Why isn’t the San Diego house market imploding

[gn]

I think what you are seeing is the bottom half of the market in San Diego and much of Southern California basically becoming an unmitigated disaster. The top half of the market not as much.

On the way up, it was subprime & Alt-A loans that enable entry level buyers to bid up the prices of low-end houses. This enabled "move-up" buyers to bid up the prices of more expensive houses.

Now, the opposite is happening. The restrictions of sub-prime loans prevented entry level buyers to enter the market. This causes trouble in the low-end of the market first (we are currently seeing this).

Eventually, the effect will ripple up to the more expensive areas. In real estate, everything is connected.

[gn]

I think what you are seeing is the bottom half of the market in San Diego and much of Southern California basically becoming an unmitigated disaster. The top half of the market not as much.

On the way up, it was subprime & Alt-A loans that enable entry level buyers to bid up the prices of low-end houses. This enabled "move-up" buyers to bid up the prices of more expensive houses.

Now, the opposite is happening. The restrictions of sub-prime loans prevented entry level buyers to enter the market. This causes trouble in the low-end of the market first (we are currently seeing this).

Eventually, the effect will ripple up to the more expensive areas. In real estate, everything is connected.

[eccen in esc]

eccen in esc

picture a row of dominoes falling in really really slow motion.

Valley Center – homes sold so far this month – 12
homes on market there – over 200

it’s happening – it’s just hard to see – wait a few months – wow!

[eccen in esc]

eccen in esc

picture a row of dominoes falling in really really slow motion.

Valley Center – homes sold so far this month – 12
homes on market there – over 200

it’s happening – it’s just hard to see – wait a few months – wow!

[PerryChase]

So we know that a recession is coming. It would be foolhardy to buy before then.

HLS, the people who aren’t selling because they are fine are not the ones keeping the prices high. It’s the sellers who are still asking high prices. And they still have some willing buyers, but not as many.

Questions are:

1) How many sellers are must-sell? Can they are afford to hang on and how long? I think that most can hang on for another year but not much longer. Empty houses cost a heck of a lot in holding costs.

2) When will must-sell sellers give up and lower prices. They can’t lower prices now because they have no equity or not enough equity. They will walk rather than bring money to escrow. Lenders hate short sales because that only encourages more (news travels fast). Wait for foreclosures to see lower prices.

3) When will buyers stop paying the high prices?
a) When lenders stop offering 100% financing and require substantial downpayments.
b) When teaser rate loans that make initial payments “affordable” disappear.
c) When interest rates go up.
d) When underwriting get stricter and require full doc.
f) When qualifying for a loan means qualifying under the fully amortized monthly payments.
g) When interest-only loans are reserved for the most credit worthy.
h) When the recession hits.

Those are already in the process.

I believe that we’ll have facts on the ground to answer those questions in the fall of 2008. Be a little patient Alex_angel. The price “increases” you’re seeing right now is all subterfuge for the carnage (decreases) to follow. It’s all a mind game. May be best win.

[PerryChase]

So we know that a recession is coming. It would be foolhardy to buy before then.

HLS, the people who aren’t selling because they are fine are not the ones keeping the prices high. It’s the sellers who are still asking high prices. And they still have some willing buyers, but not as many.

Questions are:

1) How many sellers are must-sell? Can they are afford to hang on and how long? I think that most can hang on for another year but not much longer. Empty houses cost a heck of a lot in holding costs.

2) When will must-sell sellers give up and lower prices. They can’t lower prices now because they have no equity or not enough equity. They will walk rather than bring money to escrow. Lenders hate short sales because that only encourages more (news travels fast). Wait for foreclosures to see lower prices.

3) When will buyers stop paying the high prices?
a) When lenders stop offering 100% financing and require substantial downpayments.
b) When teaser rate loans that make initial payments “affordable” disappear.
c) When interest rates go up.
d) When underwriting get stricter and require full doc.
f) When qualifying for a loan means qualifying under the fully amortized monthly payments.
g) When interest-only loans are reserved for the most credit worthy.
h) When the recession hits.

Those are already in the process.

I believe that we’ll have facts on the ground to answer those questions in the fall of 2008. Be a little patient Alex_angel. The price “increases” you’re seeing right now is all subterfuge for the carnage (decreases) to follow. It’s all a mind game. May be best win.

[Fearful]

Here is one data point: I live in Torrey Hills. Right across the street from Torrey Hills elementary, so this is quite a desirable little neighborhood. I rent in a development in which the houses are all quite similar, so one transaction is not too dissimilar to another. A fair number of recent transactions: Around 2005, sales around $800K. Late 2006, low 700’s. Now one guy has a house on the market for about one month, and has gotten one offer at the low of his range, $640K. Now, he declined the offer, but still, there is a fundamental decline in value going on.

The sad thing is many are good, earnest people, families with little kids. These ain’t no ghetto HELOC abusers.

[Fearful]

Here is one data point: I live in Torrey Hills. Right across the street from Torrey Hills elementary, so this is quite a desirable little neighborhood. I rent in a development in which the houses are all quite similar, so one transaction is not too dissimilar to another. A fair number of recent transactions: Around 2005, sales around $800K. Late 2006, low 700’s. Now one guy has a house on the market for about one month, and has gotten one offer at the low of his range, $640K. Now, he declined the offer, but still, there is a fundamental decline in value going on.

The sad thing is many are good, earnest people, families with little kids. These ain’t no ghetto HELOC abusers.

