‘The Unstoppable Ascent Has Stopped’ In San Diego
The LA Times has this report on the San Diego housing market. “Finally, the seemingly unstoppable ascent of real estate here has stopped. Sellers are chopping prices to get deals done. Buyers worry that values will continue to fall, putting their investment at risk. There’s widespread uncertainty, and some anxiety, about what happens next.”
“San Diego had the wildest run-up among major California cities. The boom was stoked by cheap loans, changes in tax law, creative financing and a generalized mania that fed upon itself. The market also began to fade first in San Diego. Whatever happens here, optimists and pessimists agree, will happen later in the rest of the state.”
“At a sales office in the Ocean Beach neighborhood, broker David Davis said the market had already bottomed out. ‘Our No. 1 industry is now tourism,’ Davis said. ‘Unless they take away the sun, we’ll be fine.’”
“If Davis radiates cheer, the fliers taped to the window outside the office door tell a different story. ‘Huge Price Reduction,’ one says. Another says both ‘Reduced’ and ‘$15,000 Credit.’”
“In some cases, the prices are dropping faster than the fliers can be reprinted. A two-bedroom town home has its price of $324,900 crossed out with a marking pen, replaced by $309,900. Another house, a four-bedroom in suburban La Mesa, has a printed price of $575,000. Below that is handwritten $549,000. Scribbled below that is a new minimum: $499,000.”
“‘Houses really need to fall by 50% to become affordable again,’ said Tom Scott, executive director of the San Diego Housing Federation. ‘It would be better for everyone if the price of housing fell.’”
“‘We’ve built a whole economy based on selling each other homes,’ Rich Toscano said. ‘That’s not sustainable.’ To illustrate his point, he offered a tour of downtown. Around every corner, it seemed, was another crane putting up another massive condo building. Many will have hundreds of units.”
“‘I’m surprised we haven’t covered all of San Diego with granite countertops by now,’ he said.”
“The housing category dropping the most in value here, DataQuick says, are newly built single-family homes and new condos. Median prices of these are down 8% since June 2005. Condos for resale are down much less, 2.1%, but sales volume has slumped by about a third. ‘There’s an 11-month supply on the market downtown,’ Toscano said.”
“Toscano says that the decline he is forecasting won’t happen overnight. When he extends the tour through a number of residential neighborhoods, what’s most striking is not the presence of ‘For Sale’ signs but their absence. ‘We’re at the very, very beginning of this,’ he said.”
I could not believe my eyes when I opened my L.A. Times this morning and saw this article with a color photo that could have easily come from this blog showing multiple listing signs in S.D. Not to mention the fact that they interviewed and quoted Rich Toscano quite liberally. I noticed, though, that the reporter is not Annette Haddad, who usually writes the articles about median prices and chooses to quote the “experts” who are shilling for the RE bulls crowd. Still, this is a grudging step forward for the Times.
Let me know when the OC Register headlines an article like this. It is then I’ll know the media has cut the RE industry loose.
Kudos to the LA Times. I think we are getting closer to the point where the “underground” is becoming main stream. OT, but reading these blogs reminds me of listening to garage bands in the late 80’s and early 90’s. Everybody I associated with back then knew the underground garage bands were far superior than what was being released by the big record companies then all of a sudden these underground garage bands became the big bands. (which killed it) But the point being these blogs are basically telling the truth about RE and if they were way off base the audience would not be growing the way it is. The more the traffic grows on these blogs the closer we are to critical mass where the MSM has to report on the actual conditions in the market. This LA Times article was a big step in legitimizing the housing bubble argument.
I am as big a believer as anyone else, but you have to be careful with this line of argument. It was herd mentality that caused house prices to become disconnected with fundamentals. While it may be psychologically reassuring that more and more people are come over to this way of thinking, it is not an argument for correctness.
if 60% of j6p think RE is a bad investment then the downside is over
wierd ,but true
Not quite correct. If 60% believe it, 61% could believe it tomorrow and the downside could continue.
