HOW LOW WILL IT GO % and TIME FRAME

[kewp]

“The only thing to produce huge drops would be massive job lossses.”

Last I checked the biggest growth industry in SD country was all RE-related. But hey, I’m sure not many of those folks in the good family neighborhoods are realtors, builders, contractors, lending agents or flippers. Or owning/working in a local business that has been benefiting from the recent local boom.

Another very real “thing” that could produce huge drops would be a collapse of the sub-prime lending markets, as the pool of qualified buyers would drop substantially.

[kicksavedave]

Another very real “thing” that could produce huge drops would be a collapse of the sub-prime lending markets, as the pool of qualified buyers would drop substantially.

———————————

Don’t you mean “the pool of un-qualified buyers who bought anyway would drop substantially”???? 🙂

The problem here is that there are a lot of ways for the market to correct back to fundamentally sustainable pricing levels. It could go relatively flat until incomes and inflation rise to meet. It could mush very slowly downward with no easily discernable changes in direction to signal an end. It could drop off a cliff, but that would take a lot of things to all align together. Many of those things will happen, but all simultaneously? Hard to predict.
If you use history, and expect a 7 year decline, that puts us around 2012 for the bottom. How we arrive there, that’s just about impossible to guess.

And of course, we could easily see some areas do a little of each, where one areas mushes(Del Mar?), one area goes flat(Scripps Ranch?), one area plummets(San Elijo Hills or Condos downtown?), and yet one area actually climbs(LaJolla?). Add them all up together and you won’t easily be able to tell what’s happening to “San Diego Real Estate Prices” when lumped as a whole. Best to just watch your target neighborhood to see what IT is actually doing, then try to time that area.

[kewp]

“Don’t you mean “the pool of un-qualified buyers who bought anyway would drop substantially”????”

I don’t know?

I mean it will potentially get *much* harder to get the loan to buy a house. Especially in SoCal!

[PerryChase]

Also, let’s not forget that a flat market will be very painful to sellers who bought using Interest-Only and ARM loans. They have little or no equity so the transaction costs will cause them to bring money to escrow — a psychologically depressing situation.

The typical churn in the market will cause people to sell for personal reasons.

A flat market will eventually cause a declining market once people realize that they can rent for a lot less thus they are loosing money living in their houses.

If you look back at history, you can expect to see the following type of price movements in the next 10 to 15 years. It was very typical of the last downturn.

http://sdlookup.com/PropertyDetails/tabid/53/pid/45ED6586/Default.aspx
http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=066094200&page=1&property_type=CONDO&mls=mls_sandiego&cKey=8g35z9fb&source=SANDICOR

3525 Lebon Dr #206, San Diego, CA 92122
This place is currently for sale at $390k with no takers.

Sales History
Date Price
12/11/1998 $148,000
07/30/1996 $142,000
06/30/1987 $135,000
MLS #: 066094200

[Bugs]

A loss in value is a loss in value whether it happens as a result of an outright price correction over the short haul, or by inflation over the long haul.

Think about what correction by inflation means – it means that everything else will double and triple, including salaries, but RE will remain flat. The people who purchased investoments will be watching the value (as opposed to price) of their investment decline.

Either way, a buyer will have more money to use for other things than housing if they rent during that time period. The problem with correction by inflation is that everyone pays more for everything; whereas a correction by price only penalizes the greedy idiots who made the bad decisions.

That’s why EVERYONE – including the idiots – should hope for price corrections more than for inflation.

[Cow_tipping]

Also remember in a normal finacial market, a 40 year loan will ave more interest rate than a 30, which will have significantly more interest rate than a 15 (which I entirely exploited … man it was like winning the lotto … 3/4 percent rate difference the day I closed for the life of the loan … booya) … so by the time you get to the higher loan amounts you’d be paying more interest each month …
I mean, how stupid are people, is all they can see that monthly payments number … WTF … what if they buy and later get laid off … or decide to take a few months off, or hurt their ass … where is the numbers now … price and interest rate and years are numbers too … they should be looking at that as well … No wonder people are flunking math, and then running out to buy over priced sheite with in comprenensible mortgages. They forget that they flunked high school math. I guess the realtor said it was a great deal … For them is what they said under their breath …
Cool.
Cow_tipping.

