State of the economy and affect on housing in S California

[wallers]

Yes you are correct. Sorry did not give all the info. I would be putting 50% down which makes it cheaper for me to own than rent. But yes, with lower down payments it is cheaper to rent than buy from what I see where I am looking in San Diego.

[fun4vnay2]

Then you’d need to include the lost opportunity cost tied to your house down payment.
so rent may seem cheaper than own but that wont be the complete picture.
same can be said about 20% down as well.

[wallers]

Thanks everyone. Yes, all of what posted makes sense.
I can google housing crash and lots of articles about the doom and why. Some well written from respected people. Same for house prices remaining flat. Same for house prices moving up. You can find anything you want depending on what you want to find.

Last time around I didn’t even think about bad loans etc. SO with this latest craze I guess I am looking to dig deeper to see what is really going on and if we are on solid ground with the economy/investors since that seems to be the driver? And then all the info about the fed pumping money in.

The thing I am wary about (but again don’t know) is that if house prices were so investor driven what happens when investors start dumping and leave. Will they dump. Will they hold. Who owns what. Is the market really investor driven? It seems to me the housing market now is treated more like the stock market instead of people just buying homes. So are homes just like the stock market? Big ups and downs. Speculative driven. Then the Fed pushed all cheap money in. That is said to be unprecedented. What is that going to mean?

In the end just as people have said I guess we don’t now till something happens or it doesn’t. Some bullish, some bearish, some in between. But was curious about the “indicators” of what potentially could happen. You know where you just say to yourself how did I not see that coming.

And yes I just moved here. Want to buy a house. I won’t lose money because I will have a long hold. The homes I want are 20% more than I can afford (well revise that to I could get it but I would be uncomfortable if I had any job issues) But could be somewhat happy with buying something 20% less and it would be less than rent. But then what if I wait two years and buy that house for 20% less and get what I want. But then what if I live in a rental and pay more than owning and things just plug along and am not happy renting. Or what if things keep going up (the herd mentality that is also scary buy now but it gets to me like everyone)

Ah the questions. I wish I had a crystal ball.

[wallers]

Yes you are correct about that as well. If I buy now can’t buy later. Have to stick with I bought long term.

[fun4vnay2]

Looks like the investors are fleeing away from the real estate market now.
Investors are not really into holding the real estate as rental but flipping after few months for profit.

I see the similar craziness in real estate what I saw in 2006/7. I was under pressure in 2006/7 to buy but finally bought my second house in 2011.
IN 2006/7, people told me few facts stating the reason that prices in san diego would never go down:
here are few of them:

1) In SD, land is limited unlike tx, you have desert on one side and ocean on another. With tough zoning in CA, it makes residential land more precious.

2) SD has best weather , everyone wants to live here so prices can never go down

3) SD has very rich people with lots of money. This would make real estate never go down

3) SD has companies like QCOM where people are in very high paying jobs with tons of stock options. Today, the QCOM is not the same QCOM it was 8 years back. The myth is broke that in QCOM you have a permanent job and you ca be millionaire because of stocks. QCOM stock is in doldrums.

Few of my buddies went head and bought houses for 800/900K in SD in 2008. Those houses dropped to 500/600K in 2011.

Currently When I talk to realtor they say: One should buy now lest priced out forever LOL

Everyone says: this time is different.

I learn a lot from this forum and hats off to the people here.

I am looking for a house to buy now and am in the sidelines.. but I see similar craziness in the areas I’m interested in and this does not portend good per my gut feeling.

Off topic: I see big flight of high paying knowledge based jobs out of USA in general and out of san diego in particular to cheaper cost places. This again portend bad for middle class jobs..

[utcsox]

[quote=rockingtime]
From what I experience/observed, rent never increased drastically as some people mentioned in this forum.

A 2 BR/BA condo in Mira Mesa was almost 1600/month 8 years back and I see the similar rate today as well.[/quote]

This is absolutely false.

[spdrun]

[quote=rockingtime]Looks like the investors are fleeing away from the real estate market now.
Investors are not really into holding the real estate as rental but flipping after few months for profit.[/quote]

Do you mean that investors are no longer buying, or trying to dump what they bought?

[fun4vnay2]

THis is from what I paid 8 years back and what my friends are paying right now.
I was paying almost 1550 in 2007 and last when I moved out in 2011, I was paying almost the same money.

I don’t really see any rent appreciation which can be called drastic.

I see rent increase but not drastic.

[fun4vnay2]

I see investors already made their money and thus don’t see the same investor’s activities.
They don’t the appreciation rate to justify the real estate transaction cost which can be as high as 5-6% of total cost.

[wallers]

Yes, I have heard all the same arguments about why SD will be stable from realtors.
But one thing that boggles me a bit is that if that were the case then the 1920’s house that took 90 years or so to get to 400k. In 4 years it hit 600k (minimal to no improvements also all loose estimates)but point is 200k in 4 years and 400k over 90 years. Well… that seems off. Maybe not. But from what I understand (and again don’t know) household income has not had even close to that sort of growth. If everyone was moving here and buying up the place and that is why it is what it is I feel there would be a different historical trend. Not everyone decided to move here in the last 4 years. But again maybe I just see what I want to see.
On the investor fleeing comment from what I see they are still in the game. At least where I am looking. I asked my realtor about a fixer house that just went on. Sold all cash in a few days. Think there is a dumpster outside now waiting for the demo to begin. And this house wasn’t a steal of a deal either. For an investor to make money at the price point they paid they are going to have to ask a sizable price even in this market.

