[SK in CV]

[quote=spdrun]
Some may even go elsewhere for investments since the East Coast and parts of the South are in a similar pickle now as SD was two years ago. (And it’s a lot easier to get a decent cap rate on 1-3 families there than in SD.)[/quote]

Historically, most buyers of singe family homes have not been investors. Particularly in CA, investing in SFD for cash flow has generated a horrible return as compared to multi-unit housing. Single familys, even condos, are much more labor intensive than multi-units. Try being a landlord for 12 houses scattered across the county or even the country, compared to a 12 unit apt building. I’ve done both, and the SFD are just a pain in the ass in comparison. And they’ve almost never had anywhere near decent price/rent ratios. For some hard working buyers, that changed for awhile when rents rose a bit and prices collapsed. But those days are probably close to over. If there isn’t appreciation, there’s not going to be much reason for investors to be in the SFD market.

[SK in CV]

[quote=bearishgurl]
CA coastal counties were never “set up” in the first place to attract the country’s masses of low and moderate income residents. That’s what CA’s inland counties (and NV/AZ?) are for.

[/quote]

I’m pretty sure that no modern city was ever set up to handle more than 2 million people except for Brasília. Cities evolve and adapt. Some better than others.

I understand your hate of CFD’s and that process. I can’t argue with you, you know a lot more about it than I do. (Though I think you believe that it is a primary cause of California housing problems, and that can’t possibly be true. If it was, Vegas, Phoenix, and much of Florida wouldn’t have had any problems.) There have been countless mistakes by city planners with respect to CFD’s, but I think blaming the process is misguided. In theory, they still make a lot of sense. It’s the practice that need improvement.

I’m a bit surprised by your elitist attitude. The growth of San Diego during the 2nd half of the last century was driven by median income homeowners. They filled Clairemont and created the commercial district in Kearny Mesa, and then Allied Gardens and later San Carlos, as well as the bedroom cities of Chula Vista, National City, La Mesa and Lemon Grove . That wasn’t an accident. It was by design, to attract moderate income homeowners.

You can argue that many of the newer developments in the last 30 years in Chula Vista, in the north county coastal cities, in north county inland in RB & Poway and PQ targeted some higher end buyers, but none of those areas were exclusively higher end (with the exception of CV). RB if you recall, was originally planned as a retirement community. That pretty quickly fizzled, but if I remember correctly it included the first PUD in the state.

You can whine about growth all you want. I grew up in San Diego. I remember when there was almost nothing but cows in Mission Valley. And where Fashion Vally Mall now stands, there was a brand new 8,000 seat baseball park. A lot has changed since then. But San Diego and other CA coastal cities aren’t attractive to people as a destination by accident. People WANT to live in SD. You can’t keep them out unless your goal is to drive major employers out. And that bus left a long time ago.

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[quote=bearishgurl][quote=no_such_reality][quote=bearishgurl]
Couldn’t have said it any better myself …. except for one caveat. In SD County, we already DO currently have hundreds of “affordable” residential listings within 20 miles of job centers. The areas they are situated in were “affordable” decades ago and are still “affordable” now.
[/quote]

Minor nit, with 1.1 million housing units, you don’t hundreds, you need ten’s of thousands.

Owner occupied housing vacancy in SD is 1.9%. Owner occupancy housing is 591,000 units. At a reasonable turnover rate, you need 85,000 sales a year, or just over 7000/month.[/quote]

nsr, where are you coming up with SD County needing “tens of thousands” of (affordable?) housing units?

Why am I seeing some of these “affordable” local resales (SFRs AND condos) sitting on the market longer than 90 days (short of structural defects)?

Does SD County currently HAVE “85,000 sales a year” (incl new construction units)? Has it EVER??

How many of SD County’s annual residential sales are of an existing county resident vacating one home for another? Perhaps 85-90 percent??

nsr, ask yourself what would happen if SD County and its various city officials suddenly decide they will not approve any more subdivisions (some no doubt already have).

Are we suddenly going to fall off the map?

Actually, if there is no more building, this “population influx” we’re supposedly expecting will have absorb the resale listings and rental vacancies currently on the market. That’s the way it’s always been in CA coastal counties.

Do I hear violins? Cry me a river.

I suppose if it comes to the point where there is “no place to live here” (highly unlikely, due to natural mobility of existing residents), then these “potential newcomers” will stay put.

Is there something wrong with that?

Marin, SF and SM Counties don’t seem to think so. And btw, the quality of life is VERY high for the residents of all of those counties :=][/quote]

Let’s put some stuff in perspective. San Diego IS growing, whether you like it or not. I don’t know about last year, but 2011 was by about 80,000 people. But more than 1/2 of that growth was organic. People having babies. 40,000 new residents requires somewhere in the neighborhood of 15,000 housing units. (Housing density in SD is a little lower than state-wide averages at 2.75 per household.) I don’t know how over-built SD was in 2007. But I think last year permits were pulled for somewhere around 6,000 homes, higher than the previous few years. That’s enough for 40% of the organic growth, only 20% of total growth. 20,000 fewer homes built than growth requires, just to stay even.

