It’s finally happened. Prices return to normal.

[fun4vnay2]

A lot of my friends in south east wonder why would I ever live in SD with this much cost of living.

Comparison of SD to London is not apples to apples. It should be LA or SFO to London.

SD is not as big as these cities and opportunities are limited.

[FlyerInHi]

We can compare American cities, but if we compare American cities to the rest of the world, American cities would win because prices are lower and our salaries higher.

The USA has the lowest cost of housing, compared to the rest of the world.

Plain middle-class Americans generally have access to excellent housing and infrastructure such as financial service and shopping. We have a wide selection of housing and goods to buy at low prices. In other countries, only upper-middle-class people could afford what everybody has here, such as dishwasher and clothe dryer, large houses w/ central AC, 2-car garage w/ automatic opener, automatic sprinklers, separate living and family rooms, cars for the teenage kids, etc…

[Jazzman]

“Prices return to normal” may be relevant to some places but many other places remain over-valued. Weather and other factors may have some bearing, but that is not the whole story. Neither is it just about the culture surrounding home ownership. There are some generalizations such as housing bubbles occur predominantly in the English speaking world. That points to the relationship between banks (and central banks), governments, and industry but those vary within the English speaking world. Psychology plays its part. Lust and fear make people irrational, but I don’t think that is peculiar to the Anglo gene, if such a thing exists. Social and economic factors play some role here. The causes of the bubble are complex, and the aftermath equally complex. Research indicates low interest rates do have a delayed affect on prices, but supply more so. However, this still doesn’t explain the often large regional disparities. Desirability, supply, incentives, ownership culture, institutional culture, and psychology are all in the mix and interact with each other. It is interesting that from many of the responses above Piggs seem happy with their lot. But that may be due to the demographics of Piggs. I wonder what the broader consensus is?

[poorgradstudent]

So basically, in a shocking turn of events, the NY Times has a NYC-centric view of the world? 🙂

[spdrun]

Prices in NYC itself never fell much and are near 2008 highs (if not higher in some segments). Prices outside of NYC are still depressed — NJ is full of foreclosures.

I don’t see this as a NYC-centric view at all.

[phaster]

[quote=Rich Toscano]In SD anyway, I feel like they got back to normal more than 5 years ago:

[/quote]

What’s normal??

Classical economists (such as John Maynard Keynes) look at the world through a lens of simple equilibrium models

http://www.econmodel.com/classic/

and do not take into account the complex effects of central banks and their ability to create money (in the form of debt) which in turn has an effect on RE prices, etc

http://keenomics.s3.amazonaws.com/debtdeflation_media/papers/Keen1995FinanceEconomicBreakdown_JPKE_OCRed.pdf

One interesting thing I pick up every once in a while is a copy of “Dream Home Magazine”

http://blog.dreamhomesmagazine.com/digitalmag/archive~pub~SD.htm

specifically I look at the section titled “Dream Stats” which has a table of historical 30 year mortgage rates (going back a few decades), the corresponding average Fed funds rate and the delta


year 30 year fed rate delta
1975 9.05% 5.82% 155%
1980 13.74% 13.26% 103%
1985 12.43% 8.10% 153%
1990 10.13% 8.10% 125%
1995 7.93% 5.84% 136%
2000 8.05% 6.24% 129%
2001 6.97% 3.89% 179%
2002 6.54% 1.67% 392%
2003 5.83% 1.13% 530%
2004 5.84% 1.35% 433%
2005 5.87% 3.21% 183%
2006 6.41% 4.96% 129%
2007 6.34% 5.02% 126%
2008 6.03% 1.93% 312%
2009 5.04% 0.16% 3150%
2010 4.69% 0.18% 2606%
2011 4.45% 0.10% 4450%
2012 3.66% 0.14% 2614%
2013 3.98% 0.11% 3618%
2014 4.17% 0.09% 4633%
2015 3.69% 0.11% 3355%


what is also interesting to note in the publication is the Chinese characters (in an english language real estate marketing publication).

As I see things, the reason real estate prices have grown for prime residential real estate (along with rental properties) is because global forces are influencing local real values. In other words local prime real estate is viewed as being inexpensive and just another investment vehicle in a global market…

What is going to be interesting IMHO is what happens when the vast majority of people wake and realize the system as it exists today is corrupt/unsustainable given that central bank of the USA has printed 4+ trillion and the central bank of China has printed 16+ trillion (since 2008 in order to keep the economy going)

[fun4vnay2]

Going back in time: THE DAY LOS ANGELES’S BUBBLE BURSThttp://www.nytimes.com/1984/12/08/opinion/the-day-los-angeles-s-bubble-burst.html

[bearishgurl]

Uhhh, rockingtime, I WAS THERE. Yes, it’s truly different this time.

