I voted flat but it could I voted flat but it could possibly get bumpy between now and then IMO.
But my theory is if we start to go into a steep recession TPTB will stomp on the accelerator again.
I guess we may see if my theory is correct LOL.
sdrealtor
June 19, 2022 @
8:48 AM
I think about 10% down or so I think about 10% down or so because i never believed the big Spring bump this year was real but rather a brief distortion of supply v demand. I don’t consider that a downturn just getting back to where we should’ve settled
davelj
June 19, 2022 @
8:54 PM
I don’t have a strong opinion I don’t have a strong opinion on the timing because declines can take quite a while but I think most if not all of the pandemic gains will be reversed.
A few numbers to contemplate. In Dec ’19 the median priced SD home was ~$600K. So, if you had a $120K down payment you could finance the remainder at 3.1% fixed for 30 years and after property taxes, etc you’d have a monthly payment of ~$2,700. So, you needed a household income of about $115K to qualify for that loan. The median HH income in SD at that time was about $96K. So, things were out of whack but not remarkably so.
Fast-forward to today. Median priced SD home is $915K. So, if you have that $183K down payment you can finance the remainder at 5.9% fixed for 30 years and after property taxes, etc you have a monthly payment of ~$5,300. So, you need a HH income of ~$230K to qualify for that loan. The estimate for the median HH income in SD for April is $106K. See the problem?
If you have stable employment and a fixed-rate mortgage, hey, no issues. You can ride just about anything out. (~92% of residential mortgages are fixed rate currently.)
But if you’ve supported the monthly-payment-is-all-that-matters-for-housing-prices mantra – and it’s been a pretty good mantra for about a decade now – then you’ve gotta be prepared to live that in the opposite direction as well. I can’t believe I’m typing this but… at last I think the Fed is serious about inflation. I never thought I’d see the day. But I think they’re finally professionally embarrassed about the predicament they’ve fomented. And they’re gonna kill it off along with anything that gets in the way. I suspect mortgage rates are headed north of 7% and that’s gonna leave a mark.
The good news is that the banking system is much better capitalized than prior to the Financial Crisis. And while there’s been plenty of craziness at the margins of house financing, a lot of that has been private equity driven (and under the radar), although the PE firms are using leverage from the big banks. So, that’ll cause a hiccup. But, generally, things aren’t nearly as crazy as the last time around. Anyhow, we’ll see.
utcsox
June 19, 2022 @
10:25 PM
davelj wrote:
A few numbers [quote=davelj]
A few numbers to contemplate. In Dec ’19 the median priced SD home was ~$600K. So, if you had a $120K down payment you could finance the remainder at 3.1% fixed for 30 years and after property taxes, etc you’d have a monthly payment of ~$2,700. So, you needed a household income of about $115K to qualify for that loan. The median HH income in SD at that time was about $96K. So, things were out of whack but not remarkably so.
Fast-forward to today. Median priced SD home is $915K. So, if you have that $183K down payment you can finance the remainder at 5.9% fixed for 30 years and after property taxes, etc you have a monthly payment of ~$5,300. So, you need a HH income of ~$230K to qualify for that loan. The estimate for the median HH income in SD for April is $106K. See the problem?
[/quote]
Median HH incomes don’t buy median price homes.
davelj
June 19, 2022 @
11:53 PM
utcsox wrote:
Median HH [quote=utcsox]
Median HH incomes don’t buy median price homes.[/quote]
Indeed. I mean, they can’t. I imagine you’d agree with the notion that there’s a pretty strong relationship between home prices and the ability to afford such homes… over the long term. I suspect that homes in SD (and many other areas) are in the bottom 5% of affordability historically when taking into account prices and monthly payments (on new mortgages at current rates). Rates are going up, so the only way for monthly payments to decline is… lower prices.
Anyhow… it’ll all come out in the wash eventually.
sdrealtor
June 20, 2022 @
8:02 AM
davelj wrote:I don’t have a [quote=davelj]I don’t have a strong opinion on the timing because declines can take quite a while but I think most if not all of the pandemic gains will be reversed.
A few numbers to contemplate. In Dec ’19 the median priced SD home was ~$600K. So, if you had a $120K down payment you could finance the remainder at 3.1% fixed for 30 years and after property taxes, etc you’d have a monthly payment of ~$2,700. So, you needed a household income of about $115K to qualify for that loan. The median HH income in SD at that time was about $96K. So, things were out of whack but not remarkably so.
Fast-forward to today. Median priced SD home is $915K. So, if you have that $183K down payment you can finance the remainder at 5.9% fixed for 30 years and after property taxes, etc you have a monthly payment of ~$5,300. So, you need a HH income of ~$230K to qualify for that loan. The estimate for the median HH income in SD for April is $106K. See the problem?