San Diego may or may not be over-built today. I really don’t know. But at the current construction rate, it will be under built in the not too distant future. Which means significantly higher prices. Is that what you want?

[SK in CV]

[quote=spdrun]People were saying the same this summer when the Dow kissed 12k, and in fall of 2011 when we hit 10.4k. I could easily see 13k or even 12.5k. Don’t underestimate the power of spin, negative headlines, and psychology. The markets have been VERY volatile the past few years. (And thank G-d — more monnnneh to be made that way.)[/quote]

That’s kind of my point. Technical adjustments happen. If it falls to 1,460 and recovers to 1,530 within a few months, that’s a technical correction. It will recover to the mean. It always has. The crash in 2007 wasn’t technical, it was fundamental. P/E for the S&P was over 120. Before the tech crash it was over 40. Both times it reverted to the mean. So despite the technical corrections that will happen, today’s valuation is pretty conservative based on trailing twelve month earnings.

Of course earnings could fall. It very well could happen, maybe even more likely than interest rates rising quickly. But that doesn’t mean todays prices are too high.

[SK in CV]

[quote=SD Realtor]
Second, the low rates form a double whammy because investors have nowhere to put money. Do they choose an overbought stock market or an overbought real estate market? So now you have lots of investors buying….[/quote]

I missed this little nugget yesterday. My technical trading friends are pretty confident that we’ll see a pullback on the S&P to the 1,460 level, maybe a 30 pt pullback from where we are now before recovering to more than 1,530. But they pretty much ignore fundamentals, and fundamentally that market is not overpriced. We’re maybe a few hundreths of a percent over average historical P/E ratios for trailing earnings. And that ratio historically moves the opposite direction of interest rates. It’s pretty low when compared to historical periods of similarly low interest rates. Only a couple times in the last 100 years has the market tanked more than 5% from this level . And both times that was coincident to sharp increases in interest rates. Most recently in the late 70’s. Might that happen now? Seems unlikely in the near term.

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spdrun, are you arguing that increases in population don’t require additional housing?

I don’t think there’s any question that many areas were over-built for their current populations. The last real economic study I did (and got paid for!) almost 10 years ago predicted that same conclusion. That was 2004. But for at least 20 years, changes in sales of new homes v. existing moved almost identically. Through boom and bust. But for more than the last 4 years, new home sales have been roughly half of what would have been necessary for that track to continue. New home construction lingered at it’s lowest level in 50 years. For 4 years. It just rose in the last 90 days to the lowest levels reached 30 years ago. Yet population growth and more importantly, new household formation have continued.

There probably are still some areas that are over-built. More houses than are necessary. But not everywhere. And current construction levels, though a full third higher than the bottom of the trough, are still a third of the peak construction and would still require a 50% increase to get to average construction levels of the last 50 years.

You make some good points about the type of construction needed. I’m not a big fan of huge homes either. But that doesn’t mean that all new home construction is bad. Some of it is needed. People gotta live somewhere.

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[quote=barnaby33]
I don’t believe we are in a bubble now either. I believe horrible monetary policy, deliberate collusion on the part of the banks and govt to force down inventory and a rapidly evolving pear shaped economy explain what’s happening without anything irrational. As noted investors have to choose between overpriced stocks, overpriced bonds, or slightly overpriced RE.

On that note though, does anyone have a strong opinion about when interest rates will rise, because that is the driver of all of this. Or rather when will the Fed stop fighting deflation? Sorry had to say it!
Josh[/quote]

Primarily addressing the bolded part…whether or not there has been horrible monetary policy remains to be seen. It has clearly been a boost to the economy as a whole, whether it’s been cost effective is an unknown. If we survive, then it worked.

On the supposed “collusion on the part of the banks and govt to force down inventory”, I think you give both lenders and policy makers too much credit. Government policy has been both inept and misguided, and mostly a waste of money, but other than minor timing differences, it hasn’t effected the inventory. Foreclosure moratoriums were temporary, and never would have happened if the lenders had their shit together in the first place.

Lenders “may have” intentionally slowed the release of inventory, but I think it’s more likely that again, it’s incompetence rather than strategy. Lenders have never done a good at managing REO portfolios. It has become pretty much accepted fact that REO’s sell for less than other properties. If there is any logic to that it escapes me. The only good explanation is that lenders are stupid.

More importantly, whether through malevolence or ignorance doesn’t really matter, it worked.

The price freefall ended and the current price rises notwithstanding, we’ve had a pretty stable residential real estate market for a couple years. If it had unfolded differently, and there was no government intervention to delay foreclosures, and no delay in lenders getting loans foreclosed and property to the market, prices would have fall faster and deeper than they did. Losses for both lenders, homeowners and probably the government would have been significantly greater.

But I’ve yet to see any logical argument that, had that happened, we’d be in a better place today. I suspect, just the opposite, we’d be in a much worse situation today. I think we’d looking at still very depressed prices, and more importantly, significantly less new construction.

