then these “potential newcomers” will stay put.

Is there something wrong with that?

Marin, SF and SM Counties don’t seem to think so. And btw, the quality of life is VERY high for the residents of all of those counties :=][/quote]

Let’s put some stuff in perspective. San Diego IS growing, whether you like it or not. I don’t know about last year, but 2011 was by about 80,000 people. But more than 1/2 of that growth was organic. People having babies. 40,000 new residents requires somewhere in the neighborhood of 15,000 housing units. (Housing density in SD is a little lower than state-wide averages at 2.75 per household.) I don’t know how over-built SD was in 2007. But I think last year permits were pulled for somewhere around 6,000 homes, higher than the previous few years. That’s enough for 40% of the organic growth, only 20% of total growth. 20,000 fewer homes built than growth requires, just to stay even.

San Diego may or may not be over-built today. I really don’t know. But at the current construction rate, it will be under built in the not too distant future. Which means significantly higher prices. Is that what you want?

[(former)FormerSanDiegan]

[quote=Rich Toscano][quote=barnaby33]
On that note though, does anyone have a strong opinion about when interest rates will rise, because that is the driver of all of this. [/quote]

Anyone who “knows” the answer to this question is delusional or a liar…[/quote]

Interest rates will rise ~ April 1, 2014.

[bearishgurl]

[quote=SK in CV]Let’s put some stuff in perspective. San Diego IS growing, whether you like it or not. I don’t know about last year, but 2011 was by about 80,000 people. But more than 1/2 of that growth was organic. People having babies. 40,000 new residents requires somewhere in the neighborhood of 15,000 housing units. (Housing density in SD is a little lower than state-wide averages at 2.75 per household.) I don’t know how over-built SD was in 2007. But I think last year permits were pulled for somewhere around 6,000 homes, higher than the previous few years. That’s enough for 40% of the organic growth, only 20% of total growth. 20,000 fewer homes built than growth requires, just to stay even.

San Diego may or may not be over-built today. I really don’t know. But at the current construction rate, it will be under built in the not too distant future. Which means significantly higher prices. Is that what you want?[/quote]

SK, does that “organic growth” of 40K babies born in SD in 2011 take into account county deaths in that same year?

The county obviously “absorbed” the other supposedly 40,000 “transplants” into its existing housing in 2011. I don’t know but I don’t think there was very much residential construction going on in 2011 at all.

Acc to SDlookup, there are currently 4,620 SFRs + 2,218 condos equaling 7,121 total resale listings in the county. And this doesn’t include pocket listings, unapproved SS contingents (taken off the market for possible approval) and FSBO’s.

http://www.sdlookup.com/Browse_Real_Estate-San_Diego_County

I realize that a good portion of these listings (20-25% ?) are “contingent” SS’s but I am failing to understand why so many prospective buyers are claiming there is “nothing to buy” due to “low inventory.”

Could it be that they THINK they need dozens of properties to consider before making an offer on ONE home?

If so, that’s complete and utter BS, partly fueled by agent/broker incompetency.

And some of these “for-sale” properties will no doubt end up being removed from the market and rented out, instead.

I don’t know how many rental vacancies there are in the county but there are always ads posted for them.

SK, I take it you left SD in 2007? I don’t think there have been very many new construction tracts in SD County that have opened for sale since then.

Yes, removing the unending choices for *new* construction tracts from the housing inventory picture WILL have the effect of eventually raising the sold comps of existing housing in the same market. Commuters from these new tracts have increased the congestion on our fwys 6-8 fold since the first CFD was formed in SD County in 1987. Since SD Co is a “coastal county,” limiting growth to preserve “housing exclusivity” within it is as it should have always been and should be now.

Leaders of several other CA coastal counties have gotten this number long ago and thus, were able to preserve their natural resources and “lifestyle” for existing residents. Just try to get permission to form a CFD and/or a subdivision permit or worse, for a “master-planned-community” in the County of Mendocino, for example.

It’s not gonna happen . . . as it should be.

CA coastal counties were never “set up” in the first place to attract the country’s masses of low and moderate income residents. That’s what CA’s inland counties (and NV/AZ?) are for.

If I were to sell my house next year and leave the county to “retire” elsewhere, I would fully expect that it would cost twice the price should I decide to come back to SD after a few years.

As it should be.

I’ve seen this happen to other retirees in the past who sold and left the county, only to return years later and have to rent. That’s why I may rent it out, instead. To make SURE I won’t want to move back in the future before “pulling the trigger” and selling it :=0

[sdduuuude]

Perhaps the hubub of buying is related to interest rates rising, as they have been doing for a couple of months now.

People trying to make their purchase before the rates price them out.

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