Obviously I don’t believe we will get to 100%. We can’t because when I think it has hit 90% I’ll switch sides for sure!
There is a tipping point on the downside as well as the upside. That housing bubble has burst (or even existed in the first place) must be in the mainstream consciousness for the housing bubble to burst. It is a chicken and egg thing… which is why it seems so slow to those of us that find it obvious.
Funny that you mention that–the song going through my head this morning is “Smells Like Teen Spirit.” The 2004-05 period in real estate could be summed up by the line “Acting stupid/it’s contagious.”
Again, I kind of find it ironic to see this article now. I’ll bet a lot of San Diegans who tried to sell last year and even late in 2004 would say they’ve had enough “correction” and really, it hasn’t even gotten started yet.
Yeah, I’m sure they’ve been praying for damage control. Articles like this blow it wide open.
‘Our No. 1 industry is now tourism,’ Davis said. ‘Unless they take away the sun, we’ll be fine.’
That’s probably #1 in Arizona, too. With high gas prices, it could be the first thing people cut back on in a slowdown.
Tourism won’t support jobs that can buy homes in California.
Not only will people cut back on visiting SD in a slowdown, the tourism jobs are low paying. How many people in the tourist industry can even afford to pay rent here? I bet most live at home.
At least the LA Times is doing more an expose, rather than the “balanced” view that the San Diego Union-Tribune presented last week. I e-mailed Roger Showley, the main business staff writer at the U-T, about the lies printed in that article, and he wrote
As you can imagine, we leave a lot of the realtors’ comments on the cutting room floor and balance their assertions with those of the less rose-colored variety. We do ask them tough questions and most of the time, they don’t know a thing. They know marketing but not necessarily economics. And when they say something is certain and forever, we try to counter with comments from somebody else who doesn’t necessarily agree. So don’t give us a bad time and do give us some credit for critical thinking.
- roger
I really respect his response. I think they tried to tread a fine line. Imagine if you were trying to sell your house to escape an ARM, and the headlines are all about the collapsing housing bubble. How would you ever find a buyer?
The solution, I think, is for David Lereah and Leslie Apples-to-Oranges-Young to confess that the market is going down, and sellers need to lower their prices. This will pick up transactions. Sales volume is off by 30%, and the realtors out there, who are supposedly represented by David and Leslie, are seeing serious income problems. If sellers would reduce their prices, the bubble will normalize faster, and realtors can keep up their sales.
We do ask them tough questions and most of the time, they don’t know a thing.
This jibes with what Carlsbad Jim said a few days ago that realtors just don’t know anything. But DL and LAY sure do and their BS runs downhill. I’m not sure what is worse, a quote from a realtor that is completely ignorant of what they are saying or one that is lying. Or is there even a difference?
Irregardless, they all know the message to impart to the masses…now is a good time.
If a journalist asks a supposed expert a “tough question” and they find out that the supposed expert “doesn’t know a thing”…isn’t that, itself, the most important news?
Bob wins the prize for best point in this discussion.
You’re assuming that the journalist knows anything themselves
Exactly, Who did he ask and what did he ask them. Did he ask the new penny sitting in the front answering the phones how’s the market or did he go in the back room and ask the grizzled vet where did he think the market is going.
Assuming the reporter had any financial sense at all is the wrong assumption.
Reminds me of an article which I don’t know if I read it here or somewhere else where a study was done that indicated that most economist/business reporters etc. basically had investment portfolios that looked like 2 bottle caps and a piece of bubble gum.
I talked to an agent at a open house this weekend (a vacant house) he said he has trouble convincing sellers to lower prices because they see the “Medium Price” is up and why should they lower their price. DL and LAY can only BS for so long.
why not simply ask themif they bought in the last 90 days- then you get the truth
answer FCK NO !
Great point. The head economists at CAR and NAR are doing their industry constituents a disservice by painting an unrealistically optimistic picture for future price appreciation, when the official statistics are already showing the prices are down YOY in SD. A bit of honesty would go far to helping sellers find a price where they will find a buyer, and that in turn would help Realtors (TM) maintain their income streams.
