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theplayers
ParticipantI predict a permanently high plateau for rents!
Absent rent control, rents are a true indication of supply and demand, and they are also closely correlated to income. But what if there’s another phenomena going on here? Recall how those in California drove up housing prices in neighboring states over the last few years, effectively overpaying for homes because they were relatively cheap compared to Calif. They saw their homes appreciate wildly, and then borrowed against their homes (it’s free money, after all!) to buy in Arizona, Nevada, etc.
Perhaps now we’re seeing the same dynamic with rents, that many who have sold over the last couple of years, liberating their equity, are now sitting on a pile of money and can easily afford to pay more rent, and in many cases are overpaying. Do we have any idea how many people have sold in the last couple of years and are now renting? Anecdotally, I know that when we sold in July of 2004 and then rented, I didn’t know anyone who had done the same thing. But now, I know several personally, and see many posting all over the place on blogs.
And could it be that a significant portion of the record high inventory that is for sale right now is non-occupied, thus taking out potential units from the rental pool and reducing supply? Eventually that supply will increase.
If we follow a similar pattern to the correction of the early/mid-90’s, I think we’ll see lots of people leave the San Diego area over the next 4 to 5 years, thus reducing demand and ultimately keeping rents from rising too much. And if we see the recession and job losses that most of us here believe is coming, then many will not be able to afford as much rent.
If wages aren’t rising (they haven’t much lately) rents can only go so far.
ParticipantWell said, partypup. I believe that this correction will be much worse than the early 90’s, and I remember that correction quite well.
We did lose jobs due to the aerospace industry taking a dive and bases closing in the early 90’s, and that was an important factor in the housing market correction. But just because we don’t have that particular catalyst this time doesn’t mean we won’t have a significant correction.
If anything, I believe that the ARMS and low lending standards are the main catalyst this time, both in extending the bubble on the way up, and ultimately bringing it down. I think that this phenomena will have much more impact than the base closures last time.
And we will have many job losses, as the housing market dies, and many of the new jobs created in the last 6 years due to the housing bubble evaporate.
I think we’ll see lots of people leaving SD and California over the next 5 years, as we saw in the early and mid 90’s. I shudder to think what all this will do to a city that is struggling to avoid bankruptcy (SD), and a state with a huge budget problem.
ParticipantI don’t have much faith right now in the accuracy of the median price info that we get from Dataquick and CAR and others, real-time observations that we share with each other currently have more impact with me.
The monthly stats we get from DQ and CAR are dated, such that the info that we’ll get in the next week for June activity from Dataquick, for example, will reflect offers made on homes back in April and May.
I’ve seen home sales in my area hit a brick wall, even with significant price reductions. But today’s market conditions will not show up in the numbers until roughly mid-September. Many potential homebuyers in September will be basing their decisions on today’s market conditions.
ParticipantWhat is going on here? This is getting embarassing. Powayseller, your broad ethnic generalizations only make you look foolish and ignorant, and just create more controversy on this forum. I agree, please keep your posts limited to housing related topics.
Now, can we all get back to insightful sharing of ideas and observations about the housing market?
ParticipantI don’t think that pointing out that Bob’s last name means “big house” is derogatory, disrespectful, or “horrendous”. I also see the (harmless) humor in it, a realtor with a name that happens to fit his profession. I, too, prefer civility on this user forum, but powayseller, your dislike for sdrealtor is obvious, I think you overreacted. Just my opinion…
ParticipantWe have most of it in 6 month t-bills (through Treasury Direct), the rates are about the same as 6-month CD’s once you factor in no California tax. Some in CD’s, a little in foreign currency, a little in a gold pool account with Kitco.
ParticipantDesomond,
Congratulations, I believe you’ve made a wise move, and I understand what you experienced. My wife and I also went through what you went through when we sold our home, stressing during the escrow period, worrying that the buyer might ask themselves why they were buying our home for such an outrageous price, and then change their mind (we had already fallen out of escrow once, when our first buyer lost their job 1 week into escrow).