[fun4vnay2]

Investors are still there but the bulk of them made their money and are gone.
UNless the investors see a big upside potential, they won’t be spending money here..

Wage growth is another story. Wages are more or less stagnant for last few years.

I work in a field which pays quite a lot close to 200Ks/year and I see big time automation and outsourcing of jobs to cheaper places..

[scaredyclassic]

Noone knows

[flyer]

[quote=wallers]Yes, I have heard all the same arguments about why SD will be stable from realtors.
But one thing that boggles me a bit is that if that were the case then the 1920’s house that took 90 years or so to get to 400k. In 4 years it hit 600k (minimal to no improvements also all loose estimates)but point is 200k in 4 years and 400k over 90 years. Well… that seems off. Maybe not. But from what I understand (and again don’t know) household income has not had even close to that sort of growth. If everyone was moving here and buying up the place and that is why it is what it is I feel there would be a different historical trend. Not everyone decided to move here in the last 4 years. But again maybe I just see what I want to see.
On the investor fleeing comment from what I see they are still in the game. At least where I am looking. I asked my realtor about a fixer house that just went on. Sold all cash in a few days. Think there is a dumpster outside now waiting for the demo to begin. And this house wasn’t a steal of a deal either. For an investor to make money at the price point they paid they are going to have to ask a sizable price even in this market.[/quote]

Your observation concerning why it has taken so many years for homes in San Diego to appreciate at the current level would, imo, be due to the fact that San Diego was not really “on the map” business-wise until around the 80’s, when, companies “discovered” it in a major way, and the need for housing became greater.

Prior to that, it was predominately, a “Navy town,” and also had some other major employers such as the city and county, General Dynamics, Rohr, Hazard Construction, and others, but nothing on the level we see here today. It has also always been a prime destination for retirees.

Many of the families, like mine, who have been here for decades (we all tried different places in the world, but ended up coming back) also got into real estate development and investment, insurance, and other fields to meet the growing demands of the population as the county grew.

So, what you are experiencing as far as property values go at this point in time is the result of this evolution. Can it be sustained?–will property prices continue to up or down?–as others have said–we can all guess, but I don’t think anyone really knows.

If you plan to be here long-term, and can easily afford the investment, it’s definitely something to consider.

[Jazzman]

[quote=wallers]

The thing I am wary about (but again don’t know) is that if house prices were so investor driven what happens when investors start dumping and leave. Will they dump. Will they hold. Who owns what. Is the market really investor driven? It seems to me the housing market now is treated more like the stock market instead of people just buying homes. So are homes just like the stock market? Big ups and downs. Speculative driven. Then the Fed pushed all cheap money in. That is said to be unprecedented. What is that going to mean?

[/quote]
Reports abound of investors buying between 30-50% of properties is some markets. Some of these investors are large and bought anything and everything. They bid up the price quite a lot, but I expect are in the same boat as everyone else, i.e. waiting to see which way the tide turns. There has probably been some shedding of dead wood, but no stampede which is difficult to do with something as illiquid as RE. I don’t think there is much investing currently, as increased prices have put downward pressure on capitalization rates, and since prices have leveled off, overall returns on investments have wavered.

Another perspective to watch is shares and bonds. I believe many RE investors would prefer to be invested in traditional financial products (me included), and are waiting for a similar scenario to play out. With so much uncertainty, bricks and mortar offers a more tangible alternative to the volatility of paper. If you believe that the Federal Reserve holds the key to an unraveling of all over-valued assets, then at some point we will see a correction. Since things have held up pretty well so far, it may take a recession to jolt an undoing of all the ‘good’ work. Historically, one is due.

So a decision whether to buy, or not, revolves around either making the compromise you speak of by lowering your expectations, or sticking to your guns and allowing a principle dictate your actions. Which will be the more financially astute may not matter as you can’t blame yourself for not knowing the future. If it’s of interest, even during the trough of the crash I found property prices in soCal to be over-valued so voted with my feet and never looked back. The value you place on things doesn’t always need to be supported by clever numbers. If something seems expensive, it means you do not place an equal value on it. So you walk away.

[wallers]

ok thanks everyone! great info. I think I am going to rent and see how this all plays out.

From all the info here and everywhere generally speaking it seems prices will either remain somewhat the same/maybe a bit up for sometime and things will trudge along or go down. So financially it might be prudent to wait and see with minimal risk of a continued large price increase (buy now or be priced out forever!). Plus there is the possibility of staying calm and being rewarded for waiting for lower prices.

On the personal side I like being a homeowner. But if I can’t get what I want perhaps than maybe it’s not a great idea to buy anyways.

[Author]

Posts