Why isn’t the San Diego house market imploding

[cyphire]

I will tell you what is keeping home prices too high….

ILLIQUIDITY! EQUITY MARGINS! SIZE OF ASSET TO PORTFOLIO!

Houses are not stocks, they can’t be dumped on a moments notice. People aren’t going to dump houses until they have to. A typical investment in stock has 0-50% in margin. A lot of homes (especially ones that NEED to sell) have 100% in margin (the amount owed vs. the potential selling price).

This coupled with the Days on Market lies (Games played with days on market for a home), create a large number of sellers who would like to sell, but buyers not stepping up to the plate. There are also a large number of buyers who are not willing to sell, because they hope for better times.

As it takes longer and longer to sell a home, and as prices stay stagnant, the market will stay stagnant. As prices fall and economic data gets worse, prices will continually come down and there should be a change in the mindset of sellers. Unfortunately this will make the buyers even more frightened and they will demand even lower prices.

It seems to me that this stagnation is just a lull, prices will come down much more in the fall, and then might have little rebounds along the way. With the true data being as bad as it is (inability to compare apples to oranges, lies about actual selling price (because lots of costs have shifted but aren’t shown in the actual price), and more egregious data games by the NAR, it isn’t surprising that we keep hearing conflicting viewpoints.

Just like the war in Iraq (over 6 years), we keep hearing politicized viewpoints, we don’t get any real data, we hear so many conflicting points that it is difficult to get a handle on the outcome…. (I’m not saying this for political reasons! Just an analogy!) Same stuff in real estate. The Realtors control most of the media messages (completely controlled it until 6 months ago), the data is impossible to get accurate, and only blogs like this really have a discourse on what the future holds (but none of us have a crystal ball).

Anyone see what happened to Countrywide yesterday / today? They think that even by 09 it won’t get better (just like the war, they will keep calling the end until it’s 2015!)

[cyphire]

I will tell you what is keeping home prices too high….

ILLIQUIDITY! EQUITY MARGINS! SIZE OF ASSET TO PORTFOLIO!

Houses are not stocks, they can’t be dumped on a moments notice. People aren’t going to dump houses until they have to. A typical investment in stock has 0-50% in margin. A lot of homes (especially ones that NEED to sell) have 100% in margin (the amount owed vs. the potential selling price).

This coupled with the Days on Market lies (Games played with days on market for a home), create a large number of sellers who would like to sell, but buyers not stepping up to the plate. There are also a large number of buyers who are not willing to sell, because they hope for better times.

As it takes longer and longer to sell a home, and as prices stay stagnant, the market will stay stagnant. As prices fall and economic data gets worse, prices will continually come down and there should be a change in the mindset of sellers. Unfortunately this will make the buyers even more frightened and they will demand even lower prices.

It seems to me that this stagnation is just a lull, prices will come down much more in the fall, and then might have little rebounds along the way. With the true data being as bad as it is (inability to compare apples to oranges, lies about actual selling price (because lots of costs have shifted but aren’t shown in the actual price), and more egregious data games by the NAR, it isn’t surprising that we keep hearing conflicting viewpoints.

Just like the war in Iraq (over 6 years), we keep hearing politicized viewpoints, we don’t get any real data, we hear so many conflicting points that it is difficult to get a handle on the outcome…. (I’m not saying this for political reasons! Just an analogy!) Same stuff in real estate. The Realtors control most of the media messages (completely controlled it until 6 months ago), the data is impossible to get accurate, and only blogs like this really have a discourse on what the future holds (but none of us have a crystal ball).

Anyone see what happened to Countrywide yesterday / today? They think that even by 09 it won’t get better (just like the war, they will keep calling the end until it’s 2015!)

[Chris Scoreboard Johnston]

I think what we are seeing is that volume has very little to do with price. I would have thought with this large of a volume drop, prices would have come down much more. This is part of the reason why I have shifted my view to a more moderate decline opinion. Volume also does not correlate to stock prices, even though many people mistakenly write about that relationship.

It will be interesting to see what the common correlations are between this decline and the 90’s decline, when it is all said and done, because there are already significant differences, especially in the lack of median movement.

I do not think we are going to see a crash, just a slow downward movement for a couple more years. We could not ask for much more than what we have had in terms of negative news for a drop, yet the bottom has not fallen out.

As it is with trading, you have to watch how prices react to news, and forget about your opinion about what should happen. The facts are that all of this bad news has not moved prices down much, so that is what matters, not what should happen. Maybe that is what should happen. An upwardly biased asset like a house should go down small amounts on bad news, because it is not an even playing field. Lack of downward price movement on negative news in assets is bullish bigger picture.

[Chris Scoreboard Johnston]

I think what we are seeing is that volume has very little to do with price. I would have thought with this large of a volume drop, prices would have come down much more. This is part of the reason why I have shifted my view to a more moderate decline opinion. Volume also does not correlate to stock prices, even though many people mistakenly write about that relationship.

It will be interesting to see what the common correlations are between this decline and the 90’s decline, when it is all said and done, because there are already significant differences, especially in the lack of median movement.

I do not think we are going to see a crash, just a slow downward movement for a couple more years. We could not ask for much more than what we have had in terms of negative news for a drop, yet the bottom has not fallen out.

As it is with trading, you have to watch how prices react to news, and forget about your opinion about what should happen. The facts are that all of this bad news has not moved prices down much, so that is what matters, not what should happen. Maybe that is what should happen. An upwardly biased asset like a house should go down small amounts on bad news, because it is not an even playing field. Lack of downward price movement on negative news in assets is bullish bigger picture.

[Arraya]

That still does not address the affordibilty issue.