[bob007]

In the next 10 years San Diego will always have significant employment tied to UC – San Diego, QUALCOMM, bioscience companies, defense companies and a huge naval base. The number and salaries will vary according to economic conditions.

There ain’t going to be wholesale job losses unless the whole US company collapses.

[bob007]

In the next 10 years San Diego will always have significant employment tied to UC – San Diego, QUALCOMM, bioscience companies, defense companies and a huge naval base. The number and salaries will vary according to economic conditions.

There ain’t going to be wholesale job losses unless the whole US company collapses.

[JWM in SD]

Yes, but it wasn’t that kind of employment that drove the increases in the last several years now was it? No, that was real estate driven.

Second, how can you be sure that Qualcomm et al won’t offshore a lot of those jobs??? That may already be in works for that matter. Bioscience?? I hate to break it to you but a lot of those companies are not making any profit from their drug endeavors yet.

[Anonymous]

Get your facts straight!! Lame ass comment….

Bioscinece jobs?!? Oh really. Tell that to the Pfizer employees being laid off by the hundreds. Tell that to the Neurocrine employees being laid off by the hundreds. Tell that to the Elan group of 300 who just got notice of pending layoffs. Tell that to the J&J group and Genentech manufacturing group that just took a hit in Carlsbad.

Get your facts straight Boob007….

Biotech-Dude

[latesummer2008]

LETS GET BACK ON TRACK. We all have opinions, they are like….. everybody has one. If we look at the numbers over the past 1-2 years, they are not good. The question is HOW LOW WILL IT GO ? and over what TIME FRAME ?
Obviously it is a general question and depends on which micro market you are looking at in So.Cal. However, the overall macro trend is DOWN. If anyone is familiar with the Westside of LA that would be great. BUT, lets take another area like LA JOLLA. What do you think the average starter say 1000 sq ft 2br/1ba average size lot was at the peak and HOW MUCH in % it will ultimately drop. During that last Real Estate Bust (90s) The highest end often experienced the biggest drop.
Also if you can estimate WHEN the BOTTOM will be and why. ( The magic question.. ) Simply post your predictions of Where, How Much and When. Thanks.

[dontfollowtheherd]

latesummer2008/earlywinter2009

When would you like it to be? Why don’t we just get out the ouija board and consult it? Unless you’ve lived through a few of these (which it sounds like you haven’t) your perspective tends to be a bit short-sighted. You want to know NOW. LOL. Cut to the chase so to speak. Can’t say I blame you.

If it were that easy there’d be no point in this blog now would there? Putting a timeframe/date/% is speculative at best. Trying to call the top and bottom of any market has burned many people very badly. There have been many excellent examples posted in this and other threads re: employment, inflation,deflation, outsourcing etc. This past 5+ years has been a real-estate driven boom. That has ended. It’s over – stick a fork in it. I’ve hired a number of people who were in that biz and most of their friends are looking for new careers as well. Historically you’re looking at seven to nine-year cycles based on data over the last 100 years.

We’ve had the seven-year up cycle and now it’s headed down. We can post whatever we desire to support our positions but an often overlooked MAJOR factor imo is the general PSYCHOLOGY of John Q Public. It was a SELLER’s market and many people (herders) rushed in to buy thinking they were never going to “see prices like this again”. They were right – they were going to see lower prices! I’ve been through three of these cycles. It’s never “different this time” despite what you hear or read. Now people are convinced it’s a BUYER’S market and they are going to wait it out for some time. Yes, even years if need be.

