You are all wrong…

[Anonymous]

Sorry Boob…

I have a great job working for a major pharma in OC. Will work here and rent. Then buy back in when the market has hit rock bottom. Sometime in 2008 or 2009. This is just the start of the real estate bust.

My guess is you are one of the many unscrupulous Real Estate Brokers trying to pump the system and re-kindle the HYPE. I’m not saying all real estate agents are crap, just most of them. Frankly, after my experience last fall, I would trust a car sales person over a real estate agent any day!

You should try and post some data to support your hype. Then we could have an honest debate. Posting spin and hype aint gonna fly boob.

Biotech-Dude

[bob2007]

I can’t imagine anyone in real estate would try to convince anyone on this list to buy. I have nothing to do with the real estate business.

[bob2007]

“Boob” isn’t much of an insult. Everyone likes boobs.

[JWM in SD]

Hey BioTech Dude, I’m from Chicago too…south sider. You know there is a Portillos in Buena Park right?

I moved here back in the Fall of 04 when it was at the height of the madness. I couldn’t figure out how the hell people making a lot less money than my wife and I were buying these 700K houses. It was completely baffling until I researhed it more closely and discovered the exotic financing behind the outrageous prices.

As for Bob, well, I think a enough has been said.

[JWM in SD]

But you see Bob, its not a bad situation for us renters. We’re paying about half of what it would cost to own the same property and can invest the difference. What is so bad about that?

[Anonymous]

No way!

Thanks JWM….Portillos is awesome. I tried to explain the elements of a good hot dog to my admin assistant and I think she almost got sick! Love Portillos. Had no idea they were in Cali.

Talk about exotic loans. Crazy. I have 2 staff members who are non-stop begging for promotions. Both purchased houses in 2005. My guess is the are feeling the pinch from the “interest only” loan concept. I really feel for them. They are smart guys and both have new kids at home, but as their new manager, I hate hearing the instant “promote me now” mentality. They could have purchased less house with a standard loan and lived a “normal” lifestyle.

I have only been in Cali for 6 months. Love the weather, but can’t even come close to how people are raised out here. Its like its ok to “act rich” run up the debt, live way, way beyond your means, just because some other idiot is doing it.

First woman I met out here seemed great. Friendly, smart, funny, and LA hot. After the 3rd date, she mentioned that she had a little debt. Coming from the mid-west, I thought, “ok, she must mean like $500 or $600 on a credit card”. I was off by a factor of 100!! No joke. She had close to $90,000 in debt from a bad divorce and really bad “keeping up with the LA/OC crowd mentality”. Needless to say, I moved on. She owns a townhome in Newport. I’m sure we will see her place foreclose sometime this year. She was way desperate already.

Biotech-Dude

[an]

Hey Bob, are you telling it’s a better quality of life to live in a smaller place and have to pay more? Or are you saying it a better quality of life to live farther away from work and have to commute 1-2 hrs. each day just to live in a same sized house but in worse neighborhood and school? No one in this site is saying to never buy, we’re just saying not to buy now.

We have no problem with other people that have opposing view points. However, to make a debate more effective, please post data and let it speak for itself. Per your own statement, it would have been much wiser to continue saving and rent instead of buying your first house. Then take that additional saving and buy an even larger house than your 2nd house since you would have saved more for a down payment.

Talking about making money after holding a house for 8 years is pointless since you were lucky enough to buy at the bottom of one cycle and sell at the top of the biggest run up in history after the great depression. That’s like people who were lucky enough to be in the tech industry in the 90s, got a huge amount of stock options as a sign-on bonus, stock flew, cashed out and retire. Another analogy would be to buy Qualcomm stock in 1992 @ $0.52/share and sold it in 1999 for $92/share. How’s that for a return, 17,592% return after 7 years, or 2513% a year. If you put in $100k, you’d have almost $18M in 7 years. No housing boom can ever give you that kind of return. Bottom line is, those are not the norm, it’s an exception.

