La Jolla

[admin]

What’s your read of this? That lower priced homes (i.e., San Diego County as a whole) more sharply accelerated than higher priced homes (i.e., La Jolla) over ’01-’06, and may be at risk for more quickly coming down, too?

[Anonymous]

[img_assist|nid=1577|title=Resale Home Median Prices: San Diego vs. La Jolla|desc=
What’s your read of this? That lower priced homes (i.e., San Diego County as a whole) more sharply accelerated than higher priced homes (i.e., La Jolla) over ’01-’06, and may be at risk for more quickly coming down, too?|link=node|align=left|width=400|height=267]

[powayseller]

Very interesting…. Great analysis! I remember looking through the monthly Dataquick charts in the U-T, and noticing that the lower priced areas like National City and El Cajon had the biggest percentage price increases. People were buying what was still affordable, pushing up the price even more.

Bugs will remember what happened to La Jolla.

[Bugs]

I do remember and I (and others) have said it before on this board. The coastal areas and the areas close to employment will do better than the inland areas and the areas away from employment. La Jolla is both coastal and close, so price declines won’t be nearly as severe.

Add to that the fact that La Jolla and Del Mar are specifically noted worldwide as destinations for the rich; they are not solely dependent on local employment or local businesses for buyers. Places like National City and La Mesa and Poway and Carlsbad are more directly tied to local economic conditions.

La Jolla and Del Mar are not completely connected to the local scene but they also are not completely disconnected. There will still be at least some price declines, they just won’t be as bad.

As for places like National City and Logan Heights, in comparison to other areas in the region the properties in these areas are even more overpriced for what their buyers get. The wild card in those areas – in my opinion – is how large a percentage of the buyers are 1st generation immigrants. I don’t know but I suspect that many of them would have been talked into taking on one of these toxic loans. Those buyers who are capable of hanging in there through a decline will do so because the attitudes of the latino immigrants are HEAVILY biased toward property ownership. I’m just not sure how well they’ll do as a group in terms of wages and employment during an economic downturn.

[powayseller]

Bugs, is it fair to assume that each area will revert to its own mean, i.e. the price it would be today if it had followed the rate of inflation. So National City went up a greater percentage than La Jolla, so it will fall a greater percentage as well. Also, La Jolla will maintain its premium over National City. However, the percentage increase this time was about double or triple (?) of the last bubble, so the percentage decline will be double or triple of the last bubble as well. If London prices could go down 60%, so can San Diego’s.

[barnaby33]

Bugs I disagree. Based on a premise that the liquidity/credit bubble is global not local. Its tough to move overpriced assets from one class to another when they are all pretty much overpriced. Once the music stops, and yes it will take longer for the music to stop in places like La Jolla and Del Mar, the collapse will just as bad there as everyplace else. I didn’t see either Del Mar or La Jolla in the the top ten list of communities with high savings rates on Yahoo finance friday.

Josh

[PerryChase]

If I remember well, in the 1990’s downturn, multi-million dollar Del Mar and Fairbanks Ranch really went off the clift. I didn’t look at La Jolla at that time so I don’t know.

[Anonymous]

La Jolla and the other coastal area prices have increased just as much as the rest of San Diego since 1998, the main difference is that the appreciation happened earlier, the bulk of the jump already happened by 2001. I expect prices to return back to their historic mean in La Jolla just as in all other areas. The only difference is the timing may be different. National City will drop hard before La Jolla does but in the end everywhere will lose 50% from their peak.

[powayseller]

Realtor Jim Klinge predicts that superior properties will fall only 10%, while the inferior properties fall 40-50%, for a median fall of 33%. See his write-up here. Good write-up, and I had a great rebuttal, based on the number of resetting option ARMs in San Diego (100,000 – 300,000), and an estimated MLS listing of 50,000 – 80,000. This is based on the estimate that half of option ARM holders will default. John Dugan, Comptroller of the OCC, is concerned about I/O loans, but *very* concerned about the most risky loan of all: Option ARMs. He explained that a resetting Option ARM payment increases 50%; if the interest rate rises from 6% to 8% on the loan, then the payment *doubles*! How many people can handle a doubling of their mortgage? My estimate is that at least half of option ARM borrowers will go under. My post was so bearish, he completely erased my post. Even a bearish realtor can only take so much bear; the thought of superior properties falling 35-50% is scary to a lot of people, so they don’t even want to hear it. However, it is where I believe we are headed, simply because of the crazy loans that people took.

The only way that the superior neighborhoods would be safe from 35-50% drops, is if nobody over there took out a resetting loan, if they all keep their jobs, i.e. they can all ride out this bust cycle. I guess it’s possible. But not realistic.

We’ve had Mr. Lexus Dealer in DelMar pull out equity just as much as Mr. JoeSixPack in south Poway. NODs and forclosures are all over the nice areas of Carlsbad too, and we haven’t even got in to the bad years yet. The next 2 years are the worst year in the housing bust cycles. The first 2 years are the easiest, as most sellers can easily sell.

[Bugs]

I’m not saying that market won’t be touched and I’m also not saying that it’s going to take the same beating as some of these new home subdivisions. I think it will decline, just not as much as some of the lower price ranges. More than 10% but probably not 50%.

The thing about Fairbanks during the last bust is that it was a peripheral market of Rancho Santa Fe at the time. A wannabe. It hadn’t been fully built out and the neighborhoods hadn’t matured and stabilized. It was all new money. That’s why (in my opinion) those prices proved softer than RSF proper. I’d say the same thing this time for Santaluz and the high dollar projects in Carmel Valley.

