Summer 2012 SD Housing Price Top

[sdduuuude]

OK. I’m calling a price top for San Diego and Carmel Valley this Summer that won’t be revisited again until 2014 or later.

I can’t say I’m 100% confident in the call and it is a little contrarian, given that we are currently in a low-inventory (and low inventory-to-sales) situation, but it is a combination of wishful thinking and my usual thorough analysis – which involves reading other people’s stuff and guessing who is right based on whether or not they have recently destroyed or been destroyed in debate.

I’m using the Redfin “Sold $/SqFt” graphs as my metric:
The San Diego County “House” tab, and the 92130 “House” tab (as opposed to the “Condo” or “Both” tabs).

http://www.redfin.com/county/339/CA/San-Diego-County

http://www.redfin.com/zipcode/92130

Right now, those numbers are $210 (SD) and $325 (CV).

Some thoughts behind the prediction:
1) Low inventory does not a strong market make. In fact, it suggests an unhealthy market, full of confusion, uncertainty, “stuck” homeowners who may never turn into move-up buyers, investors who have a cap on what they can spend and a few folks living rent-free that will become renters someday, not buyers. That prices have only come up 5% in a fairly normal-looking spring bounce with falling rates and short inventory is indicative that there are other problems. I suspect those problems lie in the ability and willingness of buyers to extend themselves very far past current market rates for a variety of reasons …

2) Such as the recession of 2012. It looks to be a reality. Indeed, the global recession of 2012 has started and will be making its way into the US very soon. I have always said the next recession would hit the “higher end” folks harder than the last.

3) Quantitative easing is running into the problem of diminishing returns so QE3 will try but not succeed in coming to the rescue.

4) I have often described the housing market (prices) as a ball bouncing down a hill. Look at the red Redfin chart to the right. Looks exactly like that, huh? It’ll keep bouncing but off a lower and lower base.

5) Seasonality. Spring is over. Fall is coming. and I think the recession of 2012 will take the “bounce” out of the 2013 spring bounce.

6) Rates. I’m not saying rates are going through the roof, but I can’t see them really falling much more.

7) It’s a bold and delicious call and good fodder/entertainment for the PIGGS. I’m anxious to be proven wrong or right.

8) I’m not claiming how much farther it’ll go – just that we won’t see these price levels for another 2 years. Maybe 3.

9) I really wanted to make the bold claim that the top is already in, but late Summer may bring one more bump.

[The-Shoveler]

For the “RECORD” .

I think that is a good call actually.
With the Euro thing going on and all.

[spdrun]

(10) if the economy slows down and fewer people have money for rent, rents may drop, scaring buy-to-rent investors out of the market. Cap rates aren’t great (maybe 7-9%, 9% if you’re lucky) in SD, and you need 5.5-6%+ to cash flow if you borrow with a “normal” downpayment.

Personally, I think that current prices are sustainable. I don’t think we’ll see a return to the bubble any time soon (maybe unless we’re talking about high-end stuff), but I don’t see prices dropping a lot either. Maybe 10% in either direction.

D/k how accurate these people are, but they seem to be showing a top in listing prices over the last 2-3 wks:
http://www.deptofnumbers.com/asking-prices/california/san-diego/

You may be right, but I’m not expecting a 2008-style crash from current prices either.

[sdrealtor]

As much as I wish you were right I cant agree. A top implies prices going down and I just dont see that happening. Level prices I can beleive but not down.

[sdduuuude]

[quote=spdrun]You may be right, but I’m not expecting a 2008-style crash from current prices either.[/quote]

I’m not, either. Possibly something more like the early ’90s dip, if that.

[sdduuuude]

[quote=sdrealtor]As much as I wish you were right I cant agree. A top implies prices going down and I just dont see that happening. Level prices I can beleive but not down.[/quote]

FWIW, I worry that you don’t agree.

[Anonymous]

[quote=sdduuuude][quote=sdrealtor]As much as I wish you were right I cant agree. A top implies prices going down and I just dont see that happening. Level prices I can beleive but not down.[/quote]

FWIW, I worry that you don’t agree.[/quote]

You are right. If sdr doesn’t see prices dropping then there is no chance.