We sold in July of 2004. At the time, the market was in a frenzy. Inventory was near all time lows. We immediately had multiple offers, the first day the house went on the market, at prices that suprised us and our realtor. Everyone we knew told us we were crazy to sell our home and then rent, that we’d be priced out and never be able to afford to buy a home again.
Believe me, it was not an easy choice to make, as we were very much in the minority of people who believed that San Diego was going to see a big correction. There were no housing blogs at the time, and virtually no talk about the bubble. I found maybe one mention per week, and rarely was it in the mainstream media. But I did lots of research, especially looking at the last correction we had in San Diego in the early 90’s, and saw many similarities to this cycle. I found Prof. Pigginton’s site in October of 2004, and was relieved to find that I wasn’t the only one who thought that San Diego was headed for eventual disaster.
Did we sell at the top? Probably not, we were probably a little early, but that’s fine. Could we have waited and maybe sold the home for more? Maybe, but not much more. I have followed the market in my old neighborhood since we sold, and can tell you that I’ve seen only one other comparable home sell for more than ours did, and it only sold for about 3% more.
Even more interesting, the buyers of our home in 2004 are now trying to sell it. They put in an estimated $25,000 of improvements, and are asking about 10% more than they bought it from us for. If they sell at their asking price, after closing costs, commissions and the improvements they made, they would see no gain, and would actually take about a $15,000 loss. The home has been on the market now for about 7 weeks.
ParticipantMy wife and I will be there.
Kevin & Nancy
ParticipantMy wife and I will be there.
Kevin & Nancy
ParticipantI agree with you zk. Psychology played a very large part in creating this bubble. Remember how intense the euphoria was here in San Diego in the spring of 2004, when everyone wanted to get in? We’ll see that same level of intensity on the opposite end of the scale when prices have fallen and people are fearful of getting in the market, afraid of buying a home that is going to fall even further in value.
This happened here in the mid-90’s. I have several friends who bought homes here then, and I ask them about what the market was like at that time. Everyone of them tells me that they had virtually no competition, lots of inventory to choose from, that they were looking at homes that had been on the market for over a year, that sellers were pleading with them to buy their home. Some of the sellers had not even had anyone look at their home for 9 – 12 months! But my friends also say they were very hesitant to buy, because the market was so bad, no one else was buying, so why should they? Maybe if no one else was buying, there was a good reason, they thought. Of course, later on they did not regret their decision to buy.
I believe we will see that same dynamic play out again. Many of the people who now are saying that they will buy will be too afraid to buy when the “blood is in the streets”. There will be many, many people who will be forced to sell, lowering their prices, competing with each other. But buyers don’t have to buy, they can sit on the sidelines and wait. There will come a time, probably in a few years, when virtually no one will want to buy into San Diego’s housing market. That will be the time to buy, if you’re brave enough!
I know it’s not easy to time a market. However, one thing I’ll be looking at to help me decide when to buy is the rent-to-own ratio. In the mid-90’s, one could buy a house with 20% down and rent it out and break even or have positive cash flow. Obviously, we are not even close to that now. But when it happens again, investors (real investors, not speculators) will start to get back into the residential rental market again (the smart money has been out for awhile now). This is one of the factors that helped San Diego’s housing market come back to life in the late 90’s, as the smart money investors got back into the market and started buying homes, creating a demand.
I keep telling people (anyone who will willingly listen) to save money, stay out of debt, and just be patient. There will be some amazing bargains in a few years!
ParticipantAdjusted for population growth, I recall someone on a blog estimate that about 23,000 of today’s inventory would equal the peak of 19k in 1996.
I would be interested to know what inventory was in 1990 or thereabouts, when the market here in SD peaked and began it’s downward correction, and then compare that to when inventory peaked in 1996 to see what % change we had. Rich, do you happen to have those numbers?
I think we will eventually end up blowing that 19,000 number away. I wouldn’t be surprised to see 35k to 40k in the next few years. There are just too many people who I think are going to lose their homes when their loans adjust and when job losses occur due to fallout from the correction; we’ve just barely begun to see that. Phoenix, with a population slightly higher than San Diego, has gone over 37,000 of inventory. I believe they’ve had much more speculation than us, however. But have they had as much creative lending as we’ve had here? If they can get to 37k inventory, why not us?
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