[Steve Beebo]

I grew up in Spokane, and lived there until I was almost 25. There is no way that I could ever move back there, or to nearby Couer D’Alene, or anywhere else that has that kind of winter. It’s a nice place to be from May to October, but the winters can be brutal, with a lot of snow and usually some below zero temps. And the spring can be vdery rainy and cold, too. The real estate market there is still going up, but starting to slow.

I know of two families that relocated to the Spokane area in the past 5 years – they’re both back in San Diego now. The first winter can be fun, but the cold temps get old real quick. If you were raised here, I don’t think you could easily acclimate to the weather.

[Steve Beebo]

Deadzone –

I can’t agree with you completely: “Anyone who buys now is a complete idiot, period. It could take 10 or 15 years for prices to return to today’s levels.” Buying now is a lot better idea than buying 12 months ago. There are some desperate sellers now, a huge inventory to choose from, and you can probably buy cheaper than someone did 12 months ago.

Granted, the market is very soft right now in SD, and will very likely get worse, but a lot of informed people are not forecasting a 30-50% drop in prices. I would say that the average home or condo is off by about 4-5% since 12 months ago. I really haven’t seen anything drop by 10% in the past year, except for some newer housing developments where big incentives are available, and I’m doing residential appraisals every day. Some areas have even seen prices go up slightly in the past 12 months, and a lot of areas are flat over the same time period.

But let’s say that prices drop some more over the next two years, then flatten, then start inching up, and overall are about the same in 10 years. Instead of renting for 5 years, if you can afford it, wouldn’t you rather buy a house sometime in the next year with 20% down and a fixed rate, and start paying down the principle? Granted, you may lose some equity over the next 2 or 3 years, but prices will recover in my opinion. But if you really are convinced that prices will drop 30-50%, I know nothing will make you buy.

[Steve Beebo]

Wouldn’t the time to have shorted homebuilder stocks been 6 to 12 months ago? Many of these companies have already been hammered pretty good this year, and maybe their stock prices have already been discounted to the point that they may not go much lower. Wall Street is usually way ahead of the current thinking – the builders’ stocks started trending down at the first hint of problems in the market.

[Steve Beebo]

I agree – in the long run, a one-story home is better as the baby-boomer population continues to age. Or if you do buy a two-story home, one with the master suite on the first level is preferable.

The problem is, that in a lot of areas, like Carmel Valley, there are almost no one-story homes.

[Steve Beebo]

I’m sure that NODs will at least double in the next 12 months, but keep in mind that the total # of NODs is about 1/4 of what it was in the mid 1990’s – so they would have to quadruple from todays’ level to match. Will they quadruple from now to 2008? I would guess probably so –

[Steve Beebo]

Reversion to Mean?

I love it when someone throws out some type of mathematical formula to demonstrate that prices should therefore be dropping by X percent. At some point I think common sense has got to be included in your calculation.

For example, the following metropolitan areas all have median household incomes of a similar amount, all around $45,000 to $47,000 per year:

Indianapolis
Dallas
Kansas City
Austin
Milwaukee
Cedar Rapids
Detroit
San Diego
Santa Barbara

By your reasoning, all of these areas should have median home prices around $300,000. But real estate prices always boil down to supply vs. demand, and the historical trend in San Diego generally has more demand than supply, and eventually we will probably have that again. Who on this forum wants to live in Dallas in the summer, or Detroit in the winter? Right now we do have too much supply in San Diego, so we’re in a down market, but I can guarantee that the median home price in San Diego and Santa Barbara will never drop to $300,000, and that the median home price in the non-California cities above will never rise to $300,000, at least in our lifetimes.

[Steve Beebo]

I’m not as negative about the market as most on this forum – and I also have 20 years experience doing residential appraisals in San Diego. The only area of San Diego that I would definitely, definitely, DEFINITELY urge you not to buy would be a condo downtown. The speculation there got completely out of control in 2003-2004 due to a lack of new and resale inventory, and the potential is there for a very ugly situation in the years to come.

[Steve Beebo]

Powayseller – A couple of things you mentioned – You say 44,000 people have moved out of San Diego, but the total population of the County is actually still growing, due in large part to immigration and the birth rate. According to the State Dept. of Finance, the County population grew almost 1% from 2005 to 2006. That’s not much growth, but it’s better than nothing. High home prices do discourage people from moving here, and encourage others to leave, but there is still growth. If population growth were a negative number, then housing prices would have to drop more than the small decrease that has already happened in some areas.

Also, you say that there are 8 buyers for every house. I don’t know where you get that number from. In June there were 4400+ resale homes and condos that closed escrow. If there are 23,000 homes and condos on the market, there is a little over a 5 month supply of homes on the market. That’s the sign of a fairly flat or stagnant market, but not a horrible market. Also, some of the 23,000 listings are new homes and condos and shouldn’t be counted, because I’m not counting new home sales in the 4400 sales from June. If we get to a 8 or 9 month supply of homes on the market, then we’ll have a really bad market.

Regarding median home prices, I do think that the numbers are very useful. There is no 18 month lag in reporting the figures – there is really only a two month lag. The sales reported in June are for homes that mostly went into escrow in April or May. When you look at the monthly prices by zip code, those figures are completely useless, due to the very small sample size in some areas. But when you compare prices for the whole County to the same period one year ago, the numbers have always seemed pretty accurate for the typical home, and I’ve been watching the reported median prices since the 1980’s. And when you compare prices for the County for all 12 months of 2006 to all of 2005, then I think you have a pretty reliable portrayal of the market. I don’t think that the current figures are skewed by more sales of higher-end homes.

