[DrHousingBubble]

This issue strikes a personal cord with me. I’m in my mid 20s and have a graduate degree. I earn over the median income of the area but find a hard time purchasing a property without devastating my monthly cash-flow. This is probably the issue many of us have. And someone commented that if we graduated anytime between 1993-1999 we wouldn’t even be having this discussion. For one, I do believe in real estate market cycles from an economic standpoint. Market speculation takes time to travel through the appropriate channels. In my view, we are only at the tip of the current real estate down turn. The media is still somewhat bullish on real estate although they have soften up a bit lately (I guess doom doesn’t sell to well!). Reminds me of the stock analyst recommending 98% of all stocks shortly before the technology bust we had in 2000.

In regards to San Diego or any part of California being a good place for young professionals, my answer would have to be depends. California is a great place to earn a sizable income. To be honest, with a degree in hand you can get a job almost instantaneously earning above the U.S. median income. The thing is, everything is relative. If you are young and starting out your career, this is what I would recommend (not only do I recommend it, I’m living it). I believe the market will bottom in three to four years (so 2009 or 2010). Since many of us are still wet behind the ears in our professions, we should focus on doing what we love and progressing upward. Save as much as you can by renting. If you own then you are way ahead of the curve. Invest your money in different products and set aside enough for a down payment – your goal should be $40,000 for a down payment in 4 years which is very doable. If the market by those times is not relatively affordable, what I mean a ratio of (your income X 3.5 or 4) then it is time to pack up and go. I’m assuming many will want to eventually have a family with good schools available. So if this is the case, you will have:

• 4 to 5 years of professional experience in your profession making you a somewhat seasoned individual.
• $40,000 in down payment monies (minimum)
• The ability to take your California dollars else where

This is a win-win in my view. If California is over valued then the choice is simple, pack up and go east. You can pick many nice cities where $40,000 will go an extremely long way. If California is within your pricing range, then it is time to buy and you will be earning more as well due to raises plus COLA. Seems like a plan. Anyone doing this or something similar?

[DrHousingBubble]

Below is the link to the history of a housing bubble:

http://www.rntl.net/history_of_a_housing_bubble.htm

If you read through the headlines there were many false starts during that time.

[DrHousingBubble]

Census 1999 (2000) Data.

San Diego County Median Family Income

1999 – $42,000

Current – $59,000

Closer to a 40% increase over that time frame. The point remains that income did not remotely keep close with appreciation in housing.

[DrHousingBubble]

sdrealtor:

Agreed. Keep in mind we’re talking about 20% off a property that is overvalued by possibly 50%. Now looking at last months figures from DataQuick we have a median of $482,000 for San Diego county. This is down by 2.2% from August of 2005. Current median income (this is family) for San Diego is $59,520. In 2000 median income was slightly over $40,000. In six years income went up approximately 45% and housing went up 150%.

Assuming inflation and average appreciation matching inflation a home in San Diego should run about $255,000. A drop of 20% only gets us to $385,600. Not sure about you but that is still overpriced. Looking at it realistically, a 40% drop would get us to $289,200 which is about right for the market.

Slowly but surely we’ll get there. Even a 1% drop each month (our current trend) for two years will get us close to that 20% drop. Death by a thousand cuts although I’m thinking it’ll be more like 1% each month accelerating to 2% drops for a couple of months.

[DrHousingBubble]

In a way UCLA was way to early in predicting the peak for housing. Unfortunately this has discredited them from many mainstream media outlets but their early predictions are starting to pan out. That of increasing inventory and prices dropping. In regards to employment, hard to believe one would think that the local economy would have a factor on this, never has housing played such a crucial role in the overall economy of the country. Think of the industries that are primarily linked to housing:

-Home Development (for example Home Depot, Lowes, Bed Bath and Beyond)
-Lending and Banking
-Real Estate Brokering and Agents
-HELOC and the secondary market for spending. This feeds into another issue regarding easy credit which has added the main fuel to this red hot burning real estate market.

Access to quick equity has never been so easy. And thus the multiplier effect of quick money extraction and quick consumption has propped the economy up. Take a look at Los Angeles County median income: $50,035. The median home is $547,500. And this is for what one would consider starter homes. Think of a couple wanting to purchase their first home, they would need a down payment of over $100,000 for an entry house (homes that are in areas such as Glendale, Covina, Downey, or even Culver City). Not exclusive areas by any stretch of the imagination.

The fundamentals have been knocked out of whack but we are trending down and trending down much quicker than I had thought. Case and point, my uncle purchased a home in 2001 for $140,000 – at the time the same house would rent for $1,100 a month. That boils down to a 9.4% annual cap rate. Fast forward to 2006, that same house would only rent for $1,400 but has appraised for $450,000. Cap rates reflect the value of a home in rental equivalents meaning his home at a respectable 9.4% cap rate should be valued at $178,000. Think about that and ask yourself why would you purchase a home in the current market where appreciation is nearing zero and may go negative by the end of the year? No rush to buy since we are trending downward.

Enjoy life and wait this bubble out. The fundamentals are on our side and UCLA will be vindicated as being correct. Kind of like Schiller predicting the tech bust.

http://drhousingbubble.blogspot.com/

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