[/quote]
Yes I see the problem! This logic completely ignores reality and how the local housing market functions . The person with a median household income around here is a renter not a buyer in most cases. It has been that way for a very very long time. If you want to use metrics like this you are far better served using the 75th percentile of household income for homebuyers
You also can’t start with the premise that prices will go back three years in home prices and talk about inflation the next paragraph while ignoring three years of wage inflation with more coming. The analysis got worse the further I read into it
Just saw utcsox comment after posting this. There’s someone else who does get this
davelj
June 20, 2022 @
11:42 AM
sdrealtor wrote:
Yes I see [quote=sdrealtor]
Yes I see the problem! This logic completely ignores reality and how the local housing market functions . The person with a median household income around here is a renter not a buyer in most cases. It has been that way for a very very long time. If you want to use metrics like this you are far better served using the 75th percentile of household income for homebuyers[/quote]
Yes, as I addressed in the following reply to utcsox. I guess you didn’t see it:
[quote=davelj][quote=utcsox]
Median HH incomes don’t buy median price homes.[/quote]
Indeed. I mean, they can’t. I imagine you’d agree with the notion that there’s a pretty strong relationship between home prices and the ability to afford such homes… over the long term. I suspect that homes in SD (and many other areas) are in the bottom 5% of affordability historically when taking into account prices and monthly payments (on new mortgages at current rates). Rates are going up, so the only way for monthly payments to decline is… lower prices.
Anyhow… it’ll all come out in the wash eventually.[/quote]
The use of medians was simply because… they’re readily available. I agree that using the 75th percentile would be better. Can you share that data for YE19 and currently? Enquiring minds and all.
My point was… affordability as reflected by monthly payments has been cut in half over 2 1/2 years when taking into account rising prices and interest rates. Rich has the data but, again, I suspect SD is now in the bottom 5% of historical affordability by this metric. Maybe that’s sustainable.
Hey, maybe affordability doesn’t matter any more. I guess we’ll find out.
gzz
June 20, 2022 @
12:11 PM
Another way to look at it is Another way to look at it is how many homes are for sale now compared to the population that it makes sense to net buy: high income renters primarily. I say “net buy” to exclude people who both buy and sell within county who will roughly net out).
Out of SD’s roughly 3 million people, how many are renters with HH income above 100k? Maybe 1 in 30 or 100k. How many homes on the market for them? About 3k. Yet another way is to compare high income jobs and high income in-migrant retirees versus net housing construction. Bullish any way you look at it to me.
Rates obviously matter, but prices will keep increasing as long as we have this massive supply and demand inbalance.
Furthermore, real mortgage rates are lower than 2019, dropping from about 1% to -2%. Moreover, the rate increase isn’t coming in a vacuum. It is largely from an increase in expected inflation, which includes rents.
Thus, while payments on a mortgage for a median SD home have increased, so too have both the current rent it replaces and expected future rents.
sdrealtor
June 20, 2022 @
12:23 PM
gzz wrote:Another way to look [quote=gzz]Another way to look at it is how many homes are for sale now compared to the population that it makes sense to net buy: high income renters primarily. I say “net buy” to exclude people who both buy and sell within county who will roughly net out).
Out of SD’s roughly 3 million people, how many are renters with HH income above 100k? Maybe 1 in 30 or 100k. How many homes on the market for them? About 3k. Yet another way is to compare high income jobs and high income in-migrant retirees versus net housing construction. Bullish any way you look at it to me.
Rates obviously matter, but prices will keep increasing as long as we have this massive supply and demand inbalance.
Furthermore, real mortgage rates are lower than 2019, dropping from about 1% to -2%. Moreover, the rate increase isn’t coming in a vacuum. It is largely from an increase in expected inflation, which includes rents.
Thus, while payments on a mortgage for a median SD home have increased, so too have both the current rent it replaces and expected future rents.[/quote]
Agree this is more supply vs demand than looking at incomes. I also think you underestimate incomes. I have a 25 yr old niece moving out here in the fall fresh out of grad school as a Physicians Assistant. She’s being heavily recruited with starting salaries in the $150K range. Her plan is to live her 2 years and likely go back east but if she falls in love with it or someone she may stay longer. Thats a renter
sdrealtor
June 20, 2022 @
12:18 PM
Yes wrote my post before Yes wrote my post before seeing utcsox who astutely pointed out Median HH income does not buy median house. I dont know that the 75th percentile is the right one but its a lot closer than the 50th percentile. I did some quick searching and couldnt find it but what I did find historically put it at close to double the median so for arguments sake lets say close to $200K HH income buying median house. That also ignores that a fair amnount of those coming here are not entirely income dependent.
IMO this is more in the hands of supply v demand that affordability/income could measure
gzz
June 20, 2022 @
12:14 PM
I enjoy this guy’s writing. I I enjoy this guy’s writing. I agree with his extreme bullishness on energy, and we are also both sitting on illiquid Russian equities.
I took his advice to invest in home building supply chains, so purchased a little BLDR. That’s been a loser so far. They own the local Dixieline chain.
XBoxBoy
June 21, 2022 @
10:14 AM
I really wanted the option: I really wanted the option: Stays flat to increases slightly in high demand coastal neighborhoods, but decreases 5-10% (maybe even a bit more) in neighborhoods that are less desirable.
The-Shoveler
June 22, 2022 @
4:11 PM
Just a quick rant,
Ok i Just a quick rant,
Ok i get the fed wants to lower demand by raising rates, but how does that fix the housing crisis?
I mean we have a severe lack of inventory (We need more homes!!), IMO all this will do is cause more people to not want to sell if they keep raising rates.
And the Builders to slow down or just mothball new projects.
They are not fixing or solving anything IMO.
DaCounselor
June 22, 2022 @
5:57 PM
The-Shoveler wrote:Just a [quote=The-Shoveler]Just a quick rant,
Ok i get the fed wants to lower demand by raising rates, but how does that fix the housing crisis?
I mean we have a severe lack of inventory (We need more homes!!), IMO all this will do is cause more people to not want to sell if they keep raising rates.
And the Builders to slow down or just mothball new projects.