Sometimes when we talk about real estate prices and the economy, they’re discussed as if the two go hand in hand. They don’t. With all due respect to all the agents here, resales of homes make only a miniscule contribution to GDP. As a whole, it means shit to the economy. Home construction, on the other hand, is a signficant GDP driver. And if prices were still 20% lower than they are today, builders wouldn’t be building. Unemployment would be higher than it is. And probably half of the GDP growth over the last year wouldn’t exist.

[SK in CV]

Great comments by both Rich and sdduuude (though I disagree about the last few words in sdduuude’s comment).

One of the essential parts in building a bubble is speculators driving price increases, based on the expectation that the market can only go one direction. I don’t think we’ve had that. We have had investors buying up large quantities of properties in some markets, and while by most appearances there is no difference between speculators and investors, intent is a huge difference. Investors buy for yield. And I think that’s what we’ve seen. Even flippers aren’t always speculators. When they buy, remodel and sell, that added value makes their intent very different from buyers that buy and turn around and try to sell for based solely on rising prices.

It’s way too early to call this a bubble. Rich’s pending graphs will shed some light. It may become one, but there are too many other unusual market conditions (limited new construction, extraordinarily low interest rates, very low yield on alternative investments among them, and possibly the most significant, low inventories) to label this very short term rise in prices a bubble. Twelve to eighteen months out, maybe sooner, we’ll know more.

[SK in CV]

Phx has the same inventory problem that SD has. They’re down everywhere and prices are up. What is different here is the much higher number of homeowners still underwater and the number of all cash investor buyers. What I’m guessing will happen is that prices will continue going up through the early summer. At that point, some of those cash buyers are going to take their quick profits as well as some of those underwater homeonwers bailing as their equity rises somewhere close to zero. It won’t drive prices back down, but it will increase inventories and quell the increases.

In addition, the harsh winters in the east as well as the still depressed prices (in comparison to 5 or 6 years ago) will keep old people coming here from colder climates. (As long as they don’t hear about the snow storm we got here this week.) The growth has slowed, but it hasn’t stopped.

[SK in CV]

[quote=The-Shoveler]Inflation will make your 401K feel like a 10K and your pension a pittance,[/quote]

As opposed to saving/investing money after taxes being a marathon? Sounds like a pretty good deal.

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[quote=The-Shoveler]You can only mask Inflation by using Cheap imported stuff (not assets) to measure for so long.

Then you realize your way behind the curve,[/quote]

Why is that? Is the cheap imported stuff going to run out? Is an iPhone not an asset? Is a cow? A bushel of wheat?

The problem is not importing too much stuff. The problem is not exporting enough stuff.

[SK in CV]

[quote=bearishgurl]
By chance, flyer is the home/land your MIL paid ~$70K for (in the thirties/forties?) the same home today that is presumably worth $2M? Or did she have it built/enlarged herself?[/quote]

I’m gonna guess it was more like the early 60’s, when the average cost of homes in SD was probably in the $20K range. $70K was an extraordinarily
expensive home then.

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[quote=earlyretirement][quote=SK in CV][quote=spdrun]Horseshit — the bubble basically didn’t happen in markets where 20% down was required (i.e. Texas). It was gov’t-encouraged bank lending run amuk.[/quote]

Beyond silliness run amuck. Not even worthy of argument. I think you’re smarter than this. Maybe not.[/quote]

While Texas didn’t get as crazy as some places like in California, Las Vegas, Phoenix, Miami, etc… it did have a run up in prices and a big correction as well. I made some offers on properties a few years ago and definitely there was a run up in prices and subsequent correction. Not as bad as other places but they did have a run up nonetheless.

You can’t just blame the government for the bubble and in fact there is a lot of blame to go around. The truth is there is no way the bubble would have gotten to the level it did without the PRIVATE side. Take a look at the derivatives market from 2000 to 2007. Without those, no way we would have seen the bubble go as high as it did.

There are a LOT of players to blame. Not just the government.

This is a GREAT link that I think is a good synopsis of what led to the bubble. I find it to be spot on target.

http://en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble%5B/quote%5D

That isn’t a bad summation at all. You’ll note it doesn’t even mention low down government backed loans identified as the problem in the comment I responded to. Why? Because government backed low down payment loans (primarily FHA) virtually disappeared during the bubble, replaced by private loans.

[SK in CV]

[quote=spdrun]Horseshit — the bubble basically didn’t happen in markets where 20% down was required (i.e. Texas). It was gov’t-encouraged bank lending run amuk.[/quote]

Beyond silliness run amuck. Not even worthy of argument. I think you’re smarter than this. Maybe not.

[SK in CV]

[quote=spdrun]
Actually, the last bubble was created by the government easing restrictions on mortgages TO OWNER-OCCUPANTS, *not investors.* The reason that investors are buying now is that property is actually comparatively cheap in relation to rents.[/quote]

That is hogwash. The evidence is overwhelming. I’m surprised you’ve bought into such a ridiculous argument. It was private money run amuck.

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