Why it’s not a good time to buy a house in San Diego!

[millennial]

From the demand side of the equation I don’t really see how we can get away from monthly P&I vs. Income when a considerable % of people rely on mortgages in order to pay for their home. So in my equation I only can see two ways for valuations to continue to increase; 1) lower monthly P&I (interest only/creative financing/lower rates), or 2) increases in income or inflation. Based on laws enacted since the last bubble and interest rates increasing I don’t see scenario 1) playing out. scenario 2, is a possibility, but I don’t see income rising anytime soon in San Diego. From my perspective, it seems that San Diego will always be a Tier II market falling behind in pay when compared to large cities or metro areas like LA and OC/SF and Silicon Valley, and NYC. Unless we can get there income wise, property values will always have a comparative glass ceiling to keep SD prices in check. Inflation…I can see the government wanting controlled inflation somewhere around the 6%-8% range on the 30-year.

[no_such_reality]

You forgot the tickle down expectations issue. AKA, settling for less.

From 2010 – 2015, detached housing in San Diego county grew by just over 8800 units.

In that same period, households in San Deigo county making more than $200K/yr grew by 15,400 households. Household making $150K-$199k grew by 8900 households.

During that period median income was essentially flat moving from $63K to $64K.

And with 606K SFRs in the county, not really a dent. However in the same time period of 2010 to 2015, total housing in San Diego grew by 26K units of all types while the population grew by 128,000 or roughly a housing need of 48K units of all types at historical owner/renter mix rates.

Finally, in 2010, homeowner vacancy rate was 2.6%, in 2015, it has fallen to 1.5%. Rental vacancy has also fallen from 4.9% to 4.1%.

[Rich Toscano]

[quote=no_such_reality]
From 2010 – 2015, detached housing in San Diego county grew by just over 8800 units.

In that same period, households in San Deigo county making more than $200K/yr grew by 15,400 households. Household making $150K-$199k grew by 8900 households.

During that period median income was essentially flat moving from $63K to $64K.
[/quote]

There’s no way those income numbers are right.

[gzz]

Millennial, rates do not need to fall to support appreciation.

Right now buy v rent comparisons strongly favor buying in SD, even without assuming rising rents making renting even worse and rising prices making buying better.

My Nov 2016 condo purchase is already rented out well above the mortage payment, and on top of that each payment reduces my balance and the tax and interest is deducted from rental income. For first and 2nd home buyers, they can deduct these expenses from ordinary income too. I got a pretty good price on it, but even if I paid 15% higher it would still not only be profitable, but more profitable than risk free gov bonds. I would happily buy a 4th property but I am close to tapped out on DP and current condo inventory in 92107 stands at a whopping 3. (In March 2011 condo inventory in 92107 was 53!).

[millennial]

[quote=no_such_reality]You forgot the tickle down expectations issue. AKA, settling for less.

From 2010 – 2015, detached housing in San Diego county grew by just over 8800 units.

In that same period, households in San Deigo county making more than $200K/yr grew by 15,400 households. Household making $150K-$199k grew by 8900 households.

During that period median income was essentially flat moving from $63K to $64K.

And with 606K SFRs in the county, not really a dent. However in the same time period of 2010 to 2015, total housing in San Diego grew by 26K units of all types while the population grew by 128,000 or roughly a housing need of 48K units of all types at historical owner/renter mix rates.

Finally, in 2010, homeowner vacancy rate was 2.6%, in 2015, it has fallen to 1.5%. Rental vacancy has also fallen from 4.9% to 4.1%.[/quote]

So basically supply and demand. I get where you are coming from, but I think that it would affect rental rates much more, which some would argue increases the $ threshold in the rent vs. buy decision. The only counter I would have to that would be the down payment requirement. Although people do like San Diego because of the weather, at some point if wages do not increase to match living costs with a little cushion to save; San Diego will end up like other places like Santa Barbara, or Hawaii which cater mostly to upper middle class retirees who are not reliant on a 9-5 job.

[FlyerInHi]

It sucks for people who don’t have the downpayment.

[millennial]

[quote=gzz]Millennial, rates do not need to fall to support appreciation.

Right now buy v rent comparisons strongly favor buying in SD, even without assuming rising rents making renting even worse and rising prices making buying better.

My Nov 2016 condo purchase is already rented out well above the mortage payment, and on top of that each payment reduces my balance and the tax and interest is deducted from expenses from ordinary income too. I got a pretty good price on it, but even if I paid 15% higher it would still not only be profitable, but more profitable than risk free gov bonds. I would happily buy a 4th property but I am close to tapped out on DP and current condo inventory in rental income. For first and 2nd home buyers, they can deduct these 92107 stands at a whopping 3. (In March 2011 condo inventory in 92107 was 53!).[/quote]

I said that rates are one of the major variables on the demand side of the equation. Regarding the rent vs. buy decision, although there is some correlation for investor owned properties that can cash flow (such as condos, apartments)where valuation is dictated by NOI/Cap Rate(ROI)it doesn’t lend itself well with Residential Real Estate which is determined by a different set of factors. The majority of homes, mine included, wouldn’t be able to cash flow for my purchase price; but would still appraise significantly more due to recent comps. Do I feel that the value of my home is going to continue to go up with increased interest rates? Probably not, but why do I care; it’s not like I bought my house as an investment, it’s a place for me to raise a family. If it was just me, I would probably sink the liquidity into another apartment building.

[millennial]

.

[no_such_reality]

[quote=Rich Toscano][quote=no_such_reality]
From 2010 – 2015, detached housing in San Diego county grew by just over 8800 units.