[lurkor]

Dear Troll:

The point you completely miss is this: unlike gold prices, home prices have to be in line with wages in order for people to sustainably afford them. The overuse of negam and teaser rate mortgages and the current surge of defaults (as the piper demands payment) proves this.

You can talk all you want about the demise of the dollar, but if dollar-denominated wages aren’t keeping up with home prices, your argument is toast. Unless you are of the “foreigners will forever happily lend money to deadbeat homeowners” school of thought, aka “this time is different.”

On that note I’m calling bullshit that Rich ever said or implied “this time is different” — citation please.

There are lots of other problems with your posts but I’m getting bored already.

[Anonymous]

I like this web site…Jim the Real Estate dude is ok in my book. Look at this DATA….tell me what ya think!

http://www.bubbleinfo.com/journal/

To sum up:

SD Market is showing a perfect Bell curve (will return to $200/sf)

Based on current trends and DATA will bottom out at $200 – 250 sq ft

Quarterly sales graph shows that sales have really slowed down – the best quarter of 2006 barely reached the worst quarter of previous years. Prices adjusted down and sales are slowing-more bad news ahead

Hope this DATA helps…..Fall 2007 is going to get real ugly, although I’m guessing the bottom will be somewhere in late 2008.

Biotech-Dude

[davelj]

DesperateBuyer, you are most likely wrong, but I do appreciate dissenting opinions so I’ll take the time to elaborate on why exactly you’re wrong.

First of all, a definitional issue. What is a “bubble” where asset prices are concerned? Here I defer to Jeremy Grantham (of Grantham Mayo Van Otterloo), one of the few true giants of finance from the last quarter century: “While Alan Greenspan may have a difficult time identifying an asset bubble, I do not – it is any market in which prices deviate by more than two standard deviations from their long-term trend.”

In a newsletter a couple of years back, Grantham explained that his team of quants had identified 28 bubbles (using his criteria) in asset markets over the previous 70 years. Of those 28, 27 had eventually reverted to their long-term trend line. The only one that didn’t was the S&P’s bubble of the late-90s, although it did decline to within 10% of its long-term trend (in contrast, the Nasdaq bubble did decline to its long-term trend before reversing). Anyhow, Grantham believes that much of the US property market (mainly the big cities on the coasts) is another bubble because, simply, it too has moved to (well) beyond two standard deviations from its mean long-term trend vis-a-vis virtually every metric available for analysis: price-to-rent, price-to-income, price-to-debt service, etc. – you get the picture.

Now, it’s always possible that the “fundamentals” (rents, incomes, etc.) will catch up with prices such that prices merely stall for several years. Interestingly, however, in Grantham’s research he found that in 27 of 28 bubbles, prices ultimately reverted to BELOW the trend line before resuming their upward march. Where SD housing is concerned, that would mean a decline of about 35%-40% from here on a median price/sq.ft. basis (we’re down about 6%-7% or so from the peak as I write).

Now, I don’t know whether the bottom is going to be another 20% down from here or another 35%, but I’m pretty sure of one thing: The decline is gonna be a whopper – and enough of a whopper that anyone with a functioning brain will in hindsight say, “Shit, that was one hell of a bubble that just blew up in our faces.”

One thing that a lot of people lose sight of is that everything important in economics (of which finance is a branch) happens “at the margin.” Which is to say that the most important pricing issues occur with the marginal buyers and sellers, and they do not have to be large in number to have an enormous impact on pricing. For example, the rate of home ownership was 66% in 2000 (after bouncing around between 59% and 66% since WWII) and climbed to 70% in 2005. When the history books are written I think we’ll find that that extra 4% – the marginal buyers – were only able to buy as a result of easy money financing. Once this financing dried up – as it is right now – the marginal buyers turned into marginal sellers and all hell broke loose at the all-important margin. Add in the speculators to this mix and you’ve got a toxic situation brewing at the margin.

