Next Shoe Drops in May….

[Raybyrnes]

JWM

I don’t have the data to dispute the validity of your three industries but I’ll ask if you can provide evidence that hospitality, government, civil service might not equally weight into the equasion.

If I drive around La Jolla, Carsbad, Carmnel Valley, Scripps Ranch, Poway, Ranch Bernardo etc I see nice cars. If I go to National City, El Cajon etc. I may not see the same cars.

I would venture to say that all those do nothing real estate jobs probably were doing something before they got into real estate. Real estate paid better so they transitioned. Now that it is not they more than likely will transion back to what they were doing before. For many in the real estate community they have jobs ans did Real Estate on the side.

[Bugs]

I don’t think you want to separate what’s happening in SD county with the OC and LA markets. Overvalued is overvalued, regardless of location. San Diego is widely considered to be one of the canary towns in the nation because the specufever started here first and ended here first. That’s why all eyes have been on SD. The economists want to see out how those trends will play out in other town.

The fact that the OC hasn’t suffered much yet doesn’t mean the trend will simply pass them by. In fact, their declines may manifest themselves more quickly as their trend plays catch up.

[Raybyrnes]

Here is something to consider. Over the next 20 yers San Diego will continue to import high net worth individuals and area like La Jolla and Del Mar will continue to expand. We have already seen Encinitas and Carlsbad real estate benefit from what I will call the La Jolla effect. Drive around Pacific Beach and every plot of land has the ability to be a million dollar home for an good contractor. Eventually this will be the case. PB will become unaffordable for anyone other tha the super rich and people will move to the South or to the East. If one were to speculate I would say that Imperial beach would have long tem prospects aswell. Why? Because people who have money will continue to come here for the climate. And unless they open up the Mexican border, or figure out how to push back the Ocean you are goingto be challenged to increase the supply of homes on the coast.

[Bugs]

Raybyrnes,

Do you really think the pricing structure here was created by people moving into town?

You’re using a variation of the “everyone wants to live here” comments that the RE bulls were using to explain the now-discredited New Paradigm and it’s later iteration, the Soft Landing.

I suppose it could happen, but I’d have to see it first and so far there’s absolutely no indication that it will happen. At the moment, we have population outmigration as far as the homeowner class is concerned. More are leaving than are coming in.

Even La Jolla and Del Mar are slow right now, and the shadow areas of Rancho Santa Fe are in some real trouble. We haven’t imported enough outside money to prop those areas so far; what makes you think it’s going to happen in the next few years? The first 50% of the Boomer generation is already of retirement age and so far they haven’t shown up yet.

Homes in the coastal region, which only extends about 3 miles inland, comprise but a fraction of the total housing inventory. Is that fraction of sufficient size to cause all the other areas to be overvalued relative to the local economy by 100% or more?

[Raybyrnes]

I’m saying that I drive around PB, Crown Point Blvd, La Jolla and not only is there a lot of constuction going on but there are a ton of homes that you look at and say that could be an incredible property for someone with the know how to do something with. Eventually proices will retreat and we will use the substitue principal. For a 1.5 million I can’t own what I wnat in La Jolla, but I could probably buy and renevate in PB.

Take a look at parts of Oceanside and it is incredible what they have constructed up there. People who are leaving San Diego are from the lower income status. People coming in have made their moneyd elsewhere. There are currently about 300 listing in La Jolla with interest lists of about 100K. People are eye balling the region.

What is the job base of Sedona Arizone. Not much yet the area has moe thqan its fair share of wealth coming in. Just my 2 cents.

[JWM in SD]

Raybyrne you are truly clueless about what has really been driving this bubble aren’t you? It was not rich people moving to SD you idiot. It was a global liquidity glut ala Alan Greenspan and the Fed trying to stave off a recession earlier this decade. Loans were dirt cheap and the M3 went through the roof. Places like SoCal have always had boom and bust cycles in real estate and this one was artificially induced to absurd heights. The only thing we are headed for is credit contraction and asset deflation. Get it through your thick head already.

A lot people here need to stop looking at this a local phenomenon. It is not.

[latesummer2008]

Exactamente !! The Writing is on the Wall. Global Housing Meltdown due to CRAZY CREDIT is coming. Overinflated areas such as So Cal are going to get WHACKED… Our economy really never recovered from the last recession in the early 90s. Smoke and mirrors, asset bubbles of stocks and housing.

Unfortunately, there’s no more cards to play and the GAME’S OVER.

Get ready…

http://westsideremeltdown.blogspot.com

[Raybyrnes]

JWM

Once again on the attach. You are a simpleton. Credit has already been factored into all analasys. A year ago when I suggested doing a cash out refi and investing in the global markets you were similiarly critical. Since that point in time the portfolio I constructed is up almost 40%. If you’re a hack accountant who couldn’t make it as a CPA take it out on someone else. Anyone who understands basic economics is following an hour glass theory of social structure. Why is Nordstoms steaming ahead and Wal Mart is struggling. The middle is evaporating and what you are left with are those who have and those who don’t. Global liquidity might drive the market but the outcome is still rich and poor. Get a clue.

