State your position

[San Diego]

I am curious to know the status of each of the regular posters in this forum.

Would you classify yourself as one of the following?

1. Frustrated BUYER who feels the market has passed them up for the past 7 years.

2. Recent SELLER looking for a buying opportunity.

3. REALTOR.

4. BULL who believes in long term home ownership.

5. BEAR who is convinced that we are on the verge of economic Armeggedon.

6. Frustrated SELLER who will have to settle for a lower price than their neighbor.

I am in the development business. I own a home in downtown San Diego. I absolutely agree that the prices are too high and that a mild correction is in the works. I have no intention of selling in the near term so I am not concerned about the short term. Location is always a prime factor. I would be very nervous if I owned a condo conversion in the East County.

[teatsonabull]

I would be happy to provide my status for your reading pleasure, provided you first quantify for us all what you mean by “mild correction”, both in magnitude of price decline (as a percentage of 2005’s peak prices) and in duration (in other words, how long before you feel we’ll surpass 2005’s peak prices?) I am sensing, based on your “replacement cost” post and this one, that you may be unworthy of my reply.

[Blissful Ignoramus]

I’ll do my best to keep the discussion positive and argument free, but it really isn’t fair how (in terms of point of view) you give two options, the obviously reasonable “bull” who believes in long-term ownership, and the shrill “bear” who is calling for Armageddon. I mean, come on, you’re laying the rhetoric on pretty thick here.

Anyway, the “mild correction” issue is the crux of the argument. Obviously, the central theme in this blog is that the correction is not going to be mild, and you see things otherwise.

Even if the correction is going to be more than mild, you are probably going to be fine if you like your home and location, plan to stay there a long time, and can afford it.

The question is whether you would be just as well off renting. That of course depends on what is important to you.

Beyond that, the real problem is that people are buying homes they can’t afford, and/or buying overpriced homes with the idea that they are going to make money.

[San Diego]

I believe that if you are just entering the SFR market in a master planned community anywhere from Oceanside to Chula Vista, market you are probably the “greater fool”.

Builders are much more in tune with the markets these days and you might actually see some of the later phases of some masterplans be held up until the resale market stabilizes. Regional builders (and equity players and lenders) will allocate their capital to other markets for the time being.

I am NOT a proponent of Condo Conversions. Anyone who thinks that a 40 year old apartment/converted condo is a substitute for new construction will have trouble finding a buyer when they decide to sell. I see these properties falling in price until investors can make them pencil as rental units again. You will see many of the “condos” re-entereing the market as rentals in the near future.

I believe that the extreme rise in construction costs has flushed out all of the speculative building in the downtown market and Mission Valley. You may actually see some of the residential projects be re-entitled for commercial/office.

I KNOW that if we get a correction of more than 15%-20%, there are huge amounts of capital waiting on the sidelines who will be lining up to buy SFR land. They will take positions because they know that long term, it is a good investment. Also, they will need to prop up the value of their current investments. The SFA attached projects have a little further to fall.

If we get corrections of 50% (as some have openly hoped for on this site), I would classify that as Economic Armegeddon. The ripple effects would touch everyone.

Finally, REALTORS are a big part of the problem with their pump and dump tactics. We can all only hope that they are the first to go away.

[teatsonabull]

I think that the PermaBulls would prefer that I go away. I blatantly disagree that a 50% correction would be akin to Economic Armageddon. Regardless of YOUR wishes, the market is going to drop and it is going to drop big, probably on order of 50%. Whether you like my prediction or not, it shall come to pass. So what if house prices go back to where they were 4 years ago?!?!

True economic armageddon will come IF we find out that too many people are “swimming naked” when the tide goes back out.

I have experimented with posting for the last time, I think. Good luck to anyone who thinks that buying on a 20% “dip” is a great long term investment!! I’m out of here…

I’ve got some granite countertops and Hummers to re-possess…FOOLS!!!!@

[North County Jim]

We would fall into category 2.

[Anonymous]

I can’t say that I could place myself in any of these classifications.

I feel that current prices on San Diego homes are fundamentally unsustainable, and it makes more sense to rent for less than half of the comparable cost of purchasing something similar to where I live right now.

I’ll rent when that makes more sense than buying or owning at grossly inflated prices.

I’ll consider buying after the market sorts itself out and when rents aren’t as financially attractive.

Renter, yes.
Bitter, no.

I’m enjoying what I’m saving after figuring out what works best for me.

[RightSide]

I think everyone here will get a laugh out of this one though its really quite tragic that advice like this is floating around…this is from ZIP Realty on their outlook for the San Diego Real Estate market submited to RealtyTimes.

