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July 22, 2007 at 6:02 PM #67106July 23, 2007 at 2:22 PM #67227
davelj
ParticipantPerry Chase, et al…
I agree that downtown is a work in progress. However, it becomes a more attractive place to work and live each year. And I would argue that SD, in general (not just downtown, but including downtown), has become a much more desirable place for people to want to live over the last 15 years. Longtime residents may disagree (and perhaps with good reason), but the population growth and image of the city as a “glamour city” (to use Robert Shiller’s words) speak for themselves. SD is not the sleepy beach town with no downtown that it was in the early-90s. For this reason, I think there’s a floor underneath prices (which is well below current prices but above where the uber-bears think it is) that didn’t exist in the last down cycle. I hope I’m wrong – I want values to plummet. But I just don’t see a peak-to-trough decline of 50%+ in absolute terms.
A few anecdotes. There are twelve units on my floor of the building where I live. It’s the top floor and the units are a bit nicer (with 18-ft. ceilings, etc.) so perhaps these aren’t entirely representative of the rest of the building. Nevertheless, of the 12 units, four are owned by absentee owners who don’t even bother to rent them out. One couple lives in Phoenix, one in SF, one in El Paso and the other in Rancho Santa Fe (they wanted a place to go before and after ball games). These are not flippers – they use the units one or two weekends a month and have no intention of selling. The three out-of-towners just wanted to have places in downtown SD. Fifteen years ago these buyers didn’t exist for SD. I know several other people who live in north SD County (and in other parts of the country) who want to buy downtown just to have a place here, but they’re waiting for prices to come down a bit. Now these are not average people from an income standpoint. They have the dough to blow and these buyers can’t support the kind of inventory that’s building up right now. But my point is that there are lots of buyers for downtown (and other parts of SD – La Jolla, RSF, etc.) that weren’t around 15 years ago.
The four most expensive words in investing are “This time it’s different.” But sometimes you do have to re-evaluate and say “This time it’s a little bit different.”
Lots of people sold stocks back in the late-50s when for the first time the dividend yield on the DOW went below the yield on 10-year treasuries. Those that didn’t change their thinking never bought back in…
Again, I think there’s still a long downward spiral for downtown ahead of us. At least I hope so. But SD and downtown have changed since the last downtown – we pull from a much larger group of buyers these days. I think these buyers will emerge before prices get so attractive that even boneheads can make the math work from an investment standpoint. But I hope to be proven wrong.
July 23, 2007 at 2:22 PM #67292ParticipantPerry Chase, et al…
I agree that downtown is a work in progress. However, it becomes a more attractive place to work and live each year. And I would argue that SD, in general (not just downtown, but including downtown), has become a much more desirable place for people to want to live over the last 15 years. Longtime residents may disagree (and perhaps with good reason), but the population growth and image of the city as a “glamour city” (to use Robert Shiller’s words) speak for themselves. SD is not the sleepy beach town with no downtown that it was in the early-90s. For this reason, I think there’s a floor underneath prices (which is well below current prices but above where the uber-bears think it is) that didn’t exist in the last down cycle. I hope I’m wrong – I want values to plummet. But I just don’t see a peak-to-trough decline of 50%+ in absolute terms.
A few anecdotes. There are twelve units on my floor of the building where I live. It’s the top floor and the units are a bit nicer (with 18-ft. ceilings, etc.) so perhaps these aren’t entirely representative of the rest of the building. Nevertheless, of the 12 units, four are owned by absentee owners who don’t even bother to rent them out. One couple lives in Phoenix, one in SF, one in El Paso and the other in Rancho Santa Fe (they wanted a place to go before and after ball games). These are not flippers – they use the units one or two weekends a month and have no intention of selling. The three out-of-towners just wanted to have places in downtown SD. Fifteen years ago these buyers didn’t exist for SD. I know several other people who live in north SD County (and in other parts of the country) who want to buy downtown just to have a place here, but they’re waiting for prices to come down a bit. Now these are not average people from an income standpoint. They have the dough to blow and these buyers can’t support the kind of inventory that’s building up right now. But my point is that there are lots of buyers for downtown (and other parts of SD – La Jolla, RSF, etc.) that weren’t around 15 years ago.