Although I don’t automatically think that newbie Pigg phaster has “pegged” the current market, (he’s actually one of a few Piggs who quote incessantly from the MSM), his historical interest rates speak for themselves. Uh, hello out there??

And you are forgetting that the recent crazy seller-fueled US coastal residential RE market (meaning ~50 miles from the coast but more pronounced the closer the property is to the coast) is now being invaded by foreigners at a MUCH HIGHER CLIP than anyone could have possibly imagined in 1984!

Nice try, rockingtime, but your link (circa 1984) is what it is. A moment in time where buyers thought it was obscene to pay 2-3x the 1971 value for a CA coastal property.

In fact, residential properties along the CA coast to about 50 miles inland (referring to SFRs, NOT condos here) were grossly UNDERVALUED until about late 1988 thru very late 1990. I believe that values which sped off northward at that point forward in this region became wholly dependent upon mortgage interest rates (except in the very high value areas, where interest rates didn’t really matter to this cohort of buyers).

The reason being is because while the 1989-90 values were 2 times+ the 1984 values in many SD areas, during that time, the prime conventional mortgage interest rate plummeted by over 4%!

[spdrun]

Hopefully, China will have enough of its own problems in the next five years to keep its denizens out of world markets.

[bearishgurl]

I should add that even though the conventional interest rate plummeted 4%+ from 1984 to 1989, it has now plummeted 6-7% BELOW the fixed rate of 1988-89 for the most “prime” borrowers.

I KNOW because I WAS ONE at that time who took out 11 7/8%, 10 1/8% and 9 3/4% fixed conventional mortgages from the late 70’s thru 1990 (all in SD, CA). At all times, I/we never had ANY MONTHLY DEBT on my/our “TRWs” but the mortgage on the family home. FICO scores did not exist back then, but I/we were considered “prime” borrowers.

[fun4vnay2]

Yeah, my realtor and acquaintances are telling me “this time is truly different” and CA is entering its golden period now and house prices would keep going up.
Minimum pay is also raised in LA now people can afford half a million dollar crap shack easily..
Minimum pay rise coming to SD as well

We’d see 🙂

[bearishgurl]

[quote=rockingtime]Yeah, my realtor and acquaintances are telling me “this time is truly different” and CA is entering its golden period now and house prices would keep going up.
Minimum pay is also raised in LA now people can afford half a million dollar crap shack easily..
Minimum pay rise coming to SD as well

We’d see :-)[/quote]

OK, well my generation seemed to have no problem buying up 3-4 bdrm “crap shacks” for $40K to $95K in ‘hoods you probably wouldn’t even drive though while the minimum wage in SD was $2.40 to $3.35 hr. And that was during the era of fixed rate mortgage interest rates hovering between 9% and 14%!

We had very little “new construction” to choose from and what was built new was outlying and therefore undesirable to dtn workers due to long commute times (the fwys were narrower and there were fewer of them than there are today … ex: EC, Santee, PQ, Scripps, Poway, Esco, etc). Much of the original *newer* RB at the time was situated in HOAs which were convenanted specifically for residents over the age of 55.

In about 1979-80, Sorrento Valley began getting off the ground with just 3-4 companies (mostly biotech) startups situated on ONE dead end street. Scripps Ranch had TWO dead end streets at that time with maybe 6-8 companies (mostly finance and insurance companies). In SD, most of the FT work (which paid enough to support a household) was in factories, offices and financial and government institutions in and around dtn SD and Kearny Mesa.

Quit whining, rockingtime. It IS “different” this time …. MUCH different. Adding to that BIG DIFFERENCE is that today’s family-forming homebuyers in SD have considerably higher expectations for a home than same of yesteryear. I wonder what would happen to this group’s “expectations” if fixed mortgage interest rates were to rise even to a modest 8%. My opinion is that this group is so incredibly spoiled that I predict they would just leave the county in search of homes that meet their lofty expectations and also which they can afford. That’s always been a tall order in SD but the very low prevailing mortgage interest rates of the last 10+ years have “masked” the situation, allowing first and second time buyers to slide into homes and areas which were unheard of for a FTB or STB to be able to buy into before about 2004.

Even those who lost their home to SS and FC in the past decade and have rebuilt their credit or are in the process of doing so ARE NOT and WILL NOT, for the most part, “settle” for any home that is lesser (in house or location) than the home they lost (the one they could never afford in the first place).

If this group is still unable to buy back a similar home/location to the one they lost, they continue to rent until they can. It’s hard to downgrade one’s lifestyle when one has been living beyond their means for several years.

This is why flippers are still doing well in SD. They are buying and flipping homes successfully for a profit which today’s end users are unwilling to buy (or the home won’t qualify to be mortgaged). Today, 1st and 2nd time homebuyers are willing to pay $100K to $200K more for the same house which an enterprising flipper team recently bought low and spent 2-4 months flipping. Unlike their parent’s generation, those same buyers would not even consider viewing the inside of the same house in the condition the flippers bought it in.

