We continue with Dark Matter Week, in which I outsource all content writing and then pat myself on the back for having so much intellectual capital (or something like that).
Today’s outsourced content comes from an Econo-Almanac reader who is an appraiser here in San Diego. He recently sent me a note indicating how he thought things would play out for San Diego. I thought he made several interesting points so I got his permission to share it:
If it goes down this time like it did last time, I anticipate the outlying areas of the county will get hit first and hardest because of their distance from employment. These areas, like Valley Center, the more remote areas of Fallbrook, Ramona and Alpine are competing with the areas that are closer to freeway access. The condo markets are always the last to show gains and the first to show losses because given a choice buyers always prefer detached homes. The quasi-luxury pretenders to the Rancho Santa Fe crown will also take a bath – last time Fairbanks Ranch got nailed because of churn but the down market barely registered in RSF, which doesn’t turn over as often. La Jolla and Del Mar maintained but Pacific Beach and Ocean Beach didn’t. So there are some gated McMansion communities in the 92067 periphery whose residents should be more than a little nervous right now.
My point is that what we refer to as "the market" here in San Diego County is comprised of many segments, and even though they’re ultimately connected they don’t move as a single monolithic entity. This goes back to your observations of "cluster" behaviors. There are still a couple market segments in the county that have registered some nice gains since 08/2004 – it’s because those areas were lagging before and have since been catching up in relative parity compared to the other areas that already experienced those gains. Anyway, I think that not every neighborhood and not every price range will suffer equally – some segments are much more at risk for catestrophic price collapses than others, the downtown condo market being one of them and the McMansion poseurs being another.
The price ranges at the very top and bottom ends won’t suffer as much as what passes for the middle ranges – the reason being that rich people always have the money and entry level housing will still provide a point of refuge for buyers who are moving down. The market compressed last time, with the spread between entry level and move-up level housing collapsing; i.e., instead of paying 200% of the entry level price for a new/recent tract home it was only 150% or so.
I think we’re still working on the 100-monkey theory. The first few monkeys to recognize a trend and pick it up are the smart ones – these are the ones who always come out on top. There will be other monkeys who will see what the first few monkeys are doing and they’ll catch on, and also prosper as a result. By the time the 100th monkey picks it up then all the remaining monkeys jump on and it becomes the norm.
Applying the 100 monkey theory to where we are right now, I reckon we’re somewhere around 50 or so. There are some people who have already pulled out (some of them have already left town) and there are a number of monkeys who have become nervous enough to make halfhearted attempts to get out, but we haven’t reached that critical mass yet where the trend takes on a life of its own. I reckon we’ll know when that time comes by the prevalence of listing prices that are lower than the sale prices of the prior year. We’ll hear it from the waiters at our restaurants and we’ll see it (finally) in the Union-Tribune. That’s when the trend will really pick up steam and we’ll start seeing recent buyers looking for reasons to sue their developers for selling the last phases of the new subdivisions for less than the first phases.
My thanks to the reader for sharing his insights. Incidentally, this seems like a good time to remind people that anyone can start a User Forum topic. So if you’d like to make your opinion heard, go nuts.
February 16, 2006 @ 10:43 AM
Doom and Gloom week…. Here
Doom and Gloom week…. Here we go again, you might as well yell fire in a crowded theatre house, or everybody rush for the exits the housing market is collapsing as we speak. Your house is going down 60k a month 2k a day, what are we going to do???? There is no more buyers and all sellers!!!!!!!
The fact is what will probably happen is (barring any major downturn in the economy, aerospace job extraction, etc) we’ll probably get a 5-15% reduction in value, she’ll flatten out for a while and then start moving back up.
SoCal is a very desirable place to live, the values have just gotten a little ahead of themselves.
So for all you doom and Gloomers sell your home, take out your equity, move, rent a home (how fun!), wonder in two years why you ever got out in the first place (this is after the values start going back up again), buy in at a higher entry point, pay more closing costs, then move back. WOW seems like a lot of work for a you chicken littles out there.
-The sky is falling
February 16, 2006 @ 1:27 PM
My suggestion – don’t waste
My suggestion – don’t waste your time responding to Mr. Chicken Little. He makes no interesting points. Ignore him.
February 16, 2006 @ 3:32 PM
chicken little is clearly
chicken little is clearly trying to flame the forum…..
i concur with “poway”: ignore…..
“End of line.”
February 16, 2006 @ 4:30 PM
This does raise a rather
This does raise a rather interesting question. Is it wrong to yell fire in a crowded theater if the theater is, infact, on fire?
