Think home-price slide is over? The worst appears yet to come.(SD)

[hipmatt]

http://www.signonsandiego.com/news/business/calbreath/20071104-9999-1b4dean.html

November 4, 2007

After more than a year’s worth of the Great American Mortgage Crisis, some real estate professionals still think the law of supply and demand will kick in to prevent home prices in San Diego from dropping too low.

The rationale goes something like this: There’s a finite supply of homes and plenty of pent-up demand from potential home buyers. That demand will put the brakes on the housing decline before it turns into a rout.

But people often forget that the economic concept of “demand” also includes “ability” – i.e., ability to pay. As lenders tighten their standards on mortgages – standards that never should have gotten as lax as they were in the past few years – fewer San Diegans will have the ability to buy homes at their current prices.

By any standard, even after a year of decline, San Diego’s home prices are still out of whack.

Look at the distance between our median income and the median price of a home.

The median family income in San Diego County is $69,400, according to the latest data from the U.S. Department of Housing and Urban Development. That puts us slightly below the median family income of $73,700 in Madison, Wis.; $71,400 in Denver; $72,600 in Norwich, Conn.; or $72,800 in Worcester, Mass. – to cite some examples from HUD’s database.

Although we make less money than the people in those cities, we pay more than twice as much for our housing.

In San Diego, the median sale price of an existing single-family home in the second quarter was $614,000, according to the National Association of Realtors. Compare that with $223,500 in Madison, $255,200 in Denver, $276,600 in Norwich and $278,900 in Worcester.

According to the Census Bureau, we are the 42nd-most-expensive county in the nation for median housing costs for owner-occupied units. But we are 142nd on the list of highest-paying metropolitan areas.

OK. So we live by a beach. And we have great weather. And we’ve got a great football team (so far this year, at least). But you can only stretch a dollar so far. Which is one reason why – for the past several years – we’ve had more people moving out of San Diego than moving in from other parts of the country.

Back in the good ol’ days when nobody was paying attention to what was written on a loan document – i.e. before January – it was possible for a median-income San Diegan to buy a median-priced home with the help of a little fibbing.

When home buyers didn’t make enough money to qualify for a loan, they could just say they did and – voila! – the home was theirs. They didn’t even have to make a down payment or pay off any of the principal.

There was just one itsy-bitsy problem: The buyers couldn’t afford the homes! This led to a wave of delinquencies and foreclosures, besides putting quite a few mortgage lenders out of business. Now, lending practices have changed. And that’s going to make the market rockier in coming months.

Here are some points which, I confess, are not totally my own. They are based on commentary by San Diego mortgage broker Greg Brooks on brokerforyou.com, a Web site operated by real estate broker Bob Schwartz.

First, most borrowers now must prove how much money they’re earning. This will result in a substantial cutback in the number of buyers in the marketplace, which could not have thrived the way it did between 2002 and 2006 without the thousands of liars whose homes are now entering default and foreclosure.

Second, most borrowers will have to actually make a down payment on their home. That usually means at least 10 percent of the price. Which leads to two questions: How many home-seekers in the San Diego market have $47,500 to plunk down on a $475,000 median-priced home (here I’m using the DataQuick median, which seems more realistic than the Realtors)?

Third, once you’ve got your $475,000 home, you have to make the monthly mortgage payments. Brooks notes that after making a 10 percent down payment on a $500,000 home, a borrower would end up paying $3,700 a month, after factoring in principal, interest, taxes, insurance. That kind of borrower (or dual-income couple) would have to make about $120,000 per year to qualify for the loan.

To qualify for the Realtors’ median of $614,000, the borrower would need to make about $138,000, Brooks said.

“And that’s an absolute minimum, assuming that the borrowers had no other debt, had $61,000 for a down payment and could afford to spend 40 percent of their income on mortgage payments, which is the absolute maximum recommended,” Brooks said.

Look around and try to figure out how many people you know who would qualify for that loan and you’ll get an idea of why demand for San Diego housing is going to be soft as long as prices remain where they are. Which makes it unlikely that the market will come back any time soon.

“Everyone’s talking about the real estate market coming back in 2009,” said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine. “We’re not coming back anywhere near 2009. It took about five years for this market to build up, and it’ll take five years to come down. Properties are going to slide back to neighborhood income, so people will be able to afford them. It has always been thus.”

[Ex-SD]

“Everyone’s talking about the real estate market coming back in 2009,” said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine. “We’re not coming back anywhere near 2009. It took about five years for this market to build up, and it’ll take five years to come down. Properties are going to slide back to neighborhood income, so people will be able to afford them. It has always been thus.”

Some people have questioned my sanity because I have continued to say that we won’t hit the bottom until late 2011 but probably 2012. Looks like a few other people are starting to think the same way.

[Ex-SD]

“Everyone’s talking about the real estate market coming back in 2009,” said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine. “We’re not coming back anywhere near 2009. It took about five years for this market to build up, and it’ll take five years to come down. Properties are going to slide back to neighborhood income, so people will be able to afford them. It has always been thus.”