[sdrealtor]

FWIW I dont see them rising either. Looking at the market today in CV I see a bunch of folks trying to push prices to the next level unsuccessfully. If they would just be happy with what others got last month most would be in escrow.

Right now prices in Carmel Valley are back to late 2007/early 2008 levels. Those paying attention will remember that was right after the first big leg down in between Spring and Fall of 2007. They have recovered to those levels but still have some work to do in order to get back to 2004/2005 peak levels.

[ocrenter]

I don’t think the prices in CV will go down. I think CV has now earned a special Asian Enclave status that will detach it slightly from the local market forces, much like other Asian Enclave such as Cupertino, San Marino, and Irvine. FOBs will look at CV value in relation to other AEs and continue to find value in the CV prices.

As the dollar continue to lose value against the RMB, CV will appear to be even more of a bargain. Already within the last 6 years the Chinese have gained 30% in purchasing power. This means a CV home priced at $1 million today looks like it is just $760k to the Chinese.

The only thing is the Chinese have a lot more exposure to the Euro mess, and they are starting to slow down.

So things will just stay flat, but very unlikely to go down.

[Anonymous]

[quote=sdrealtor]FWIW I dont see them rising either. Looking at the market today in CV I see a bunch of folks trying to push prices to the next level unsuccessfully. If they would just be happy with what others got last month most would be in escrow.[/quote]

Not just CV, look at the exponential curve on list price graph, looks like a broad market phenomenom that sellers all of a sudden think it is 2004 again.

[sdrealtor]

deadzone
Just looking at that graph can be very deceiving. The exponential increase is more due to mix of the current active inventory than skyrocketing asking prices. The inventory is now more skewed toward overpriced properties that havent sold (if it was priced right it would have sold already) and ultra high end properties (i.e multi million dollar homes in RSF, LJ< CORNADO) that often sit on the market for months if not years before selling. Sellers arent crazy thinking its 2004 again, they are just trying to squeeeze another 5 to 10% that isnt there.

[sdrealtor]

ocr
Agree with you about the Asian enclave in CV but its not just Asians. There are plenty of very successful, highly paid non-Asians in the CV mix also. In fact I would venture to guess they are even more highly paid than the Asians (who skew more towards engineers rather than doctors/lawyers). CV ain’t going anywhere.

[ocrenter]

[quote=sdrealtor]ocr
Agree with you about the Asian enclave in CV but its not just Asians. There are plenty of very successful, highly paid non-Asians in the CV mix also. In fact I would venture to guess they are even more highly paid than the Asians (who skew more towards engineers rather than doctors/lawyers). CV ain’t going anywhere.[/quote]

Agree there are others besides Asians looking at and purchasing in CV. The whole Asian Enclave thing is to point out any slight possibility of CV decline would be wiped away because it has gained membership into that highly selected group of locations well known on the other side of the pacific.

[sdduuuude]

[quote=ocrenter]I don’t think the prices in CV will go down. I think CV has now earned a special Asian Enclave status that will detach it slightly from the local market forces, much like other Asian Enclave such as Cupertino, San Marino, and Irvine. FOBs will look at CV value in relation to other AEs and continue to find value in the CV prices.

As the dollar continue to lose value against the RMB, CV will appear to be even more of a bargain. Already within the last 6 years the Chinese have gained 30% in purchasing power. This means a CV home priced at $1 million today looks like it is just $760k to the Chinese.

The only thing is the Chinese have a lot more exposure to the Euro mess, and they are starting to slow down.

So things will just stay flat, but very unlikely to go down.[/quote]

Interesting insight, OC.

If the fate of CV rests with the Chinese, I’m looking for a crash of epic proportions.

[sdrealtor]

A crash in China could have the opposite effect and create even more incentives for “the haves” to come to the US. The population in China is approaching 1,500,000,000. The 1%ers number more than 10M there. Wont take many of them to prop up CV.

[Author]

Posts