The four most expensive words in investing are “This time it’s different.” But sometimes you do have to re-evaluate and say “This time it’s a little bit different.”
Lots of people sold stocks back in the late-50s when for the first time the dividend yield on the DOW went below the yield on 10-year treasuries. Those that didn’t change their thinking never bought back in…
Again, I think there’s still a long downward spiral for downtown ahead of us. At least I hope so. But SD and downtown have changed since the last downtown – we pull from a much larger group of buyers these days. I think these buyers will emerge before prices get so attractive that even boneheads can make the math work from an investment standpoint. But I hope to be proven wrong.
July 23, 2007 at 2:44 PM #67245Allan from Fallbrook
ParticipantDavelj: Very thoughtful and well reasoned post. While I would agree with the overall assessment, I think you nailed the one important fact dead on: Given the amount of inventory due to be added in the next 2.5 years, there simply aren’t enough buyers at these prices to sustain the market.
Another thing to think about is this: Lending guidelines are tightening, as is credit and interest rates should follow (in spite of Bernanke’s yeoman efforts to stem that tide). When that little trifecta comes completely into play, the cost of funds and the ability to secure financing (especially for some of those nosebleed units) will be severely curtailed.
While I concur with your assessment of both San Diego and the new breed of affluent buyer that chooses to live here (even on an absentee basis), I would also argue that those buyers represent a small subset.
Speculation in downtown condos has been rife over the last few years and, combined with the other factors (excess inventory, tightening supply of money, etc), should cause a correction in pricing. How much? Who knows. But 6,000 fresh units in a struggling market can’t be good.
July 23, 2007 at 2:44 PM #67310ParticipantDavelj: Very thoughtful and well reasoned post. While I would agree with the overall assessment, I think you nailed the one important fact dead on: Given the amount of inventory due to be added in the next 2.5 years, there simply aren’t enough buyers at these prices to sustain the market.
Another thing to think about is this: Lending guidelines are tightening, as is credit and interest rates should follow (in spite of Bernanke’s yeoman efforts to stem that tide). When that little trifecta comes completely into play, the cost of funds and the ability to secure financing (especially for some of those nosebleed units) will be severely curtailed.
While I concur with your assessment of both San Diego and the new breed of affluent buyer that chooses to live here (even on an absentee basis), I would also argue that those buyers represent a small subset.
Speculation in downtown condos has been rife over the last few years and, combined with the other factors (excess inventory, tightening supply of money, etc), should cause a correction in pricing. How much? Who knows. But 6,000 fresh units in a struggling market can’t be good.
July 23, 2007 at 3:26 PM #67259Anonymous
GuestThere is just no way demand for downtown living will ever match the number of condos they are building. Downtown living, in general, is a very niche market. Condo living is also a niche market. Put the two together and sprinkle on a bunch of overbuilding and you have a recipe for huge price declines as well as declining rent.
July 23, 2007 at 3:26 PM #67324GuestThere is just no way demand for downtown living will ever match the number of condos they are building. Downtown living, in general, is a very niche market. Condo living is also a niche market. Put the two together and sprinkle on a bunch of overbuilding and you have a recipe for huge price declines as well as declining rent.
July 23, 2007 at 3:48 PM #67263PerryChase
ParticipantI agree with some of your statements davelj.
But, as much as I love San Diego, I hate to burst your bubble. On the list of glamour cities in the world, San Diego ranks pretty low — lower than Auckland, New Zealand, in my opinion.
About the rich people you’re talking about, they are the most fickle and they will bail out way sooner than permanent residents.
Let’s agree to disagree. We’ll let time give us the answers. I’m willing to sit back and see how this real estate downturn unfolds.
July 23, 2007 at 3:48 PM #67328ParticipantI agree with some of your statements davelj.
But, as much as I love San Diego, I hate to burst your bubble. On the list of glamour cities in the world, San Diego ranks pretty low — lower than Auckland, New Zealand, in my opinion.
About the rich people you’re talking about, they are the most fickle and they will bail out way sooner than permanent residents.
Let’s agree to disagree. We’ll let time give us the answers. I’m willing to sit back and see how this real estate downturn unfolds.