In that same period, households in San Deigo county making more than $200K/yr grew by 15,400 households. Household making $150K-$199k grew by 8900 households.

During that period median income was essentially flat moving from $63K to $64K.
[/quote]

There’s no way those income numbers are right.[/quote]

So you think the census screwed it up? https://factfinder.census.gov/bkmk/table/1.0/en/ACS/15_5YR/S1901/0500000US06073

2015, 7.4% of households are over $200K in San Diego County. Up from 6.2% in 2010.

If you prefer raw numbers https://factfinder.census.gov/bkmk/table/1.0/en/ACS/15_5YR/DP03/0500000US06073

[an]

[quote=no_such_reality][quote=Rich Toscano][quote=no_such_reality]
From 2010 – 2015, detached housing in San Diego county grew by just over 8800 units.

In that same period, households in San Deigo county making more than $200K/yr grew by 15,400 households. Household making $150K-$199k grew by 8900 households.

During that period median income was essentially flat moving from $63K to $64K.
[/quote]

There’s no way those income numbers are right.[/quote]

So you think the census screwed it up? https://factfinder.census.gov/bkmk/table/1.0/en/ACS/15_5YR/S1901/0500000US06073

2015, 7.4% of households are over $200K in San Diego County. Up from 6.2% in 2010.

If you prefer raw numbers https://factfinder.census.gov/bkmk/table/1.0/en/ACS/15_5YR/DP03/0500000US06073%5B/quote%5DTalk about demographic shift. That’s pretty staggering after just 5 years. Those two income group went from 12.9% to 14.7% of SD’s population. Not to mention that SD’s population grew over that period of time as well. If this continues, thing will get pretty crazy.

[no_such_reality]

That’s the bifurcation of income we’re seeing and often talk about on the blog. If you break it down into the ‘more desirable’ living areas, I suspect it’s more pronounce.

Essentially, we have the top 20% growing their income (and as you go up the gains get greater) and 80% holding or losing ground.

[millennial]

[quote=no_such_reality]That’s the bifurcation of income we’re seeing and often talk about on the blog. If you break it down into the ‘more desirable’ living areas, I suspect it’s more pronounce.

Essentially, we have the top 20% growing their income (and as you go up the gains get greater) and 80% holding or losing ground.[/quote]
It’s called data mining and selection bias to try and prove a point. To which I am not sure of. So bifurcation is creating home values to go up? Why did you choose San Diego county as a whole? Why did you choose 2010? Is it cause it served some purpose comparing a time soon after the collapse? Why did you choose households greater than $200k?

[no_such_reality]

[quote=millennial][quote=no_such_reality]That’s the bifurcation of income we’re seeing and often talk about on the blog. If you break it down into the ‘more desirable’ living areas, I suspect it’s more pronounce.

Essentially, we have the top 20% growing their income (and as you go up the gains get greater) and 80% holding or losing ground.[/quote]
It’s called data mining and selection bias to try and prove a point. To which I am not sure of. So bifurcation is creating home values to go up? Why did you choose San Diego county as a whole? Why did you choose 2010? Is it cause it served some purpose comparing a time soon after the collapse? Why did you choose households greater than $200k?[/quote]

Because the 5 year spread is relevant and compact for comparison. Long enough to matter, short enough to be convenient because the census publishes that way.

but knock yourself out. Here is 2005 to 2015. The numbers are even more to my point. https://factfinder.census.gov/bkmk/table/1.0/en/ACS/05_EST/S1901/0500000US06073

2005, 4.6% of households making over $200K. Granted 2005 $200K was more like $240K today.

[Rich Toscano]

[quote=no_such_reality][quote=Rich Toscano][quote=no_such_reality]
From 2010 – 2015, detached housing in San Diego county grew by just over 8800 units.

In that same period, households in San Deigo county making more than $200K/yr grew by 15,400 households. Household making $150K-$199k grew by 8900 households.

During that period median income was essentially flat moving from $63K to $64K.
[/quote]

There’s no way those income numbers are right.[/quote]

So you think the census screwed it up? https://factfinder.census.gov/bkmk/table/1.0/en/ACS/15_5YR/S1901/0500000US06073

2015, 7.4% of households are over $200K in San Diego County. Up from 6.2% in 2010.

If you prefer raw numbers https://factfinder.census.gov/bkmk/table/1.0/en/ACS/15_5YR/DP03/0500000US06073%5B/quote%5D

I was talking about this part:

[quote]During that period median income was essentially flat moving from $63K to $64K.[/quote]

No, I don’t think the census got it wrong, but you are confusing inflation-adjusted figures for nominal ones.

[an]

[quote=millennial]It’s called data mining and selection bias to try and prove a point. To which I am not sure of. So bifurcation is creating home values to go up? Why did you choose San Diego county as a whole? Why did you choose 2010? Is it cause it served some purpose comparing a time soon after the collapse? Why did you choose households greater than $200k?[/quote]Not everyone need to be able to afford to buy a house. You just need the population who can afford to buy here to grow. Hence the $150-199k and >$200k group. You can look up data for your own sub area if you want. I looked up mine and it reflect similar to SD county numbers. My area have no new housing, so no new household addition. Just long time owners being replaced by newer more affluent owners. $100-149k group went from 22.1% to 25.7% of the area, $150-199k group went from 9.6% to 10% of the area, and >$200k group went from 4.5% to 5.5% of the area. When you have more affluent people moving in, they tend to push the the price.

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