Sellers don’t give a rats a$$ what CAR, NAR or their talking heads think. They only care about what they feel their property is worth based on their analysis of the market no matter how flawed that analysis may be.
Realtors depending on NAR and CAR’s help to educate the public on the marketplace. Will find themselves out of business real quick. Most people are not paying attention nor do they care. Don’t let the cheerleading of the bubbleheads in the background fool you.
In 12 years of business I have never ever heard a Seller/Buyer quote me a NAR, CAR fact or statistic.
Of course it sounds good to spout that out. But at the end of the day it’s wishful thinking.
It is your job to inform sellers about market conditions, and the NAR’s and CAR’s job to inform their constituent Realtors (TM) about the overall market conditions. Disinformation begins at the top, and trickles down to the f-d sellers through misinformed Realtors (TM).
In 12 years of business I have never ever heard a Seller/Buyer quote me a NAR, CAR fact or statistic.
Yes, but have you ever quoted a NAR or CAR fact or statistic?
Why or why not?
Of course it’s our job to inform our clients. But NAR and CAR data is not the best way to do it.Typically spouting tha tstuff will show your misinformed or don’t have the resources to get timely to the day information. MLS and other data providers provide that. Most sellers only care about their market, their property, their net. I can’t tell you how many times I have sat down with a client with a 10-12 page proposal with stats and graphs and have them flip thru it untill they found asking price and their net. They don’t care about the rest. Now you are going to get some on here who say they do of course but my experience tells me different. Sellers don’t care about macro economics, what’s happening in phoenix or vegas or what happened three months ago.
They want real time, what’s happening in the market now, and what am I going to net information. CAR nor NAR provides that and even with that Sellers still have their own opinions and typically will price 10% above you to give themselves negotiating room.
Incomestream,
You post above is interesting, to put it politely.
“They only care about what they feel their property is worth based on their analysis of the market no matter how flawed that analysis may be. ”
“In 12 years of business I have never ever heard a Seller/Buyer quote me a NAR, CAR fact or statistic.”
Where do you think sellers get their “feeling” about market mood or general property worth? Try television. Lately, if it isn’t Flip This House, it’s the news. Where does the news get their info?
“Experts”
We Rent-
When I was heavily involved in the selling of houses. Flip this house, hell HGTV didn’t exist.
During the last downturn sellers were insistent on getting prices of the peak year. The newspapers were filled with stories about the market being in the toilet. They didn’t care and the same thing is going to happen this time.
The past few years have been make a wish pricing. Reality has very little value with most sellers.
Typically their “feeling” comes from whatever they can pull out of there a$$. Has nothing to do with “media” experts.
Every seller believes that media and news applies to everyone but them when they want to sell their little treasure chest.
That’s probably #1 in Arizona, too. With high gas prices, it could be the first thing people cut back on in a slowdown.
I heard they do tourism in Nevada too! Not sure which part though.
“Everyone wants to live here” has become “Everyone wants to visit here”!!
better for no one !- if housing falls even 35% we’re in a depression
whoops forgot gov workers- they’ll be happy
No, we’re not. 35% off a $500K house means it costs $325K — which sounds just about right for a couple making $100K per year to buy as their “starter” home using sensible financing and a large down payment in expensive locales in CA. It will be disappointing to the previous homeowners, but as long as they have been responsible with their perceived equity, they’ll be fine. Everyone else gets what’s coming to them. It’s the nature of the economic cycle. I honestly believe this sort of house price crash will be better for bubble land economies — especially places like CA with long histories of business innovation. There’s been much too much “fat, happy, and dumb” around here these past five years. SV and the BA in general is just stagnant. It’d be great to force people’s minds off of granite counter-tops and tiki-themed backyard decors and on to entrepreneurial ventures that the world actually needs. Like say, oh I don’t know, alternative energies?
“There’s been much too much “fat, happy, and dumb” around here these past five years.”