February 18, 2006 @ 6:52 PM
Scal a desirable place to
Scal a desirable place to Live? Speaking for LA county :If you are among the fortunate 3 % of the population who lives in a half-dozen tiny coastal enclaves( Santa monica, Malibu, redondo Beach, Palos Verde, Pacific palisades, EL segundo) and are a near millionaire, or still own a home under prop 13 then you have it made. The remaining 97 % of LA population get’s these “desirable” SCal lifestyle benefits; choking dawn-to- dusk traffic jams: likelihood of getting shot by cruising gangbangers on the freeway: large portions of LA resembling tijuana: 2-5 hr commutes from desirable “garden suburbs” to the coast:constant sewage spills into our beachs: air pollution levels among worst in US: Threat of a riot everytime a police officer shoots a minority: 400 Gangs
in LA city Alone. This is just a short list. LA county is poised for the biggest RE Bust in SCal history, because the amount of I/O ARM’s no doc’s is greater here than in any other region. The myth of SCal as a golden sunshine region where you can run along the beach with a skimpily-clad blond along a pristine shore is a media/hollywood-created image. The Beach Boys-venice -muscle beach image dies hard.
February 16, 2006 @ 1:33 PM
Thank you for your insight!!
Thank you for your insight!! We closed escrow on our house in an outlying area of Poway last month. We had 2 offers, both 5% below list price in November. My husband wanted to hold out for the higher price, saying I should have more confidence in our house. I was worried our offers would keep getting lower.
This week’s Union-Tribune article confirmed his position, “Look, prices are inching higher still. We should have held out for more money”. The article does state that median prices are up, and reading it I realized that median prices for new homes are down only due to condo conversions.
How can resale prices be up? Everywhere I look, I see price reductions and homes not moving. Even my own house was sold for much less – according to an 8/05 comp, we should have received offers for 5% above our list price. Is it because we were in an outlying area?
Is the median price up because upper-end homes along the coast are still selling briskly?
February 16, 2006 @ 3:32 PM
I know its anecdotal, but
I know its anecdotal, but most stuff in my area isn’t moving either. Especially in the higher end. I live in Northpark/Hillcrest and I have seen alot of things stay on the market. For me its not hard to imagine why, 2 bed 1 bath bungalows for 500-600k are hardly attractive.
I look to Rich for the data, I am just going by feel. Poway should be one of the easier places to sell a house, if you were having trouble then you were probably right to go with the first instinct. Besides, now you have peace of mind, you sold.
February 16, 2006 @ 3:38 PM
your house is only worth what it sells for…..
“End of line.”
February 16, 2006 @ 5:48 PM
Semantically speaking, the
Semantically speaking, the “right price” is what you can sell it for. I think “worth” has nothing to do with things, at this particular point in time.
February 16, 2006 @ 9:03 PM
yes….i apologize for
yes….i apologize for playing extremely loose with my semantics. guilty as charged for oversimplification….
“End of line.”
February 16, 2006 @ 6:51 PM
Sorry, I don’t understand
Sorry, I don’t understand the point. Do you mean that I was right in the discussion with my husband? I told him that after 2 low offers, chances were they wouldn’t come in any higher. He wanted to hold out for a better offer. The U-T article just proved his point, and he thinks that’s proof that prices are still going up. Thus, I was wrong to pressure him to take the low offer.
February 16, 2006 @ 7:24 PM
Yes, you were right. You
Yes, you were right. You were fortunate enough to have found one of the last foolish buyers out there. Keep your eye on the comparables for your old neighborhood and you’ll be able to blow your husband’s mind in about six months with your good fortune.
February 19, 2006 @ 9:36 AM
powayseller, given that you
powayseller, given that you already closed escrow, would you care to share some of the specifics, ie. sqft, bedrooms, baths, lot size, age. we’ll look for some comps and see who’s right, you or your husband.
February 19, 2006 @ 11:08 AM
Thanks for the offer. There
Thanks for the offer. There are only 2 sales within 1/2 mile of me within the last year. The most recent was August 2005. It was 2 blocks away,
August 2005 COE: 2.5 acres, 25 years old, survived a fire and had some rebuilding done (but the entire house was put through the intense heat), 2200 sq ft. Sold within 1 week at $775K, list price around $750K. My listing agent happened to be the buyers’ agent on this.
Mine, offer Nov 2005: 5.3 acres, 4 months old, 2300 sq ft. 2 offers in 2 months, both $780K.
Both in rural Poway, PUSD.
There are 2 others for sale in my area, both are listed in the mid $800’s, and their lots are more hilly than mine was, so they are still on the market. Mine was on the market later than theirs, and sold quickly.
My hairdresser told me yesterday that he’s remodeling his 1930’s house in Escondido, and adding sq ft to bring it up to 2000 sq ft. He’s on 1 acre. He thinks he’s getting $1mil for it. But the school district is so bad, that his wife homeschools their children.