Some people have questioned my sanity because I have continued to say that we won’t hit the bottom until late 2011 but probably 2012. Looks like a few other people are starting to think the same way.

[Ex-SD]

“Everyone’s talking about the real estate market coming back in 2009,” said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine. “We’re not coming back anywhere near 2009. It took about five years for this market to build up, and it’ll take five years to come down. Properties are going to slide back to neighborhood income, so people will be able to afford them. It has always been thus.”

Some people have questioned my sanity because I have continued to say that we won’t hit the bottom until late 2011 but probably 2012. Looks like a few other people are starting to think the same way.

[Ex-SD]

“Everyone’s talking about the real estate market coming back in 2009,” said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine. “We’re not coming back anywhere near 2009. It took about five years for this market to build up, and it’ll take five years to come down. Properties are going to slide back to neighborhood income, so people will be able to afford them. It has always been thus.”

Some people have questioned my sanity because I have continued to say that we won’t hit the bottom until late 2011 but probably 2012. Looks like a few other people are starting to think the same way.

[(former)FormerSanDiegan]

“Everyone’s talking about the real estate market coming back in 2009,” said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine. “We’re not coming back anywhere near 2009. It took about five years for this market to build up, and it’ll take five years to come down. ”

Although I think it’s a reasonable (but a but weak on details) article this guy cannot add.

OK, so the market peaked in 2005, add five years you get what ?

2010. That is somewhere close to 2009. Can this guy not add ?

[(former)FormerSanDiegan]

“Everyone’s talking about the real estate market coming back in 2009,” said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine. “We’re not coming back anywhere near 2009. It took about five years for this market to build up, and it’ll take five years to come down. ”

Although I think it’s a reasonable (but a but weak on details) article this guy cannot add.

OK, so the market peaked in 2005, add five years you get what ?

2010. That is somewhere close to 2009. Can this guy not add ?

[(former)FormerSanDiegan]

“Everyone’s talking about the real estate market coming back in 2009,” said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine. “We’re not coming back anywhere near 2009. It took about five years for this market to build up, and it’ll take five years to come down. ”

Although I think it’s a reasonable (but a but weak on details) article this guy cannot add.

OK, so the market peaked in 2005, add five years you get what ?

2010. That is somewhere close to 2009. Can this guy not add ?

[(former)FormerSanDiegan]

“Everyone’s talking about the real estate market coming back in 2009,” said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine. “We’re not coming back anywhere near 2009. It took about five years for this market to build up, and it’ll take five years to come down. ”

Although I think it’s a reasonable (but a but weak on details) article this guy cannot add.

OK, so the market peaked in 2005, add five years you get what ?

2010. That is somewhere close to 2009. Can this guy not add ?

[Ex-SD]

I don’t think he was taking about when housing prices hit their peak: I think he was referring to when the bottom completely fell out of the housing market and everyone finally acknowledged it in 2007. Where he got the 5 year number is beyond me. Actually, housing prices in CA really started going up in 1998 and peaked in the later part of 2005. That was a good seven year + run.

[Ex-SD]

I don’t think he was taking about when housing prices hit their peak: I think he was referring to when the bottom completely fell out of the housing market and everyone finally acknowledged it in 2007. Where he got the 5 year number is beyond me. Actually, housing prices in CA really started going up in 1998 and peaked in the later part of 2005. That was a good seven year + run.

[Ex-SD]

I don’t think he was taking about when housing prices hit their peak: I think he was referring to when the bottom completely fell out of the housing market and everyone finally acknowledged it in 2007. Where he got the 5 year number is beyond me. Actually, housing prices in CA really started going up in 1998 and peaked in the later part of 2005. That was a good seven year + run.

[Ex-SD]

I don’t think he was taking about when housing prices hit their peak: I think he was referring to when the bottom completely fell out of the housing market and everyone finally acknowledged it in 2007. Where he got the 5 year number is beyond me. Actually, housing prices in CA really started going up in 1998 and peaked in the later part of 2005. That was a good seven year + run.

[cr]

“OK. So we live by a beach. And we have great weather. And we’ve got a great football team (so far this year, at least.”

I’ll give you beach and weather, though not exclusively, but I’m going to have to disagree with the Chargers being great this year. 🙂 sorry.

As far the bottom, people will be citing the turn-around the whole way down as they already have been for the past year.

It’s the same as we expected every year to start the turn around, until it finally did.

[cr]

“OK. So we live by a beach. And we have great weather. And we’ve got a great football team (so far this year, at least.”

I’ll give you beach and weather, though not exclusively, but I’m going to have to disagree with the Chargers being great this year. 🙂 sorry.

As far the bottom, people will be citing the turn-around the whole way down as they already have been for the past year.

It’s the same as we expected every year to start the turn around, until it finally did.

[Author]

Posts