Right on target. I arrived in SD from the Midwest in late ‘04 and was initially disgusted with what I saw running around at the malls and the retail stores and on the Highways. I had just gone through the job search process and was well versed on the salaries/compensation levels in SD and it didn’t justify 25 year olds driving around in Escalades with 21’s and buying 400K condos.
It is going to be 50% to return to fundamentals even if the economy holds up. And if the economy starts to slide, who knows how far this ship is goin’ down.
Recent buyers will be in a collective depression. The rest of us will be relieved when the market returns to normalcy.
Flat,
When will you understand that govt workers, especially those paid by prop taxes, will be talking pay cuts, experiencing job losses, etc?
Not trying to be mean here, but you’re constant assertion that govt workers will come out unscathed sounds awfully ignorant.
talking pay cuts = taking pay cuts, sorry!
Flat has been drinking the wingnut kool aid so long his brain has become submerged. You are absolutely correct in that pain will be felt at all levels, including government workers.
Also….Fannie Mae Exec’s fleeing the sinking ship..
http://tinyurl.com/lxlqy
You mean the captain of the Fannie Mae is a coward ? It’s supposed to be children and women first on the life boat. Another illusion has been shattered.
Julie St. John
Wow, there is someone whose departure might signal a chance to improve things.
i get listings on zip realty for sd condos and i cant read all my e mail there is just to many listings coming in.im waiting for a nice la jolla condo for my retirement.and it will be close enough to the harbor where my 26 ft tuna chaser will be.
I don’t know what you’ll be chasin’ because the tuna are gone, at least in comparison to when I was I kid.
bottomfeeder1,
So when you say “bottom feeder” you mean it more than just one sense of the word! At 47 I’m no where near “retirement age” but my next house will be my last so we want to do this right. I’d like to have a 15 yr. mort. and have it paid off in 7 to 10 years but at these prices you’d have to go 30 and pray you paid it off in 15-20. That is just NOT going to work for most of us as we’ll need as many years as possible to “pad” our retirement accts. Now, sure, it feels like being on a tight rope. In a year it will feel like “falling off a log”! Hang in there bottomfeeder1!
im paying cash i knew when to sell before this bubble popped.im also 47.san diego prices are in freefall.and there is still good fishing nvmtgbrkr not as good asin the 50s but still good.ill bde fishing white sea bass tonite and its wide open at santa rosa island.the squid are floating.
bottomfeeder1,
I was unaware that actually catching fish was the primary objective! Just getting away from traffic and the crowds are reward enough so if you do land something it’s an added thrill.
Yeah, I tinker with the notion of low balling next year and perhaps paying cash but the truth is I’m kind of scared so I would probably not commit to paying it off until I knew for a fact that I was standing on rock bottom prices and still would likely keep it liquid. But everyone’s scenario is a little different so it can make sense for you. With college aged kids and weddings I’m trying to stay liquid.
Aren’t I the pessimistic bastard this morning. Sorry. I wish you luck and good fun. I miss the Channel Islands. I haven’t been out there in years. It’s a special place.
Good luck on the croaker, too. Have a fish taco for me…..
“We’ve built a whole economy based on selling each other homes”
Rich, nothing could be more true! For at least the last five years folks haven’t bothered to ask for a raise, participate in their 401K plans or save a dime! Why? Why bother when your house is going up faster than any nickel dime raise your boss is willing to fork over? Every dime not invested in buying as much house as you can possibly afford is a dime wasted! Why put away money in a “rainy day” account when your home is going up 20% + a year? After two years you can sell the place, payoff your first, second, car loans, college loans and store cards, come in with NOTHING down and start the process all over again. What’s not to like?
participate in their 401K plans or save a dime!
Not bothered to participate or save? I know of two instances where 401ks have been LIQUIDATED to purchase housing.
Goodbye, thanks for playing, enjoy your government cheese during retirement.
Oh man, that’s scary unless the person is
Check out the poll results next to this article on latimes.com More than 50% voting this is the beginning of a major crash. Don’t forget to cast your vote!
Approaching 54%….must be all those ignorant, bitter renters that were priced out forever.