[HLS]

In any falling market, there are always buyers who buy ONLY because it is cheaper now than it was. They are afraid of missing out.

When NASDAQ dropped from 5000, there were buyers and sellers all the way down to 1300.
Some individual stocks dropped 95% or more.
Some people forget OR don’t know the pain.
There are only 2 emotions in any market, which are FEAR & GREED.

Every market cycle brings a new group of people who have never experienced a cycle before.

Those who survived the 1930’s depression had a different perspective for the rest of their lives than any generation that came afterwards. It comes with experience.

Many people today didn’t experience the 1990’s correction of real estate. This is their first cycle.

Builders build. Lenders lend.
If regulations required a 10% down payment, there never would have been a bubble.

There are billions of dollars available. There is an unlimited desire for above market returns. The demand and availability of money won’t ever stop.

There are hundreds of millions of dollars being withheld from paychecks that are invested in retirement funds and pension plans.
These funds are fueling the stock market by people who don’t understand the risks that they are taking, The EXACT same risks that people didn’t understand when they were inflating the housing bubble.

It is a greater fool theory and legaliazed pyramid scheme, that will make some people rich and others poor.
People are in a trance looking at their statements, not realizing that paper profits disappear. Home equity disappears too, but many refuse to accept that.

As long as people blindly do what they are told is the “right thing to do” there will be potential to get rich for all.
The problem arises when a reality check kicks in, after irrational exuberance has taken place.

IF there is a stock market crash, which is possible at some point, the government will step in afterwards and spend hundreds of millions of dollars funding committees and waste 5 years to determine what caused it.

It’s what they are doing right now with the mortgage mess.

Completely common sense lending requiring down payments probably won’t happen. As long as there is willing exposure to risk, based on a higher return, insanity will reign.

Underwriting guidelines have already changed, based on government guidelines that should have been in place all the was along.

I’m in the lending industry. I deal with this every day.

[HLS]

In any falling market, there are always buyers who buy ONLY because it is cheaper now than it was. They are afraid of missing out.

When NASDAQ dropped from 5000, there were buyers and sellers all the way down to 1300.
Some individual stocks dropped 95% or more.
Some people forget OR don’t know the pain.
There are only 2 emotions in any market, which are FEAR & GREED.

Every market cycle brings a new group of people who have never experienced a cycle before.

Those who survived the 1930’s depression had a different perspective for the rest of their lives than any generation that came afterwards. It comes with experience.

Many people today didn’t experience the 1990’s correction of real estate. This is their first cycle.

Builders build. Lenders lend.
If regulations required a 10% down payment, there never would have been a bubble.

There are billions of dollars available. There is an unlimited desire for above market returns. The demand and availability of money won’t ever stop.

There are hundreds of millions of dollars being withheld from paychecks that are invested in retirement funds and pension plans.
These funds are fueling the stock market by people who don’t understand the risks that they are taking, The EXACT same risks that people didn’t understand when they were inflating the housing bubble.

It is a greater fool theory and legaliazed pyramid scheme, that will make some people rich and others poor.
People are in a trance looking at their statements, not realizing that paper profits disappear. Home equity disappears too, but many refuse to accept that.

As long as people blindly do what they are told is the “right thing to do” there will be potential to get rich for all.
The problem arises when a reality check kicks in, after irrational exuberance has taken place.

IF there is a stock market crash, which is possible at some point, the government will step in afterwards and spend hundreds of millions of dollars funding committees and waste 5 years to determine what caused it.

It’s what they are doing right now with the mortgage mess.

Completely common sense lending requiring down payments probably won’t happen. As long as there is willing exposure to risk, based on a higher return, insanity will reign.

Underwriting guidelines have already changed, based on government guidelines that should have been in place all the was along.

I’m in the lending industry. I deal with this every day.

[kewp]

Actually, A_A, what is your definition of ‘imploding’?

I agree with PerryChase that we are, at the very least, a year away from an implosion by any definition.

Be patient, save up, improve your credit score and (most importantly) make sure you have a stable source of income, if you need it. SD county is way over-dependent on the RE-RE-RE’s (real estate, retail and related industries).

[kewp]

Actually, A_A, what is your definition of ‘imploding’?

I agree with PerryChase that we are, at the very least, a year away from an implosion by any definition.

Be patient, save up, improve your credit score and (most importantly) make sure you have a stable source of income, if you need it. SD county is way over-dependent on the RE-RE-RE’s (real estate, retail and related industries).

[donaldduckmoore]

I think we still have a lot of buyers who cannot wait for the market to implode and keep buying houses no matter what price they are at. This is one of the main factors that either push the price higher or steady.

The other reason is the lenders who are holding a lot of the REOs or other types of non-performing assets in order to maintain a high price market. I hope to see the lenders implode first and then the market will really cool down.

[donaldduckmoore]

I think we still have a lot of buyers who cannot wait for the market to implode and keep buying houses no matter what price they are at. This is one of the main factors that either push the price higher or steady.

The other reason is the lenders who are holding a lot of the REOs or other types of non-performing assets in order to maintain a high price market. I hope to see the lenders implode first and then the market will really cool down.

[scruffydog]

Demand is what is keeping the prices of properties in SD from declining (much).
Overall SD county supply is steady ~ 20k. There is no panic selling.
Because there is no recession currently, foreclosed homes are finding eager buyers.
There are property markets that are basket cases – Florida for example. A lot of people on this site wish SD market was like FL so they can buy at 50% discount. Not gonna’ happen in SD though.

[Author]

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