They are not fixing or solving anything IMO.[/quote]
I would say generally that the removal of seemingly endless easy, cheap credit from the system, and replacing it with expensive credit with more limited access, can hammer down markets. Directly and indirectly. Tight consumer credit = less consumption.
It’s not just consumer credit that is affected. Credit is the lifeblood of business. Businesses suffer = employment suffers = wages suffer.
Also QE is over and now it will be QT. So it’s not just rates with the Fed. Get ready for QT.
XBoxBoy
June 23, 2022 @
7:30 AM
The-Shoveler wrote:Ok i get [quote=The-Shoveler]Ok i get the fed wants to lower demand by raising rates, but how does that fix the housing crisis?[/quote]
The fed isn’t trying to fix the housing crisis. Housing is not part of their mandate. They are trying to reel in inflation and they try to do this by raising rates and if housing only gets worse, that’s not their primary concern.
The-Shoveler
June 23, 2022 @
10:16 AM
Powell openly said he is Powell openly said he is trying to reset housing market
IMO it probably won’t work the way Powell envisions it.
As prices fall sellers who can will just pull their listings and builders will just stop or slow down.
Anyway Just My Opinion
flyer
June 24, 2022 @
1:49 PM
I agree. Imo, whether the I agree. Imo, whether the Fed purposely or inadvertently orchestrates a housing decline, in tandem with high interest rates, cash buyers will be out in droves, as we were the last time around, thus negating most “reset” efforts that would help the average buyer.
Edit: As I mentioned in another thread, due to many factors, I don’t think we’re going to see the phenomenal opportunities we saw during the last downturn–but being cash ready is still a good plan–just in case those opportunities present themselves.
Coronita
June 27, 2022 @
8:12 AM
. .
Escoguy
July 6, 2022 @
10:38 AM
I voted flat because I think I voted flat because I think the run up in oil prices and interest rates are somewhat overdone.
Commodity prices tend to fall in peace time, so hopefully the war in Ukraine ends this year.
This would take pressure off the Fed and energy markets, the corresponding drop in mortgage rates could allow for flat prices by end of year 2023.
There could be a dip of 5-10% this year but by end of year, that would smooth out.
In real terms, this would still be a drop as the appreciation would be a little less than inflation.
Longer term the big question is if the “savings glut” will continue.
Technology is generally deflationary.
For example, the 300 trips I gave this month with Uber used no fuel, probably every second rider wants an electric car or a Tesla now.
I’m actually inclined to buy a few more shares of TSLA or VW/major EV manufacturers as that shift is still in the early days, and will eventually pressure energy prices. Albeit, that is a few years off but commodities are usually very sensitive to small changes in demand patterns.
Pbranding
July 6, 2022 @
11:01 AM
So in the last month rent So in the last month rent prices decreased 6% in San Diego
gzz
July 6, 2022 @
11:52 AM
Zumper has very bumpy data Zumper has very bumpy data and limited to 1 and 2 bed apartments that use their listing service.
I find it very hard to believe with high inflation and vacancy under 2%, that rents are down at all, much less at an annualized 48% rate.
bibsoconner
July 7, 2022 @
3:42 PM
Help me out here, I don’t Help me out here, I don’t want to get my answer wrong. If the prices are exactly the same one year from now, but there has been 8% inflation, have prices really stayed the same? Gone down by 8%? Gone down by roughly 7.6%.
That’s my bet. Prices stay the same but really going down because of inflation. And I’d argue that having your house go down by 8% in inflation adjusted terms, is much easier to deal with psychologically* than an actual 8% drop with no inflation.
*Full disclosure… I’m a software engineer, not a psychologist.
The-Shoveler
July 7, 2022 @
4:33 PM
If inflation is 8% and your If inflation is 8% and your house payment remains the same you will probably feel better about it regardless IMO.
flyer
July 7, 2022 @
8:08 PM
bibsoconner wrote:Help me out [quote=bibsoconner]Help me out here, I don’t want to get my answer wrong. If the prices are exactly the same one year from now, but there has been 8% inflation, have prices really stayed the same? Gone down by 8%? Gone down by roughly 7.6%.
That’s my bet. Prices stay the same but really going down because of inflation. And I’d argue that having your house go down by 8% in inflation adjusted terms, is much easier to deal with psychologically* than an actual 8% drop with no inflation.
*Full disclosure… I’m a software engineer, not a psychologist.[/quote]
Since most of us invested in our primary and investment properties long before the current price escalations, any declines on paper should be of little to no consequence, and a source of great passive income we can pass on to our kids.
Navydoc
July 7, 2022 @
8:03 PM
Howdy folks! Long time no Howdy folks! Long time no post. Probably since I’ve spent the last year in Okinawa, and before that a 2-year sentence to Camp Lejeune. Navy decided I had been in San Diego long enough. Thank God I bought the place in Stonebridge in 2012, and haven’t sold it!
Cannot believe what’s happened to SD values since then. I realistically believe my place has nearly tripled in value. Can anyone tell me what’s been fueling these prices? Back in 2008 when I got really into Piggington it was the ridiculous lending, but that doesn’t seem to be the case now. Is it just the low interest rates? Anyway I voted 10-20% drop, but who really knows? If interest rates go where I would think they need to go that would strangle values, but the current economic conditions have persisted for far longer than I thought were sustainable.