We Americans tend to overdo everything to the point where we end up with undesired results. The dot-com era produced many instant million/billionaires and even more who lost their a$$es. Many who made money decided to get into the glamorous wine business and more acreage was planted from the Central Coast up into Napa/Sonoma in 2-3 years than in the previous 25-50 years. Beautiful rolling hills as well as barren scrub were converted into Cabernet, Chardonnay, Merlot or whatever. All these people thought they were going to make more money.

And what was the major result of this? Two Buck Chuck aka Charles Shaw at Trader Joe’s! At one point they were selling 20-25% of all domestic wine. One out of every 4-5 bottles sold was Charles Shaw. For many wealth-seeking wineries this only proved the old adage of “know how to make a small fortune in the wine biz? start with a large one”! What happened after all this over planting? You guessed it. They started pulling out vineyards and housing developments sprung up everywhere. Look at Templeton and Paso Robles for example. It has become so overbuilt that prices there are dropping as quickly as they are in most markets.

There are thousands of houses on the market in most areas right now and there are literally thousands more in new developments (Portola, El Toro, Tustin) coming to market in the OC alone. Not to mention all the people who pulled their homes last Fall/Winter thinking this Spring might be better. Well guess what? They would have been better off pricing them correctly and getting out with a small(er) profit than a potential loss. It’s getting worse by the week/month. The headlines are going to get bleaker as we get into summer and fall.

But I digress…. what was it you wanted? Oh yeah.

Submitted by latesummer2008 on February 25, 2007 – 11:44am.

The magic question is Where’s the Bottom ? I am in Santa Monica and the latest numbers look pretty dismal in higher end markets (LA County) for the month of January as reported by the LA TIMES Sunday Feb 25.

I am interested in when to buy and how much of a drop from the peak for the Westside of LA in particular, but feel other high end markets in So. Cal are in the same boat. SD seems to be leading all down the river. Please post your opinions on local markets here based on SQ FT numbers and NOT MEDIAN prices.

FWIW here are my guesstimates:

How long? 2015

Time frame? Buy from June 2009-2012 (it will have sunk in pretty well in most psyches by then that it’s a buyer’s market and will be for years)

Percentage of drop? I’m looking for an across-the-board MINIMUM decline of 25 to 35% from current prices.

My first offer is my best offer.

[latesummer2008]

Excellent synopsis ! The point you make about MARKET PSYCOLOGY is HUGE. I have been thinking that once the music stopped ( August 05 here in LA ) and everyone wondered where all the chairs went. Plus, the lagtime, denial, realtor hype, economist hype etc.are factors. The MSM is another MAJOR FACTOR in driving the herd, just as in any speculative bubble to GET RICH QUICK. If history is correct your 7-9 year time frame will be correct. However, IMO the boom has been more accelerated this time around if you look at any of the graphs especialy since 2004. Also we have MANY people with nothing invested that can walk away, like they have rented a house they could never have afforded. I agree it will linger for years, but I see the big drop 30-35% (already dropped 10-15% here in LA )during the next 2 summer selling seasons. Still looking to here about LA JOLLA as I am not in touch with that market. Anyone out there sense what a starter might be priced at in the next couple years ?

[Anonymous]

Let’s see…. I currently rent a condo in Portland OR with a market value of $400K for $1250/mo.

Mortgage payment on the unit assuming 80/20 with a blended rate of 7.5% = $2800 + taxes $350/mo + HOA $200/mo. = $3350.

Holding tax and HOA constant, tax adusted mortgage payment of say $1200 (+350 +200 = $1750) the property must fall to $170,000 before makes cash flow sense.

$400,000 to $170,000 = -68%

[bob007]

bio-science companies will always get funding from NSF, NIH and lately the department of homeland security. Money is not an issue even though it would be nice to be profitable. The biggest threat to SD bio-science industry is competition from other areas in the USA.

For the next 10 years QUALCOMM is unlikely to outsource on a large scale. QUALCOMM is a chip design company. There have been little success outsourcing chip designs to India/China.

[Author]

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