July 23, 2007 at 4:15 PM #67273Borat
ParticipantSan Diego is a really glamorous city. Here’s a sample of the glamour you can see every day in my neighborhood:
[img_assist|nid=3986|desc=|link=node|align=left|width=466|height=467]
July 23, 2007 at 4:15 PM #67338ParticipantSan Diego is a really glamorous city. Here’s a sample of the glamour you can see every day in my neighborhood:
[img_assist|nid=3986|desc=|link=node|align=left|width=466|height=467]
July 23, 2007 at 4:57 PM #67285sdrealtor
ParticipantI just got back from South Florida and the number of uber high rise buildings near the beaches strech for many many miles. These buildings are all much larger than what we see in SD and far more numerous.
While I am hesitant to compare the two, I think it’s a bit naive to say there is no way they could ever fill all of what they are building downtown. Of course they need to get prices back in line, but I’m pretty sure they could sell all they are building and more once they do.
July 23, 2007 at 4:57 PM #67350ParticipantI just got back from South Florida and the number of uber high rise buildings near the beaches strech for many many miles. These buildings are all much larger than what we see in SD and far more numerous.
While I am hesitant to compare the two, I think it’s a bit naive to say there is no way they could ever fill all of what they are building downtown. Of course they need to get prices back in line, but I’m pretty sure they could sell all they are building and more once they do.
July 23, 2007 at 5:23 PM #67295Participantdeadzone, your comment that “There is just no way demand for downtown living will ever match the number of condos they are building” is incomplete, in my opinion. I think it could be ammended to, “There is just no way demand for downtown living will ever match the number of condos they are building AT CURRENT PRICES.” I would agree with you there. Knock another 20% off prices and I guarantee you that demand will pick up considerably. Enough to put bodies in all the units for sale? That’s what we’ll find out. We’ll only know after the fact. (Do you really consider condos a “niche market”? My guess is that 15%-20% of all single family residences in San Diego County are condos. Is that what passes for a niche these days?)
Perry, although you may put Auckland below SD in a list of glamour cities, the populace disagrees – compare populations of people who have enough money to choose between the two and there’s your answer. I don’t understand why people live in NYC but I defer to “the tape” that more wealthy people want to live there than in SD. While we may disagree on what constitutes a “glamour city,” Robert Shiller came up with the list(which includes SD) and the moniker, not me.
Borat, you proved my case. That’s a great picture of Santa caught napping. Hell, even Santa Claus wants to live here. (That was tasteless. But, that’s my bag, baby.)
sdrealtor, yeah, our problems are minor in comparison with Miami, with a condo inventory that’s going to be 10x that of SD over the next few years. I don’t know where all of the buyers are going to come from. Sure, there are a lot of well-heeled foreigners that want to live in a big US city near the beach… but that’s a lot of inventory.
July 23, 2007 at 5:23 PM #67360Participantdeadzone, your comment that “There is just no way demand for downtown living will ever match the number of condos they are building” is incomplete, in my opinion. I think it could be ammended to, “There is just no way demand for downtown living will ever match the number of condos they are building AT CURRENT PRICES.” I would agree with you there. Knock another 20% off prices and I guarantee you that demand will pick up considerably. Enough to put bodies in all the units for sale? That’s what we’ll find out. We’ll only know after the fact. (Do you really consider condos a “niche market”? My guess is that 15%-20% of all single family residences in San Diego County are condos. Is that what passes for a niche these days?)
Perry, although you may put Auckland below SD in a list of glamour cities, the populace disagrees – compare populations of people who have enough money to choose between the two and there’s your answer. I don’t understand why people live in NYC but I defer to “the tape” that more wealthy people want to live there than in SD. While we may disagree on what constitutes a “glamour city,” Robert Shiller came up with the list(which includes SD) and the moniker, not me.
Borat, you proved my case. That’s a great picture of Santa caught napping. Hell, even Santa Claus wants to live here. (That was tasteless. But, that’s my bag, baby.)
sdrealtor, yeah, our problems are minor in comparison with Miami, with a condo inventory that’s going to be 10x that of SD over the next few years. I don’t know where all of the buyers are going to come from. Sure, there are a lot of well-heeled foreigners that want to live in a big US city near the beach… but that’s a lot of inventory.
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