Anyway, glad I already have my place when I return to San Diego next July. Submitted my papers yesterday. As of July 1, 2023 I won’t be a “Navydoc” any more. By the way, if you guys were complaining about COVID in the US, you have no idea how much more restrictive the Japanese have been. I still have to wear a mask EVERYWHERE that’s not on base.
sdrealtor
July 8, 2022 @
8:54 AM
Navydoc wrote:Howdy folks! [quote=Navydoc]Howdy folks! Long time no post. Probably since I’ve spent the last year in Okinawa, and before that a 2-year sentence to Camp Lejeune. Navy decided I had been in San Diego long enough. Thank God I bought the place in Stonebridge in 2012, and haven’t sold it!
Cannot believe what’s happened to SD values since then. I realistically believe my place has nearly tripled in value. Can anyone tell me what’s been fueling these prices? Back in 2008 when I got really into Piggington it was the ridiculous lending, but that doesn’t seem to be the case now. Is it just the low interest rates? Anyway I voted 10-20% drop, but who really knows? If interest rates go where I would think they need to go that would strangle values, but the current economic conditions have persisted for far longer than I thought were sustainable.
Anyway, glad I already have my place when I return to San Diego next July. Submitted my papers yesterday. As of July 1, 2023 I won’t be a “Navydoc” any more. By the way, if you guys were complaining about COVID in the US, you have no idea how much more restrictive the Japanese have been. I still have to wear a mask EVERYWHERE that’s not on base.[/quote]
Welcome back and congrats on your upcoming retirement from the navy. It sure has been a wild ride. To answer your question it’s combination of booming economy, low interest rates and severely restricted supply. Having kept your SB place when you left you contributed to that. Look forward to your return and congrats again
The-Shoveler
July 8, 2022 @
3:07 PM
I think one thing that’s not I think one thing that’s not being thrown in most calculations IMO is that the rental market is still very tight and forecast to go up.
I think that will still drive some buyers yet.
Pbranding
November 8, 2022 @
5:11 PM
This is fun to revisit. Over This is fun to revisit. Over half of the respondents have been wrong and we haven’t even entered the worst of it yet.
XBoxBoy
November 8, 2022 @
5:15 PM
Pbranding wrote:This is fun [quote=Pbranding]This is fun to revisit. Over half of the respondents are wrong and we haven’t even entered the worst of it yet.[/quote]
While I don’t know how this will play out, I wouldn’t be too sure that anyone is wrong or right at this point. The poll is for where prices are at the end of 2023, and what happens between now and then is still up in the air. If we get a recession and inflation dies, the fed might reverse course pretty drastically and by Dec 2023 we could be back in super low interest rate territory and any declines might be reversed. Not saying that will happen, only that no one here knows that it won’t.
Pbranding
November 8, 2022 @
5:23 PM
XBoxBoy wrote:Pbranding [quote=XBoxBoy][quote=Pbranding]This is fun to revisit. Over half of the respondents are wrong and we haven’t even entered the worst of it yet.[/quote]
While I don’t know how this will play out, I wouldn’t be too sure that anyone is wrong or right at this point. The poll is for where prices are at the end of 2023, and what happens between now and then is still up in the air. If we get a recession and inflation dies, the fed might reverse course pretty drastically and by Dec 2023 we could be back in super low interest rate territory and any declines might be reversed. Not saying that will happen, only that no one here knows that it won’t.[/quote]
Fair point. Highly unlikely though.
an
November 8, 2022 @
7:49 PM
Regardless of how this play Regardless of how this play out, I’m 100% certain that over 1/2 will be wrong.
sdrealtor
November 8, 2022 @
11:54 PM
Pbranding wrote:This is fun [quote=Pbranding]This is fun to revisit. Over half of the respondents have been wrong and we haven’t even entered the worst of it yet.[/quote]
I thinks it’s gone down faster than i thought because rates rose faster than i thought they would. I thought we’d go down 10% between June and the end of 2022 but i know we’ve gone down much more already. At the same time i think the faster declines have pushed the worst of it to happen already around me. Either way that’s my opinion just as us not having entered the worst of it is yours. Actual results tbd
an
November 9, 2022 @
11:41 AM
sdrealtor wrote:Pbranding [quote=sdrealtor][quote=Pbranding]This is fun to revisit. Over half of the respondents have been wrong and we haven’t even entered the worst of it yet.[/quote]
I thinks it’s gone down faster than i thought because rates rose faster than i thought they would. I thought we’d go down 10% between June and the end of 2022 but i know we’ve gone down much more already. At the same time i think the faster declines have pushed the worst of it to happen already around me. Either way that’s my opinion just as us not having entered the worst of it is yours. Actual results tbd[/quote]
Good point. I don’t think anyone here predicted mortgage rate at over 7% and potentially heading to 8%. However, now that we’re here, where will rates go from here and how will it affect price? With rates more than doubled, yet prices didn’t fall by the same amount, we’re definitely in an interesting time.
The-Shoveler
November 9, 2022 @
1:16 PM
Seems to be a lot of cash Seems to be a lot of cash floating around looking for something to spend it on yet.
an
November 9, 2022 @
2:01 PM
The-Shoveler wrote:Seems to [quote=The-Shoveler]Seems to be a lot of cash floating around looking for something to spend it on yet.[/quote]
Doubt that we’ll ever know how much cash is floating around. But for sure, even at the bottom of the last crash, there were a lot of people w/ a lot of cash, scooping up properties at rock bottom prices. I’m pretty sure that will repeat. Especially if we get a crash to bring PITI back to the same level as it was last year.