While we’re on the subject, I’ve lived in Carlsbad for a long time and I like it here, but I am under no illusions about Carlsbad. Carlsbad is a wannabe at this point; it is no Del Mar or Solana Beach. In my opinion there will be some larger than average declines here this time around.

[North County Jim]

My post was so bearish, he completely erased my post.

PS, it appears Jim the Realtor gave another reason for deleting your post.

You come into my house and deliver 3,000 words of ranting and raving, and then call it data and analysis.

I’ve said a couple of times, as tactfully as possible, that it’s not your message that’s the problem, it’s how you deliver it.

[PD]

I have been wondering what would happen if the dollar collapses. A dollar collapse would make real estate much more affordable to international buyers. I live in Coronado where there is a high percentage of foreign ownership (based on what I have observed). Would this prop up certain highly desirable areas?

Without taking the former into consideration, I do not think you will see 10% drop in one area and 50% in another. There will be a difference, but I don’t think it will be that severe. There is a lot of big money here but there are also a lot of people who have really stretched themselves with their mortgage. If prices became that disassociated then people here might move out because the main consideration shifts from location to price. How do you justify living in Coronado when the price goes from twice as expensive to four times as expensive as other, good areas?

[powayseller]

North County Jim, you’ve been reading my posts for 9 months now. Do I rant and rave like some lunatic LOL? You know my posts enough to draw your own conclusion.

After he erased my post, he admitted he was a little defensive about his own Option ARM, so that explains a lot. In my post, I quoted John Dugan, Comptroller of the Currency, about the risk of Option ARMs, and then estimated that half of people in San Diego with Option ARMs would end up in foreclosure. I should have known better than to make bearish comments about Option ARMs on the blog of a guy with an Option ARM.

I also commented that *we* all need to be more accurate with our analysis, so he took that personally, too bad. We need to stop our optimistic forecasts that have to be revised every quarter.

I love his blog and I think he has some great analysis and is a very good realtor. He is a little too optimistic, and I completely disagree that “superior properties” will be sheltered from the slowdown. He thinks Old Carlsbad and some other unique coastal homes are immune from any more than 5-10% price drops. Those homes can climb to the sky, but not fall more than 5-10%. That doesn’t even make sense. So I rebutted his theory, and he didn’t like it. No bad feelings from me, but definitely an eye opener as to how much good analysis some people can handle. Finally, I am working on my own website, which is taking me longer than I thought. It took me a couple minutes to make a blog, but it doesn’t have the features I need, so I am stuck on some issues with the website, some research I am doing, and busy with some personal things. I hope to have my website up by middle October, as originally planned.

[jimklinge]

Great powayseller – now you’re bashing me over here too.

I’m sure you dig looking like the bubble hero who got erased by some bitter realtor, doesn’t that sound sexy!

I’ve never had a problem with you, or your opinions, and I’ve said that a few times now.

But you try to pass off your opinions as facts. I’m sure you believe them to be facts, but they’re not.

You can’t say “the inventory will be 150,000, all in foreclosure” as if that’s a fact – it’s not, that’s an opinion.

Let’s consider what a third-party said about your posts:

“quit submitting bad posts, and they won’t get erased”

I’ve been friendly about it, and I wish you would at least consider what I have to say.

But you don’t, instead you CAN’T WAIT to fry me over here.

I even reached out twice to try and explain how the option-ARMs work, to help your understanding of them, and what do I get?

“I should have known better than to make bearish comments about Option ARMs on the blog of a guy with an Option ARM.”

I don’t think I deserved that.

I have no ill will towards you, or anyone who wants to help others about the problem we’re faced with.

We are among the few who are willing to not only investigate the ‘bubble’ but also put it out there for others to learn about it. But now you go after me, as if I’m now the enemy, or some bitter realtor.

That’s everyone’s loss.

Jim the Realtor

[PerryChase]

I think that the possibility of real estate dropping 50% is too frightening for most people to handle. I personally don’t think it’ll be all that bad because it’s a 50% drop from the PEAK. 300k median for San Diego is not the end of the world. Many homeowners will be in trouble but overall we’ll be just fine and the world will still go ’round. I think that all properties will drop in equal percentages; the difference will be the timing.

As with any bad news, human psychology prevents us from fully dealing with the signs of a coming crash. We only want deal with with the bad news in increments as it occurs.

For example, with Iraq, now that we’re in there, we want to succeed. Questioning the initial decision to invade strikes many as counter productive because it doesn’t solve the current problem. Considering that we may “loose” this war is like capitulating and unpatriotic to some. Better hope for the best.

I think that human nature is such that we want to dream about pie-in-the-sky but don’t really want to face the hard reality. Life is more pleasant is you have a better tomorrow to look forward to. Looking forward to a bleaker future is against our survival instincts.

I think that Powayseller comes across as “strong.” But I admire her courage in expressing her views. It’s always courageous to go against the trend. As I’ve said before, someone who predicts pie-in-the-sky is lauded for being visionary and bold. But someone who predicts a depression is attacked from every angle and is berated to show “facts” and “proof.”

Predictions are based on assumptions. Predicting Dow 30,000 is not anymore “factual” than predicting Dow 3,000.

I beleive that Powayseller will be vindicated in time.

Powayseller, please don’t stop your posts. We need more like you to keep us in balance. We should have all types of opinions. It’s up to the reader to make up his own mind. I look forward to reading your blog when it’s ready.

For more circumspect opinions, we can just listen to our policy makers. They have a stake in keeping the market stable. Even if a policy maker thought that RE would fall 50%, he could never say so because his statement would cause a panic.

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