OCrenter – It seems to me that the market now is fairly similar to the market in 1990 or 1991. I don’t have the exact figures, but I think that if you adjust for the population increase since 1990, that the inventory numbers are similar. One thing that has to be hurting the new home market, and resales of nearly new homes, is that builders have had to boost prices way up to cover huge increases in building materials, (especially concrete, asphalt, and plywood).

[Steve Beebo]

To be fair, it’s listed at $195,000 to $224,876. Let’s see what it actually sells at.

[Steve Beebo]

I don’t think Schiller’s work makes any sense in the world of real estate, especially in coastal areas. If he was talking about Omaha, NE, or Des Moines, IA, areas where there may be hundreds of thousands of acres of vacant buildable land outside of a city, and if construction costs were only going up at 1-2% per year, then his theory of 1% appreciation per year might make sense. But in an area like Del Mar, La Jolla, or Coronado, there is no vacant land to speak of, and there is always going to be strong demand to live in places like that.

I’m not saying that prices in these areas, or in other areas of San Diego won’t decline in the next several years. I think they will, just like they did in the early 1990’s. But I think there is very little chance that prices will be cut in half. I don’t see any way that a $600,000 tract home in Escondido or El Cajon will decline to $300,000, and I don’t see any way that a $2,000,000 home in RSF, Del Mar, or La Jolla will decline to $1,000,000. I’m seeing a lot of areas where prices have dropped 5 to 6% since last summer, but I don’t think that prices will get down below where they were around 2003, even if I factor in a very large increase in the number of REOs. In 2004, it seems to me that speculators took a much larger part of the market, to the point where prices were unsustainable. I’m guessing that prices will not drop by any more than 25%, to the point where last summers’ $600,000 home will decline to $450,000, but it wouldn’t surprise me at all if the decrease was less than that, maybe quite a bit less.

[Steve Beebo]

Powayseller –

I agree with a lot you have said, I just don’t think prices will drop 50-60% from the top of the market. I have been appraising in San Diego County since 1987. In the early to mid 90’s I literally did hundreds of appraisals on REO properties, right after banks took possession of them. So I don’t know exactly what they ended up selling for, but I doubt if many sold at 20 cents on the dollar. I know that some sold at huge discounts in bulk sales by lenders.

I agree with you that 100% financing combined with Neg. Am. loans are a recipe for disaster. I’m anticipating a large number of foreclosures in the next several years also. My point was that not a large numbers of borrowers with ARMs will have their properties foreclosed on. A 12% foreclosure rate, or 1 out of 8 seems quite high to me. My wife and I sold a home this past winter, and downsized quite a bit on a new home. We could have paid cash, but got a 10 year IO loan. We qualified for a 30 year loan on a 800k house, but we still bought just the 800k house.

[Steve Beebo]

I don’t know about a pool of buyers waiting on the sidelines, but one thing to keep in mind is that most homebuyers in San Diego already own another home, that they’re probably selling concurrently. I don’t have any idea what the exact percentages are, but I’m sure that first-time homebuyers, current renters, and people relocating from outside of San Diego make up a minority of the total number of buyers.

To me, it’s easier to buy a home when market conditions are flat or worse. You won’t get the price you want for the house you’re selling, but there are more listings to choose from, and you can probably get a good deal on your purchase. If you want to downsize, upsize, or whatever, the price on your house is probably going decline some in the next several years whether you stay in your current house or purchase another one.

[Steve Beebo]

Powayseller – Selling and renting may turn out to work for you, but I’ve got to question some of the statements you made:

“80% of San Diegans who purchased in the last 2 years will face foreclosure bec. they got ARMs” Just because someone got an ARM in the last two years doesn’t mean they’re facing foreclosure. A lot of wealthy or well-qualified borrowers used ARMS in the last several years. My current loan is a 10 year fixed, interest-only. I qualified for a 30 year fixed, but I prefer this loan. I can pay a larger amount every month if I want to, and my next months’ payment goes down.

“banks will fail as foreclosures rise” Foreclosures are definitely on the rise, but there have been basically no foreclosures in San Diego from 2002 to 2004, so banks which hold portfolio loans, (which are not that many), can handle a huge increase in foreclosures without failing.

“We’ll pay $800K for today’s $1.5 – $2.0 million house” Very few experts are predicting that prices will drop 50-60%. I’ve been an appraiser for nearly 20 years, and if I thought prices were going to drop 50%, I would sell and rent, too, but I don’t think it will happen. My guess, (just a guess), is that prices will drop 15-25% over the next four years, and then stay relatively flat for another four years.

[Steve Beebo]

RightSide –

I agree with what you are doing. Right now may not be the absolute best time to buy a house, but I don’t think it’s a bad time either. It’s a lot better to buy a house this summer than it was last summer – prices have softened some, there is a lot of inventory to choose from, and for the first time in 10 years, there are some great deals out there, too. If you can afford to possibly lose some equity in the next several years, if you don’t want to rent, and if you believe you will stay in the house for 4-5 years plus, by all means go ahead and buy. This may not be a popular opinion on this forum, but for many buyers, it’s the best decision right now.

[Steve Beebo]

Lulah –

When the agent said that an appraiser will adjust for different-sized homes at $80 per s.f. – that is just for the size of the home only. Say if there are two homes in a tract – one with 2000 sf and one with 2500 sf – the sale prices of the two homes might be different by $80 x 500 s.f. = $40,000. Let’s say a 2000 s.f. house sells for $600,000 – ($300 per s.f.). But of the $600,000 sale price, maybe $400,000 is in the value of the site – no matter what size of house is on it.

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