I have two friends who sold their homes (one condo, one house) because they thought they’d never get this much money for their homes and they are now renting. The interest they’re getting from their investment is paying for most of their rent.
A year ago (when the So Ca market was really hot) I heard a woman in front of me at the super market tell a story to someone she was with that her sister had sold her tiny home in Manhattan Beach for 1 million and decided to rent.
54.5% now.
I have two friends who both sold their homes and are renting. They each got a small fortune for their homes 9one condo, one house) and the interest they’re getting from the bank is paying for most of their rent.
About a year ago, (when the market here in So Ca was really hot)a woman at the supermarket was telling someone her sister had sold her Manhattan Beach “dog house sized” home for a million and was renting. Smart move.
Congratulations to Ben, Rich, David, etc. and all those who post on their blogs. We have won the hearts and minds of the American people, while the “experts” who have been the key sources for the mainstream press are increasingly revealed to be no more than paid shills for the real estate industrial complex.
“‘We’ve built a whole economy based on selling each other homes,’ Rich Toscano said. ‘That’s not sustainable.’ To illustrate his point, he offered a tour of downtown. Around every corner, it seemed, was another crane putting up another massive condo building. Many will have hundreds of units.”
“‘I’m surprised we haven’t covered all of San Diego with granite countertops by now,’ he said.”
Wow, this guy’s one of us.
Has been for some time. Actually, he’s more the “one of us”. Toscano is “The Man “.
http://www.piggington.com/
Toscano has a great site. I have read it for years. He was my hope years ago when I thought the prices were insane.
It’s so nice to have the support we all share.
It’s so nice to have the support we all share.
——————
Melody,
How true! One of the many benefits of these blogs.
Pigginton and here are the only two blogs I have bookmarked.
I thought the definitive essay on a “whole economy based on selling each other homes” was penned in August 2005 by Paul Krugman of the NYTimes. Alas, the entire piece is behind a pay firewheel, but here is a teaser:
Safe As Houses
By PAUL KRUGMAN (NYT) 816 words
Published: August 12, 2005
“…I used to live next door to a Russian émigré. One day he asked me to explain something that puzzled him about his new country. ”This place seems very rich,” he said, ”but I never see anyone making anything. How does the country earn its money?”
The answer, these days, is that we make a living by selling each other houses….”
Or an update of the Depression saying, “Buddy can you spare a condo”.
Hmm! I meant to say “pay firewall” instead of “pay firewheel” - don’t know where that came from…
Houses, Internet stocks, beanie babies, baseball cards…a long tradition of not producing anything.
Not to worry, it’s right here:
Another must-read is “that hissing sound” also in August 2005. This guy is really in the “reality” business.
actually i first heard of the the words “we build an economy by…” from paul krugman in nytimes about a year or so ago.
oops. i was so fast with my keyboard i miss the more definitive reference. my apology.
You’re just “ensorceled” by the concept that any economy can be sustained by selling homes to one another!
Wonder if a similar economy occurred ~700 years ago in Easter Island, where there may have been a thriving economy built on selling those huge stone faces (i.e., “moas”) to one another.
“Eduardo Duarte is 36. He makes $30,000 a year working in a grocery store. His dream: a two-bedroom condo, which would have enough space for him and his young son.
It’s almost within reach. He’s saved and scrimped for two years and has just been approved for low-income housing assistance.
“When you rent, you don’t have anything,” Duarte said. “When you buy, you get tax breaks. And then you can sell the house and get the equity.”
What about all the forecasts of doom?
“After five years, houses should be going up again,” he said. “You’ve got to be patient.” ”
THIS is who will be decimated by this housing bubble. I’m sure there is some scummy realtor somewhere who will sell this poor guy a condo too.
Wonder where he got his MBA.
Yes, and what kills me is that both the mortgage broker who sells him on the 1% suicide loan and the real estate agent who talks him into some overpriced condo will both be patting themselves on the backs afterwards for “opening up housing opportunities for lower-income minorities”.