Zip Realty advises, “If you are a buyer thinking of purchasing, don’t wait. There is no bubble, it doesn’t exist, so it cannot burst. There is no time like the present. Get in now and pick up that equity for your future. You don’t have money to put down or pay for closing cost, don’t worry. With $0 down financing and the seller paying your closing costs, it is extremely easy to purchase a home. If you’re a seller, you have picked up a great deal of equity. Is it time for you to also make a move? There is a buyer out there that would love your home, and is willing to pay a high market value for it.”

Published: August 16, 2005

Personally, I’m looking to move back to San Diego, but I’m going to wait until some ugliness comes in the market.

[MANmom]

I am a semi-frustrated hopeful buyer/former appraiser/realist that won’t buy at this time because I know that the San Diego market is over-valued. I own property in Southern California, but not in San Diego county. We currently rent because we aren’t interested in something we can afford (too small, crappy neighborhood, awful schools) and are not willing to become the next mortgaged-to-our-teeth fools.

[NotARocketScientist]

How about:

7. Relaxed PROSPECTIVE INVESTOR waiting patiently for the other side of the market cycle to reemerge — as it always does.

[LukeAJ]

I am a real estate Bear, I do not own property, I actively rent and plan to do so for the remainder of the year.

My bear status stems from the disparity between the value and price of the San Diego market. I believe that sentiment, the primary driver of the current speculative environment, has hit it’s inflection point. Prices are more likely to fall, and many will be left with a undesirable balance sheet for a slowing economy.

[an]

How about:

7. Relaxed PROSPECTIVE BUYER waiting patiently for the other side of the market cycle to reemerge — as it always does.

I wasn’t old enough and financially stable enough to catch this last run up. But I’m not frustrated. Like someone smart once said, buy when everyone say sell and sell when everyone say buy.

[NotARocketScientist]

“Like someone smart once said, buy when everyone say sell and sell when everyone say buy.”

Right you are, asianautica!

I have in front of me the front page of the Los Angeles Record, a newspaper dated July 13, 1903. The banner headline reads: REDONDO BOOM CROWD GROWS GREATER DAILY, BUT, APPARENTLY THE BUBBLE IS NEARLY READY TO “BUST”

Of course the bubble did bust, within weeks, and a lot of people lost their shirts. Henry Huntington, who precipitated this boom in the first place by buying land cheap in Redondo when nobody else wanted it, turned around and sold the land for a fortune after hinting that he would build a streetcar line to service Redondo. When he retracted the plan, the boom collapsed. Huntington re-bought the land for pennies on the dollar and used the profits thus earned to build his streetcar line to Santa Monica. At least that’s how my grandpa told it. He was selling lots at the time and made a lot of commissions that year!

[sdduuuude]

Prior to becoming a regular reader in April of 2005, I owned my 3BR Clairemont home (for 7 years), owned a Penasquitos condo rental (my wife has owned for 14 years), and owned a Clairemont rental (1.5 years.)

Rich’s analysis proved to me that hanging on to the most recently purchased rental was not the right thing to do so I sold it in Aug. of 2005. I am quite confident that I sold at the absolute top of the market. Even if I didn’t I’m pretty happy being out of the property. I was $300/month short (rent less outgoing cash flow – mort/tax/insur) and didn’t see any appreciation on the horizon, with market conditions ripe for a major fall. Plus, I had already seen it appreciate from $400K to $575K in 2 years.

I follow the site and the market closely still, though I have no intention of buying a new property, and no intention of selling either one I own. The economics of the properties I own are too attractive to sell, and the economics of buying another are impossible.

I believe that the market will linger flat for another year or more, with “bubblers” and “permabulls” arguing their faces off about month-over-month data that doesn’t tell a clear picture. But so many conditions are right for a crash, it will surely happen, and I think it will be worse that the early 90’s crash.

Just look at the charts in the bubble primer.
Just look at the cost of owning vs. renting.
Just look at the affordability index.
Just look at the number of ARM loans that will eventually force a sale.
Trust the numbers.
They tell a story and Rich is a master of spelling that story out.

In 2009 and 2010, you will regularly hear the words “Cash is King” (which means prices will be low, but you won’t be able to borrow enough to buy) so start saving it now. Rent, don’t buy. Put the $1,000 you will save each month into the bank and sit on it. Pull it out when you can walk into a foreclosure auction as the only buyer.

I can’t predict how low but I think it will be pretty bad, maybe down 30% to the bottom in 2010. It won’t be the height of the fall that hurts, but the length of time the fall lasts. We may not see last years’ prices for another 8 or 10 years.

[sdduuuude]

P.S. Two factoids to keep in mind:

1) If you consider inflation, a “flat” market is really losing money at 3-5% per year.

2) When a market goes down 50%, then up 50%, it is still down 25%, not even.

[Author]

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