October 14, 2006 at 1:22 PM #7738
When will I be able to afford a new home in Ventura/LA/San Diego County?
That really is the magic question. Currently homes are overpriced and people are foolish enough to pay out the wazoo for them. When will the hype end and market correct? Soon I hope so that normal people can buy a home to actually live in versus speculation.October 14, 2006 at 1:45 PM #37891AnonymousGuest
Your guess is as good as mine as to when prices will correct. I sold at the end of ’04 and literally could not beleive the prices at that time, I thought the people who bought my house were batty for paying what they did. I have to confess I was wrong and the market has had a lot more resiliance than I could have ever guessed. Prices in my old area are about the same as they were two years ago, albiet the homes are on the market a lot longer.
I’ve decided to ride things out in a rental for another year or perhaps two max, and then simply leave the area for greener pastures if prices are still too high. I’ve done it once before, so I know I can live a lot easier and more sucessfully elsewhere with a very high quality of life without the high costs. It’s hard to leave family and friends and the comfort of a familiar area, but the prices here simply are not worth it.
It could be S. Cal turns into Hawaii, where prices have a huge resort premium completely out of whack with local wages. Again if that is the case for the vast majority of the middle class San Diego will make no sense as a home base for families.October 14, 2006 at 1:46 PM #37892sdrealtorParticipant
I dont know if that day will come soon enough but I suspect you should know whether it will in about 2 years from now.October 14, 2006 at 1:47 PM #37893
3-5 years from now, if history repeats.October 14, 2006 at 2:35 PM #37900AnonymousGuest
I agree it will probably be flat for a long time. I just don’t want to wait that long, my oldest will be almost in high school in 3-4 years and I don’t want to keep moving.
Oh well, 99% of the US population lives outside of SD County, and seems to survive!October 14, 2006 at 2:49 PM #37901kev374Participant
It will come in about 3 yrs, at least in my opinion. The belief that real estate is forever unaffordable is absolutely ridiculous!!! Asset prices are only controlled by demand and supply. The demand for current inventory levels is just not there.
The recent inflation in Real Estate asset values has been due to artificial demand caused by speculative buying and the introduction of exotic loans. In the next couple of years all this demand is going to be converted into supply in terms of foreclosures and speculators trying to sell.
Speculators who are unable to sell will try to rent but that will result in rents going down and that will in turn cause an even bigger deficit for the speculators, a classic deflationary cycle that will lead them to foreclosure as well.
The massive rise in inventory alone will send Real Estate prices to spiral downward to HELL! My school of thought is that 30% decline is “in the bag” and I would hardly be shocked if there was a 50-60% decline in real terms (inflation adjusted) in the next 5 years.
Remember that there are also other catalysts like the loss of construction and other Real Estate related jobs which has been the majority of job growth here in Southern California.
So far the downturn has been much much bigger and faster than all the “experts” have predicted. Each month these experts are going back and “revising” their estimates which is a total joke! Why can’t they just come out and speak the truth? Well, prediction of doom is always unpopular of course and they don’t want to be the ones that publish it!October 14, 2006 at 5:26 PM #37902lindismithParticipant
Nice synopsis, Kev374.
I’m already seeing condos that are affordible (for me) in my area of Hillcrest, Northpark, Mission Hills etc.
It is staggering how fast they have come down.October 15, 2006 at 10:38 AM #37927kev374Participant
vrudny, you’re right about the 6 yr cycle, however this time is a bit different. The up cycle started in 1997 and peaked around 2002-03 or so after which we should’ve seen prices starting to retreat. Unfortunately the boom was extended by an additional 3 yrs (2003-2006) by introduction of artificial demand caused by exotic loans. I feel that this part of the appreciation (around 30% or so) is pure fluff and will just drop like a rock in the next 2 yrs. as loans reset. I’m very confident that in 2 yrs (2008) we will see much lower prices.October 15, 2006 at 12:16 PM #37934
kev374, your comment is astute. If you look at sales, there was a strong indicator of reversal in 2001. Then suddenly, a new burst of energy hit the market in the form of exotic loans. Had this not occured, our down cycle would be 2002 – 2009.
This “fluff” that you mention will evaporate in the next 2 quarters as subprime lending comes to a screeching halt with the introduction of the new lending regulations. Since 70% of buyers use ARMs, and over half are sub-prime, I think we’ll lose half 35% of our buyers until prices come down to 3.5x per capital income.October 15, 2006 at 12:29 PM #37935
Will this only affect San Diego or will other places like Ventura and Los Angeles be affected? It seems that places like Santa Barbara, Malibu, Ventura and Santa Monica where very wealthy movies stars and big shots live never are affected unfortunately. I might just keep renting even if I am paying 4k a month in taxes.
-ScottOctober 15, 2006 at 3:01 PM #37940
The regulatory lending guidelines just went in effect for depository institutions (CitiBank, Wells Fargo…), and will soon apply to state regulated lenders (New Century Fiancial, Option One…). This is a nationwide effort, begun 2 years ago, to make sure that borrowers can stay in their homes, not just qualify for the loan. I have yet to read the document, but from what I’ve skimmed, it’s going to eliminate the sub-prime I/O and Option ARM market, bringing home transactions in San Diego to a screeching halt, *after* the state regulated lending guidelines is effective. What do you all think? If buyers now have to prove income and are qualified based on their ability to pay the fully indexed rate, the median home price must come down to 3.5 x the median income, so homes must make a very quick plunge to a median price of $250K. That’s my interpretation, but I need to read the document and interview some loan officers. Stay tuned….October 15, 2006 at 7:34 PM #37965
You make a valid point. I think the new guidelines will bring prices down but slowly. Its good because we will actually be able to buy a new home for what its true value is and not the speculation. For me, I would be able to buy a 700-900k home that currently sells for 2 million which is fine with me.October 15, 2006 at 11:15 PM #37974sdrealtorParticipant
I did some poking around with some stats and came up with the following. What I am doing wrong?
Median Home Price
Median HH Income from Sandag site
I was surprised by the median income estimate as I have seen the $47K number bandied about and hadnt seen the higher number before. Has anyone seen that number before?
Price to income Ratio
If the $64K number is legit and we get to $70K or better by 2010 it would suggest a median home price of $350k to $400K. I expected to see a number under $300K. Whats wrong with this picture?
- You must be logged in to reply to this topic.