June 19, 2022 @ 8:40 AM
I voted flat but it could
I voted flat but it could possibly get bumpy between now and then IMO.
But my theory is if we start to go into a steep recession TPTB will stomp on the accelerator again.
I guess we may see if my theory is correct LOL.
June 19, 2022 @ 8:48 AM
I think about 10% down or so
I think about 10% down or so because i never believed the big Spring bump this year was real but rather a brief distortion of supply v demand. I don’t consider that a downturn just getting back to where we should’ve settled
June 19, 2022 @ 8:54 PM
I don’t have a strong opinion
I don’t have a strong opinion on the timing because declines can take quite a while but I think most if not all of the pandemic gains will be reversed.
A few numbers to contemplate. In Dec ’19 the median priced SD home was ~$600K. So, if you had a $120K down payment you could finance the remainder at 3.1% fixed for 30 years and after property taxes, etc you’d have a monthly payment of ~$2,700. So, you needed a household income of about $115K to qualify for that loan. The median HH income in SD at that time was about $96K. So, things were out of whack but not remarkably so.
Fast-forward to today. Median priced SD home is $915K. So, if you have that $183K down payment you can finance the remainder at 5.9% fixed for 30 years and after property taxes, etc you have a monthly payment of ~$5,300. So, you need a HH income of ~$230K to qualify for that loan. The estimate for the median HH income in SD for April is $106K. See the problem?
If you have stable employment and a fixed-rate mortgage, hey, no issues. You can ride just about anything out. (~92% of residential mortgages are fixed rate currently.)
But if you’ve supported the monthly-payment-is-all-that-matters-for-housing-prices mantra – and it’s been a pretty good mantra for about a decade now – then you’ve gotta be prepared to live that in the opposite direction as well. I can’t believe I’m typing this but… at last I think the Fed is serious about inflation. I never thought I’d see the day. But I think they’re finally professionally embarrassed about the predicament they’ve fomented. And they’re gonna kill it off along with anything that gets in the way. I suspect mortgage rates are headed north of 7% and that’s gonna leave a mark.
The good news is that the banking system is much better capitalized than prior to the Financial Crisis. And while there’s been plenty of craziness at the margins of house financing, a lot of that has been private equity driven (and under the radar), although the PE firms are using leverage from the big banks. So, that’ll cause a hiccup. But, generally, things aren’t nearly as crazy as the last time around. Anyhow, we’ll see.
June 19, 2022 @ 10:25 PM
davelj wrote:
A few numbers
[quote=davelj]
A few numbers to contemplate. In Dec ’19 the median priced SD home was ~$600K. So, if you had a $120K down payment you could finance the remainder at 3.1% fixed for 30 years and after property taxes, etc you’d have a monthly payment of ~$2,700. So, you needed a household income of about $115K to qualify for that loan. The median HH income in SD at that time was about $96K. So, things were out of whack but not remarkably so.
Fast-forward to today. Median priced SD home is $915K. So, if you have that $183K down payment you can finance the remainder at 5.9% fixed for 30 years and after property taxes, etc you have a monthly payment of ~$5,300. So, you need a HH income of ~$230K to qualify for that loan. The estimate for the median HH income in SD for April is $106K. See the problem?
[/quote]
Median HH incomes don’t buy median price homes.
June 19, 2022 @ 11:53 PM
utcsox wrote:
Median HH
[quote=utcsox]
Median HH incomes don’t buy median price homes.[/quote]
Indeed. I mean, they can’t. I imagine you’d agree with the notion that there’s a pretty strong relationship between home prices and the ability to afford such homes… over the long term. I suspect that homes in SD (and many other areas) are in the bottom 5% of affordability historically when taking into account prices and monthly payments (on new mortgages at current rates). Rates are going up, so the only way for monthly payments to decline is… lower prices.
Anyhow… it’ll all come out in the wash eventually.
June 20, 2022 @ 8:02 AM
davelj wrote:I don’t have a
[quote=davelj]I don’t have a strong opinion on the timing because declines can take quite a while but I think most if not all of the pandemic gains will be reversed.
A few numbers to contemplate. In Dec ’19 the median priced SD home was ~$600K. So, if you had a $120K down payment you could finance the remainder at 3.1% fixed for 30 years and after property taxes, etc you’d have a monthly payment of ~$2,700. So, you needed a household income of about $115K to qualify for that loan. The median HH income in SD at that time was about $96K. So, things were out of whack but not remarkably so.
Fast-forward to today. Median priced SD home is $915K. So, if you have that $183K down payment you can finance the remainder at 5.9% fixed for 30 years and after property taxes, etc you have a monthly payment of ~$5,300. So, you need a HH income of ~$230K to qualify for that loan. The estimate for the median HH income in SD for April is $106K. See the problem?