Maybe when it is all said an done Southern Californians will decide they need to pay a much larger portion of their incomes, historically speaking, towards there mortgage.

However, that can not be good for the long term financial health of the people.

[Arraya]

That still does not address the affordibilty issue.

Maybe when it is all said an done Southern Californians will decide they need to pay a much larger portion of their incomes, historically speaking, towards there mortgage.

However, that can not be good for the long term financial health of the people.

[gn]

The Realtors control most of the media messages (completely controlled it until 6 months ago), the data is impossible to get accurate

Also, the data is tricky to interpret. For example, the median price.

The median price reflects what buyers spent on their purchases. Prices have gone down quite a bit, but that's not reflected in the median price. That's because buyers did not spend less, the spend the same & getting more house for their money.

The real estate industry understand this. But they conveniently chose not to mention it, letting people think that prices haven't gone down.

This is one of the biggest myths in real estate. If I get a dollar every time I hear people saying: The median price is holding up, everything is OK, I would be very rich.

 

[gn]

The Realtors control most of the media messages (completely controlled it until 6 months ago), the data is impossible to get accurate

Also, the data is tricky to interpret. For example, the median price.

The median price reflects what buyers spent on their purchases. Prices have gone down quite a bit, but that's not reflected in the median price. That's because buyers did not spend less, the spend the same & getting more house for their money.

The real estate industry understand this. But they conveniently chose not to mention it, letting people think that prices haven't gone down.

This is one of the biggest myths in real estate. If I get a dollar every time I hear people saying: The median price is holding up, everything is OK, I would be very rich.

 

[WaitingToExhale]

On the affordability (or lack thereof) issue in San Diego, it makes sense to me that real estate would have to drop in cost and I’d REALLY like to believe it. But aren’t places like San Fransisco and New York examples that demonstrate that the cost of a house can rise well above of typical affordability and just stay there? Why is San Diego immune from that?

[WaitingToExhale]

On the affordability (or lack thereof) issue in San Diego, it makes sense to me that real estate would have to drop in cost and I’d REALLY like to believe it. But aren’t places like San Fransisco and New York examples that demonstrate that the cost of a house can rise well above of typical affordability and just stay there? Why is San Diego immune from that?

[LA_Renter]

Arraya,

It’s no fun eating peanut butter sandwiches every night for dinner in your new house. I think one of the things we have to keep in context here is that as SD Realtor pointed out prices are in the process of falling. The Case Shiller index is a much more accurate measure of this and it shows prices are actually falling from the peak. In some cases they are falling as fast as they can in RE. The affordability issue is not going to go away. Without lax lending these home prices can’t work. Even if we are at full employment the entry level and move up buyer still cannot afford those homes. We don’t have an underlying recession, yet. So basically we have a bunch of homes for sale that employed people can’t buy with today’s ever tightening credit. The people that own homes and did not HELOC themselves to death don’t have to move because they still have a job. The primary pricing pressure is at the bottom of the market due to foreclosures. What we are seeing is the resulting drop in sales volume. And that is where the true danger lies. The lower the volume the harder it is on the local economy for everyone. The best thing that could happen to San Diego’s economy right now is if home sellers adjusted their home prices to the prevailing wage and credit realities. That ain’t going to happen and we are going full sail into a recession as a result IMO.

[LA_Renter]

Arraya,

It’s no fun eating peanut butter sandwiches every night for dinner in your new house. I think one of the things we have to keep in context here is that as SD Realtor pointed out prices are in the process of falling. The Case Shiller index is a much more accurate measure of this and it shows prices are actually falling from the peak. In some cases they are falling as fast as they can in RE. The affordability issue is not going to go away. Without lax lending these home prices can’t work. Even if we are at full employment the entry level and move up buyer still cannot afford those homes. We don’t have an underlying recession, yet. So basically we have a bunch of homes for sale that employed people can’t buy with today’s ever tightening credit. The people that own homes and did not HELOC themselves to death don’t have to move because they still have a job. The primary pricing pressure is at the bottom of the market due to foreclosures. What we are seeing is the resulting drop in sales volume. And that is where the true danger lies. The lower the volume the harder it is on the local economy for everyone. The best thing that could happen to San Diego’s economy right now is if home sellers adjusted their home prices to the prevailing wage and credit realities. That ain’t going to happen and we are going full sail into a recession as a result IMO.

[Arraya]

I do not SD is immune to that but to what degree?

I agree on the San Fran, NYC argument. Something gets ingrained in the pysche of specific areas which causes them to pay perverted prices for there homes and a larger portion of their income for the mtg payments.

Also, I think that should lead to a detailed analysis of the economics of the individual areas. I don’t think median income is all it’s cracked up to be as in median home price.

I’ve been to SF/NYC on mulitple occasions and it just feels like there is a lot more money than SD not just the 15-20% more median income. Don’t have specifics but if memeory serves it was no that much more than SD… But I could be wrong…

[Arraya]

I do not SD is immune to that but to what degree?

I agree on the San Fran, NYC argument. Something gets ingrained in the pysche of specific areas which causes them to pay perverted prices for there homes and a larger portion of their income for the mtg payments.

Also, I think that should lead to a detailed analysis of the economics of the individual areas. I don’t think median income is all it’s cracked up to be as in median home price.

I’ve been to SF/NYC on mulitple occasions and it just feels like there is a lot more money than SD not just the 15-20% more median income. Don’t have specifics but if memeory serves it was no that much more than SD… But I could be wrong…

[rb_engineer]

From what I heard from people who are from there, prices in bay area are 2X the SD prices. That is, a townhouse in a Mira Mesa type of area is 700K-800K. A single family tract house in CV type of area is 1.5M to 2M.

[Author]

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