Equally important: humans are, well, human. They’re emotional and do stupid things. As prices were increasing over the last few years, otherwise rational people bought property not because of fundamentals but because of the observation that prices were increasing. In other words, price increases – as opposed to similar increases in incomes, rents, etc. – drove people to speculate in properties. Price increases begat price increases. This is how bubbles work. (I should know – I wrote about the Nasdaq bubble in 2000 while working on Wall Street.) Bubbles are social phenomena because people are social animals. The bursting will be the upside in reverse: people will sell because they see prices declining (others selling). But, again, whether we get back to trend quickly or over a period of many years is anyone’s guess… I ain’t that smart.

Having said that, when you write that it “is simply absurd and ignorant to call this a speculative bubble” you reveal a great deal more about yourself than the real estate market about which you proclaim to know so much.

Now, having said all that begs the question… how do YOU define a bubble? And what, specifically, about the SD property market leads you to believe that we’re not in a bubble? (Note: Please use specific numbers, ratios, etc. – data speaks to me.)

[Anonymous]

Great post Davelj…..

Don’t expect a response with data from DesperateBuyer.

If he posts, it will be “all is well. Don’t panic. Stay in your seats or walk calmly to the exits.” Its sad. Reminds me of that scene from Animal House with Kevin Bacon trying to stop the crowd from panicing and the Bacster gets trampled by the crowd. Classic…

Again, Nice post….

Biotech-Dude

[hipmatt]

DesperateBuyer, thanks for responding, but you are all wrong.

I think its safe to say that when some housing quadruples in value in less than 10 years, you have in fact a bubble. In Temecula at least, some homes back in 1996 were under $100k, the same homes in 2005 was just over $400k(Paloma Del Sol single story 3/2).

Then you talk of a huge collapse in the dollar which is true, but you have to have a huge increase in wages for your theory to make at least a little sense. I don't see wages quadrupling or even doubling since 1996. Do you? Teachers, Police, Fire Dept., Retail, Food industry, health care, etc… you thing that they should go and buy that million dollar home, cause it'll be worth it due to a falling dollar???? HAHA You assume that everyone living in SD county makes well over six figures. That will be interesting, because thats the minimum you'll need to make to buy a place with current prices.

 But would I suggest taking on a fixed rate mortgage right now and buying a house you planned to live in for some time? Absolutely. Owning a home IS the American Dream and if we see the price inflation that I expect is going to shortly be upon us, then a fixed rate mortgage at today's low interest rate will not seem so bad at all….

 Hmm.. with what money?  First time buyers have no down payment.  All they are used to is 100% financing!!!  You call that owning a home???  This is your American Dream?  Getting married to a $2500 plus payment is a great privilege? 

Indeed, the only bubble is the group of "housing bubble" message boards, which I do predict will prove to have no intrinsic or lasting value. Instead they will only serve to scare some people away from buying a house and living the miserable life of a renter. A true shame in my opinion.

 What is a shame is that my good friends didn't listen to me 2 years ago.  They wouldn't be facing a huge payment thats about to reset even higher.  They would be living in a much nicer home than the 2/2 that they currently "own".  They wouldn't be panicking as homes aren't even selling for the same as what they paid for theirs.  And yes, I too am a renter, though hardly miserable.  Sold in 05 and safely invested the money.  I live in a beautiful home close to work, and my investment is going up in value, while all the neighbors that own next to me are loosing cash every day, listing their homes, only to pull them off the market due to inactivity and low ball offers.  Now thanks for visiting our site, but I think they are missing you over at CNBC.

[4plexowner]

davelj – thanks for your post – you make two excellent points that I think deserve repeating

1. ALL bubbles revert to the trend (OK, only 27 out of 28)

2. prices are set at the margin

~

point #1 is why I am confident that I will be buying San Diego real estate at 1998 prices

point #2 is why the rental market in San Diego is in for some hard times (if you are a landlord) – rental rates are also set at the margin

[Duck]

Masayako,

I know the situation on Avenida Castana and that was not a speculator. It’s messy, but it’s not a speculator at all.

People who have unfortnate events happen in their lives don’t “deserve” to get burned.

[lendingbubblecontinues]

DesperateBuyer:

Born on third base, yet believes he hit a triple.

[Author]

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