[/quote]
Yes I see the problem! This logic completely ignores reality and how the local housing market functions . The person with a median household income around here is a renter not a buyer in most cases. It has been that way for a very very long time. If you want to use metrics like this you are far better served using the 75th percentile of household income for homebuyers
You also can’t start with the premise that prices will go back three years in home prices and talk about inflation the next paragraph while ignoring three years of wage inflation with more coming. The analysis got worse the further I read into it
Just saw utcsox comment after posting this. There’s someone else who does get this
June 20, 2022 @ 11:42 AM
sdrealtor wrote:
Yes I see
[quote=sdrealtor]
Yes I see the problem! This logic completely ignores reality and how the local housing market functions . The person with a median household income around here is a renter not a buyer in most cases. It has been that way for a very very long time. If you want to use metrics like this you are far better served using the 75th percentile of household income for homebuyers[/quote]
Yes, as I addressed in the following reply to utcsox. I guess you didn’t see it:
[quote=davelj][quote=utcsox]
Median HH incomes don’t buy median price homes.[/quote]
Indeed. I mean, they can’t. I imagine you’d agree with the notion that there’s a pretty strong relationship between home prices and the ability to afford such homes… over the long term. I suspect that homes in SD (and many other areas) are in the bottom 5% of affordability historically when taking into account prices and monthly payments (on new mortgages at current rates). Rates are going up, so the only way for monthly payments to decline is… lower prices.
Anyhow… it’ll all come out in the wash eventually.[/quote]
The use of medians was simply because… they’re readily available. I agree that using the 75th percentile would be better. Can you share that data for YE19 and currently? Enquiring minds and all.
My point was… affordability as reflected by monthly payments has been cut in half over 2 1/2 years when taking into account rising prices and interest rates. Rich has the data but, again, I suspect SD is now in the bottom 5% of historical affordability by this metric. Maybe that’s sustainable.
Hey, maybe affordability doesn’t matter any more. I guess we’ll find out.
June 20, 2022 @ 12:11 PM
Another way to look at it is
Another way to look at it is how many homes are for sale now compared to the population that it makes sense to net buy: high income renters primarily. I say “net buy” to exclude people who both buy and sell within county who will roughly net out).
Out of SD’s roughly 3 million people, how many are renters with HH income above 100k? Maybe 1 in 30 or 100k. How many homes on the market for them? About 3k. Yet another way is to compare high income jobs and high income in-migrant retirees versus net housing construction. Bullish any way you look at it to me.
Rates obviously matter, but prices will keep increasing as long as we have this massive supply and demand inbalance.
Furthermore, real mortgage rates are lower than 2019, dropping from about 1% to -2%. Moreover, the rate increase isn’t coming in a vacuum. It is largely from an increase in expected inflation, which includes rents.
Thus, while payments on a mortgage for a median SD home have increased, so too have both the current rent it replaces and expected future rents.
June 20, 2022 @ 12:23 PM
gzz wrote:Another way to look
[quote=gzz]Another way to look at it is how many homes are for sale now compared to the population that it makes sense to net buy: high income renters primarily. I say “net buy” to exclude people who both buy and sell within county who will roughly net out).
Out of SD’s roughly 3 million people, how many are renters with HH income above 100k? Maybe 1 in 30 or 100k. How many homes on the market for them? About 3k. Yet another way is to compare high income jobs and high income in-migrant retirees versus net housing construction. Bullish any way you look at it to me.
Rates obviously matter, but prices will keep increasing as long as we have this massive supply and demand inbalance.
Furthermore, real mortgage rates are lower than 2019, dropping from about 1% to -2%. Moreover, the rate increase isn’t coming in a vacuum. It is largely from an increase in expected inflation, which includes rents.
Thus, while payments on a mortgage for a median SD home have increased, so too have both the current rent it replaces and expected future rents.[/quote]
Agree this is more supply vs demand than looking at incomes. I also think you underestimate incomes. I have a 25 yr old niece moving out here in the fall fresh out of grad school as a Physicians Assistant. She’s being heavily recruited with starting salaries in the $150K range. Her plan is to live her 2 years and likely go back east but if she falls in love with it or someone she may stay longer. Thats a renter
June 20, 2022 @ 12:18 PM
Yes wrote my post before
Yes wrote my post before seeing utcsox who astutely pointed out Median HH income does not buy median house. I dont know that the 75th percentile is the right one but its a lot closer than the 50th percentile. I did some quick searching and couldnt find it but what I did find historically put it at close to double the median so for arguments sake lets say close to $200K HH income buying median house. That also ignores that a fair amnount of those coming here are not entirely income dependent.
IMO this is more in the hands of supply v demand that affordability/income could measure
June 20, 2022 @ 12:14 PM
I enjoy this guy’s writing. I
I enjoy this guy’s writing. I agree with his extreme bullishness on energy, and we are also both sitting on illiquid Russian equities.
https://adventuresincapitalism.com/2022/05/02/in-defense-of-housing/
I took his advice to invest in home building supply chains, so purchased a little BLDR. That’s been a loser so far. They own the local Dixieline chain.
June 21, 2022 @ 10:14 AM
I really wanted the option:
I really wanted the option: Stays flat to increases slightly in high demand coastal neighborhoods, but decreases 5-10% (maybe even a bit more) in neighborhoods that are less desirable.
June 22, 2022 @ 4:11 PM
Just a quick rant,
Ok i
Just a quick rant,
Ok i get the fed wants to lower demand by raising rates, but how does that fix the housing crisis?
I mean we have a severe lack of inventory (We need more homes!!), IMO all this will do is cause more people to not want to sell if they keep raising rates.
And the Builders to slow down or just mothball new projects.
They are not fixing or solving anything IMO.
June 22, 2022 @ 5:57 PM
The-Shoveler wrote:Just a
[quote=The-Shoveler]Just a quick rant,
Ok i get the fed wants to lower demand by raising rates, but how does that fix the housing crisis?
I mean we have a severe lack of inventory (We need more homes!!), IMO all this will do is cause more people to not want to sell if they keep raising rates.
And the Builders to slow down or just mothball new projects.