[Raybyrnes]

Here is a simple experiment. Take any zip cose and any listing and zillow the comps in the area. Then start going down the list and figure out how many people made money and how many didn’t. The way I see it the majority of people are so far ahead that even with a 40% drop they are even. And most of these people can probably manage the payment becaue they bought wehn prices were much lower.

[PD]

Raybyrnes, you are ignoring the most important aspect of housing prices – They are set on the margin. It doesn’t take very many transactions to set comps.
It doesn’t matter what “most” people are able do (hold on, rent out, etc). If 100% or 50% or even 25% of all real estate changed hands in a year, the distressed sellers would be only a small fraction of overall sales and would not have a big effect on prices. However, total sales in year, as a percentage of all housing, is quite small. Therefore, distressed sellers, as a percent of all sellers, can be quite large. This has a big downward effect on prices.

[LA_Renter]

Good post PD. I agree.

“If 100% or 50% or even 25% of all real estate changed hands in a year, the distressed sellers would be only a small fraction of overall sales and would not have a big effect on prices. However, total sales in year, as a percentage of all housing, is quite small. Therefore, distressed sellers, as a percent of all sellers, can be quite large. This has a big downward effect on prices.”

I won’t make a direct comparison between the US Property market and Japan’s bubble of the 1980’s but the dynamic you described was what happened in Japan. The people that could make their payments stayed in their home which was a majority of the Japan’s RE market. But home prices fell for 16 years because the market is determined at the margins. I remember Rich debating a pro RE economist last year on a PBS station and the economist/Realtor made the same point when addressing the rapid rise of inventory. He pointed out that if you look at the total number of homes in San Diego only a small fraction are for sale. It’s a bogus argument.

[Bugs]

Raybyrnes,

The idea that imported money will stabilize us because everyone wants to live here has so far failed to materialize.

The market of which you speak is so thinly traded that it could quadruple and our regional medians would barely reflect the effect.

Do you have any idea how few of these transactions there are? In 2005 there were a total of 504 sales in the MLS above $2,000,000 for the entire year; in 2006 that number dropped to 458 (which is a 10% decline by volume). YTD for 2007 is 154.

The reason I started out at $2,000,000 is because the price ranges below that are rife with financing terms that clearly indicate that many of those buyers in places like Carlsbad and Encinitas are not even among the almost-wealthy, let alone the super-wealthy.

Bear in mind, most of the above numbers are in the $2,000,000 – $3,000,000 range, which is hardly the realm of the superwealthy to whom you refer. The number of sales in the last 28 months above $4,000,000 only amounts to 151. When compared to the 70,000 sales of SFRs/condos that have sold during that time period, this number is so small that it’s insignificant to the RE economy as a whole, regardless of their transaction value.

Meanwhile the number of listings in these price ranges is high and going higher. There are currently 634 listings priced at or above $2,000,000. That’s 138% of the number of such sales for all of 2006. There are 162 active listings at $4,000,000, which is 257% of the total number of such sales in 2006. We have built far more of these properties in this region – with more in process – than we have grown or imported buyers for.

Simply put, many of these listings must sell at some point over the next year because they include new spec homes against which the builders are mortgaged to the hilt (there are 56 listed that were built in 2006 or 2007); they include RE moguls who are currently losing their ass because of the decline of their business interests; and because of the natural rotation in and out of wealth that normally occurs. Too much supply and not enough demand usually equals declining prices.

Simply put, I don’t see a single data point that supports the idea that there will be a windfall of imported money that will support pricing throughout the coastal region let alone the entire region over the long term. That’s not to say it couldn’t happen in the future, but it obviously isn’t going to happen during this economic cycle.

[Carlsbadliving]

Raybyrnes said:

“The middle is evaporating and what you are left with are those who have and those who don’t.”

You’re contradicting yourself here. If in fact, the middle class is disappearing, where will the majority of buyers come from?

I tend to agree with you, that the middle class is evaporating. However, that will only make the problem worse. A slightly larger elite class isn’t going to make up for a substantially smaller middle class. A middle class that has propped up this real estate bubble. Take them away and the whole thing comes crashing down, regardless of the increasing $2 million + market.

[4plexowner]

Raybirnes – I drive through the neighborhoods you mention and see the properties you refer to

Interesting that my perspective is different than yours

What I see are flippers who are about 18 months too late and may or may not realize it yet

Many of these properties are being way overbuilt for the general area and/or specific location – for example, building a spec home on the narrow, curved portion of Ingraham just before crossing the bridge and thinking that somebody is going to pay $1+ mil for it is stupid

Another example of stupid building: the condos on Garnet just as you enter PB – the creek right next to these condos ALWAYS smells like sewage – so for half-a-mil you can own a condo next to a creek that smells like shit

Anyway, you look at these properties and see a strong market, I look at these properties and see the last gasps of a real estate boom – it actually amuses me to think of how F’d these flippers/builders are at this point

~

As an aside: if you want to call someone a simpleton you should ensure that you don’t look like one yourself – have you heard of spell-check? “Once again on the attach. You are a simpleton. Credit has already been factored into all analasys.”

[JWM in SD]

Yes, I’m a simpleton…simply correct that is.

Raybyrnes, there is an old saying back where came from (so. side of Chicago): don’t bring a knife to a gun fight. I can’t help but think of this everytime I see your pathetic posts.

[Author]

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