Up until about the late nineties, 1st and 2nd time buyers of a primary residence in SD were willing to purchase a cosmetic or even heavy fixer and about half did so. Most moved in at COE and remodeled the residence room by room as time and money permitted. Yes, “professionals” routinely did this! Doctors, dentists and lawyers found time for DIY, even if it took 1-3 years!

In sum, five reasons why it IS DIFFERENT THIS TIME are (1) chronically low MIR’s for 10+ years and ongoing; (2) likely 8 to 10 times the available foreign cash sloshing around at the ready to buy CA coastal residential RE than there was 15+ years ago; (3) major SD job centers moved northward in the county and greatly expanded; (4) an unbelievable amount of newer construction to choose from in all four corners of the county, (leaving SD County essentially built out), and; (5) Gen Y’s pronounced sense of entitlement as to the type and location of a home they will actually make an offer on.

[fun4vnay2]

WOW: It IS “different” this time …. MUCH different

Time to change your name: Bullishgirl 🙂

[flyer]

Having been born and raised in LJ, we’ve seen all of the CA real estate cycles over the years, as BG mentioned.

Most of us who plan to stay and live this incredible lifestyle really don’t care if it’s different this time or not–but for those who do–only time will tell.

[bearishgurl]

Actually, when push comes to shove, I really don’t care either, flyer. If the time comes where I wish to sell my residence, it will be worth what its worth at the time of listing it. The same applies when I turn around and purchase a (hopefully forever) home in another county.

I just feel that ALL first time and second time buyers with halfway decent credit and even a moderate income CAN buy a home in SD County. Many who can don’t because they don’t like what’s on offer that they can actually afford to buy. Or they don’t want to alter their lifestyles in any way, shape or form to own (i.e. buy 7+ year old vehicles and used household items and appliances, etc in order to be able to afford a home here). Yes, even “professionals,” lol ….

It’s been that way as long as I can remember …. and I have a l-o-o-ong memory :=0 … but the phenomenon is far more pronounced today in that, in general, Gen Y is way too picky for what their budget will allow, they will not do any rehab or remodel work (unless they can afford to have it professionally done while they live elsewhere) and/or don’t want to downgrade their lifestyle to afford a home that they would be happy with for years to come.

My own kids are this way. They all live in high-cost areas in CA and the one(s) working FT have been making GREAT money for years. I don’t think they are shunning homes which need work but they certainly don’t want to downgrade their lifestyles (traveling internationally, owning authentic designer stuff, etc) to do what it takes to get a downpayment saved up.

I don’t know if rockingtime is a homeowner, but I’ve heard his/her argument before many times here … that something’s got to give … home prices are unsustainable in SD County, blah, blah. SD is a coastal county and thus will always command high prices, especially, as flyer stated, within 15 miles of the coast. Areas in SD County west of I-5 demand extraordinarily high prices in relation to their direct counterparts east of I-5 (ex: Imperial Beach vs Otay Mesa). This will never change. If you don’t like what’s on offer in SD, there’s always TX … as another poster mentioned.

btw, last fall when I was in that area, I went to a Walmart to get something for my bug bites, which were itching and driving me crazy. Upon recommendation of a cousin, I bought this stuff called “Chiggerex” which is a fantastic smelling (menthol, sweet pepper, not sure) white cream of 10% benzocaine. It comes in a small plastic jar and works great! (I doubt Walmart sells it around here.) In recent months, I’ve been using it on my dog on her hot spots and it cleared them all up! TX has got it all going on, folks. BIG purple sunsets as far as the eye can see and lots of room to build, build, build (worker commutes increasing to 90-120 minutes one way in recent years). Break out that sticky spray repellant and go hiking at midnight wearing almost nothing! The lure of fancy speedboats beckon! You can go waterskiing 8-9 months a year there in water that feels like bathwater, but alas, is highly polluted, mostly from nearby fracking operations leaching pollutants into the tributaries of lakes. You won’t find this out until a couple of days later, however when you are in great pain with a double ear infection and have to go to urgent care to be treated (a lengthy experience which was NOT a good one)! Of course, the voters don’t believe in big gubment in them thar parts. So be my guest! Go get yourself one of those half-block long solid brick ranches with a 3-car garage on one end, a 2400 sf metal storage outbuilding and large barn and corral on five acres for $275K to $500K, depending on location. It’s there for the pickings … all over the place. As you load your u-haul in your tiny SD driveway to head east, feel free to pm me for some good motor lodge recommendations to stay in on the way there. I’ve stayed in just about every one of them a time or 3 on Route 66 as well as on I-10.

However, if you decide to later sell your home in TX with with goal of coming back to a coastal CA county to buy a residence … any residence, uhhh, just an FYI, that’s probably not going to happen.

[Author]

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