They are not fixing or solving anything IMO.[/quote]
I would say generally that the removal of seemingly endless easy, cheap credit from the system, and replacing it with expensive credit with more limited access, can hammer down markets. Directly and indirectly. Tight consumer credit = less consumption.
It’s not just consumer credit that is affected. Credit is the lifeblood of business. Businesses suffer = employment suffers = wages suffer.
Also QE is over and now it will be QT. So it’s not just rates with the Fed. Get ready for QT.
June 23, 2022 @ 7:30 AM
The-Shoveler wrote:Ok i get
[quote=The-Shoveler]Ok i get the fed wants to lower demand by raising rates, but how does that fix the housing crisis?[/quote]
The fed isn’t trying to fix the housing crisis. Housing is not part of their mandate. They are trying to reel in inflation and they try to do this by raising rates and if housing only gets worse, that’s not their primary concern.
June 23, 2022 @ 10:16 AM
Powell openly said he is
Powell openly said he is trying to reset housing market
https://www.yahoo.com/video/fed-plans-reset-housing-market-215259418.html
IMO it probably won’t work the way Powell envisions it.
As prices fall sellers who can will just pull their listings and builders will just stop or slow down.
Anyway Just My Opinion
June 24, 2022 @ 1:49 PM
I agree. Imo, whether the
I agree. Imo, whether the Fed purposely or inadvertently orchestrates a housing decline, in tandem with high interest rates, cash buyers will be out in droves, as we were the last time around, thus negating most “reset” efforts that would help the average buyer.
Edit: As I mentioned in another thread, due to many factors, I don’t think we’re going to see the phenomenal opportunities we saw during the last downturn–but being cash ready is still a good plan–just in case those opportunities present themselves.
June 27, 2022 @ 8:12 AM
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July 6, 2022 @ 10:38 AM
I voted flat because I think
I voted flat because I think the run up in oil prices and interest rates are somewhat overdone.
Commodity prices tend to fall in peace time, so hopefully the war in Ukraine ends this year.
This would take pressure off the Fed and energy markets, the corresponding drop in mortgage rates could allow for flat prices by end of year 2023.
There could be a dip of 5-10% this year but by end of year, that would smooth out.
In real terms, this would still be a drop as the appreciation would be a little less than inflation.
Longer term the big question is if the “savings glut” will continue.
Technology is generally deflationary.
For example, the 300 trips I gave this month with Uber used no fuel, probably every second rider wants an electric car or a Tesla now.
I’m actually inclined to buy a few more shares of TSLA or VW/major EV manufacturers as that shift is still in the early days, and will eventually pressure energy prices. Albeit, that is a few years off but commodities are usually very sensitive to small changes in demand patterns.
July 6, 2022 @ 11:01 AM
So in the last month rent
So in the last month rent prices decreased 6% in San Diego
July 6, 2022 @ 11:52 AM
Zumper has very bumpy data
Zumper has very bumpy data and limited to 1 and 2 bed apartments that use their listing service.
They had rents up 30% over last year:
https://www.zumper.com/apartments-for-rent/san-diego-ca#rent-report
That was higher than other estimates.
I find it very hard to believe with high inflation and vacancy under 2%, that rents are down at all, much less at an annualized 48% rate.
July 7, 2022 @ 3:42 PM
Help me out here, I don’t
Help me out here, I don’t want to get my answer wrong. If the prices are exactly the same one year from now, but there has been 8% inflation, have prices really stayed the same? Gone down by 8%? Gone down by roughly 7.6%.
That’s my bet. Prices stay the same but really going down because of inflation. And I’d argue that having your house go down by 8% in inflation adjusted terms, is much easier to deal with psychologically* than an actual 8% drop with no inflation.
*Full disclosure… I’m a software engineer, not a psychologist.
July 7, 2022 @ 4:33 PM
If inflation is 8% and your
If inflation is 8% and your house payment remains the same you will probably feel better about it regardless IMO.
July 7, 2022 @ 8:08 PM
bibsoconner wrote:Help me out
[quote=bibsoconner]Help me out here, I don’t want to get my answer wrong. If the prices are exactly the same one year from now, but there has been 8% inflation, have prices really stayed the same? Gone down by 8%? Gone down by roughly 7.6%.
That’s my bet. Prices stay the same but really going down because of inflation. And I’d argue that having your house go down by 8% in inflation adjusted terms, is much easier to deal with psychologically* than an actual 8% drop with no inflation.
*Full disclosure… I’m a software engineer, not a psychologist.[/quote]
Since most of us invested in our primary and investment properties long before the current price escalations, any declines on paper should be of little to no consequence, and a source of great passive income we can pass on to our kids.
July 7, 2022 @ 8:03 PM
Howdy folks! Long time no
Howdy folks! Long time no post. Probably since I’ve spent the last year in Okinawa, and before that a 2-year sentence to Camp Lejeune. Navy decided I had been in San Diego long enough. Thank God I bought the place in Stonebridge in 2012, and haven’t sold it!
Cannot believe what’s happened to SD values since then. I realistically believe my place has nearly tripled in value. Can anyone tell me what’s been fueling these prices? Back in 2008 when I got really into Piggington it was the ridiculous lending, but that doesn’t seem to be the case now. Is it just the low interest rates? Anyway I voted 10-20% drop, but who really knows? If interest rates go where I would think they need to go that would strangle values, but the current economic conditions have persisted for far longer than I thought were sustainable.
Anyway, glad I already have my place when I return to San Diego next July. Submitted my papers yesterday. As of July 1, 2023 I won’t be a “Navydoc” any more. By the way, if you guys were complaining about COVID in the US, you have no idea how much more restrictive the Japanese have been. I still have to wear a mask EVERYWHERE that’s not on base.
July 8, 2022 @ 8:54 AM
Navydoc wrote:Howdy folks!
[quote=Navydoc]Howdy folks! Long time no post. Probably since I’ve spent the last year in Okinawa, and before that a 2-year sentence to Camp Lejeune. Navy decided I had been in San Diego long enough. Thank God I bought the place in Stonebridge in 2012, and haven’t sold it!
Cannot believe what’s happened to SD values since then. I realistically believe my place has nearly tripled in value. Can anyone tell me what’s been fueling these prices? Back in 2008 when I got really into Piggington it was the ridiculous lending, but that doesn’t seem to be the case now. Is it just the low interest rates? Anyway I voted 10-20% drop, but who really knows? If interest rates go where I would think they need to go that would strangle values, but the current economic conditions have persisted for far longer than I thought were sustainable.
Anyway, glad I already have my place when I return to San Diego next July. Submitted my papers yesterday. As of July 1, 2023 I won’t be a “Navydoc” any more. By the way, if you guys were complaining about COVID in the US, you have no idea how much more restrictive the Japanese have been. I still have to wear a mask EVERYWHERE that’s not on base.[/quote]
Welcome back and congrats on your upcoming retirement from the navy. It sure has been a wild ride. To answer your question it’s combination of booming economy, low interest rates and severely restricted supply. Having kept your SB place when you left you contributed to that. Look forward to your return and congrats again
July 8, 2022 @ 3:07 PM
I think one thing that’s not
I think one thing that’s not being thrown in most calculations IMO is that the rental market is still very tight and forecast to go up.
I think that will still drive some buyers yet.
November 8, 2022 @ 5:11 PM
This is fun to revisit. Over
This is fun to revisit. Over half of the respondents have been wrong and we haven’t even entered the worst of it yet.
November 8, 2022 @ 5:15 PM
Pbranding wrote:This is fun
[quote=Pbranding]This is fun to revisit. Over half of the respondents are wrong and we haven’t even entered the worst of it yet.[/quote]
While I don’t know how this will play out, I wouldn’t be too sure that anyone is wrong or right at this point. The poll is for where prices are at the end of 2023, and what happens between now and then is still up in the air. If we get a recession and inflation dies, the fed might reverse course pretty drastically and by Dec 2023 we could be back in super low interest rate territory and any declines might be reversed. Not saying that will happen, only that no one here knows that it won’t.
November 8, 2022 @ 5:23 PM
XBoxBoy wrote:Pbranding
[quote=XBoxBoy][quote=Pbranding]This is fun to revisit. Over half of the respondents are wrong and we haven’t even entered the worst of it yet.[/quote]
While I don’t know how this will play out, I wouldn’t be too sure that anyone is wrong or right at this point. The poll is for where prices are at the end of 2023, and what happens between now and then is still up in the air. If we get a recession and inflation dies, the fed might reverse course pretty drastically and by Dec 2023 we could be back in super low interest rate territory and any declines might be reversed. Not saying that will happen, only that no one here knows that it won’t.[/quote]
Fair point. Highly unlikely though.
November 8, 2022 @ 7:49 PM
Regardless of how this play
Regardless of how this play out, I’m 100% certain that over 1/2 will be wrong.
November 8, 2022 @ 11:54 PM
Pbranding wrote:This is fun
[quote=Pbranding]This is fun to revisit. Over half of the respondents have been wrong and we haven’t even entered the worst of it yet.[/quote]
I thinks it’s gone down faster than i thought because rates rose faster than i thought they would. I thought we’d go down 10% between June and the end of 2022 but i know we’ve gone down much more already. At the same time i think the faster declines have pushed the worst of it to happen already around me. Either way that’s my opinion just as us not having entered the worst of it is yours. Actual results tbd
November 9, 2022 @ 11:41 AM
sdrealtor wrote:Pbranding
[quote=sdrealtor][quote=Pbranding]This is fun to revisit. Over half of the respondents have been wrong and we haven’t even entered the worst of it yet.[/quote]
I thinks it’s gone down faster than i thought because rates rose faster than i thought they would. I thought we’d go down 10% between June and the end of 2022 but i know we’ve gone down much more already. At the same time i think the faster declines have pushed the worst of it to happen already around me. Either way that’s my opinion just as us not having entered the worst of it is yours. Actual results tbd[/quote]
Good point. I don’t think anyone here predicted mortgage rate at over 7% and potentially heading to 8%. However, now that we’re here, where will rates go from here and how will it affect price? With rates more than doubled, yet prices didn’t fall by the same amount, we’re definitely in an interesting time.
November 9, 2022 @ 1:16 PM
Seems to be a lot of cash
Seems to be a lot of cash floating around looking for something to spend it on yet.
November 9, 2022 @ 2:01 PM
The-Shoveler wrote:Seems to
[quote=The-Shoveler]Seems to be a lot of cash floating around looking for something to spend it on yet.[/quote]
Doubt that we’ll ever know how much cash is floating around. But for sure, even at the bottom of the last crash, there were a lot of people w/ a lot of cash, scooping up properties at rock bottom prices. I’m pretty sure that will repeat. Especially if we get a crash to bring PITI back to the same level as it was last year.