“When you rent, you don’t have anything,” Duarte said.
You especially don’t have the risk of losing your household net worth due to falling property values.
What he DOES have is a young son, who might be going to college some 15 years or so from now, and might be incuring all the expenses that kids tend to do. In the immortal words of e*trade: “invest wisely.”
How much of a “tax break” can a guy with a kid making $30,000 a year even get?
Tax Break? Can you explain how giving $1.00 to a bank to get back $.30 from Uncle Sugar is a good deal? It is the bank who’s been making money hand over fist. It’s worked recently because home values have increased so dramatically. That game is over. Now, the person who keeps that $.70 the bank was getting, and doesn’t lose money on a depreciating asset, will be reaping the benefits. No more cosmic than that.
A little more information about that tax break…it’s only a benefit if you itemize. People forget that part, and sometimes it doesn’t pencil out the way they expect.
an excerpt from bankrate.com
http://www.bankrate.com/brm/itax/news/20030207a1.asp
“The good news is that you can deduct many home-related expenses. These tax breaks are available for any abode — mobile home, single-family residence, townhouse, condominium or cooperative apartment.
The bad news is that to take full tax advantage of your home, your taxes will likely get more complicated. You’re not living on “EZ” Street anymore; you’ve moved to the 1040 long form and Schedule A, where you’ll have to itemize deductions.
For many homeowners, the effort of itemizing is well worth it at tax time. Some, however, might find that claiming the standard deduction remains their best move. How do you decide? First, find your standard deduction amount, based on your filing status: $5,000 for single or married filing separately taxpayers; $7,300 for heads of households; and $10,000 for married couples who file joint returns. Then compare it to the total expenses you can itemize and file using the method that gives you the larger deduction.
To help you figure your possible Schedule A tax breaks, here’s a look at homeowner expenses you can deduct, ones you can’t and some tips to get the most tax advantages out of your new property owning status.”
It goes on to give tips on making the most of the tax advantage.
More info from CNNMoney.com, October 2005:
http://money.cnn.com/2005/10/11/pf/taxes/mortgage_interest/index.htm
WASHINGTON (CNN/Money) - Owning a home may become less tax-friendly than it has been, if suggestions from the president’s tax-reform panel are considered seriously by Congress in the next year or so.
This information is very valuable for people buying or planning on buying for the tax break. Worth a full read.
BayQT~
Eduardo must be predicting that Bush is going to enact taxes on the lower class. “You people need to take care of yourselves! Heh heh heh…”
actually he probably wont pay any federal at all.30k and below is poverty level in calif.
Or need
What kills me is that sombody who works at a low-skill low-pay job would want to stay in SD. It’s not a high-tech job; you can work in a grocery store and make $30K almost anywhere. In my hometown (small city northeast) you can buy a decent small SFH for under $70K. This is why i’m so puzzled about this “priced out forever” stuff. Spend an hour on Zillow or realtor.com and it’s easy to see you’re not priced out, just move. I guess most people aren’t willing to move because of family or something else. But, if you dream of SFH, I guess you have to decide on priorities.
Oxide,
I was struck by that as well. If I were making $30K at a grocery store, I’d be packed and moved to another city/state in an instant.
“‘Houses really need to fall by 50% to become affordable again,’ said Tom Scott, executive director of the San Diego Housing Federation. ‘It would be better for everyone if the price of housing fell.’”
“‘We’ve built a whole economy based on selling each other homes,’ Rich Toscano said. ‘That’s not sustainable.’
Finally some common sense that’s published in the mainstream media.
“Finally some common sense that’s published in the mainstream media.”
I wonder how much coffee was spit all over the place this morning as people read this article. Way to go LA Times for not spewing sunshine in place of facts on this one!
I wonder how much coffee was converted to Irish coffee and swallowed at a gulp :).
I wonder what the savings rate will look like when the median SD home price has dropped 50%? I’d guess that more than 15% of homeowners would owe more than their house is worth. I think that’s a conservative number if you include HELOCs.
It may be “common sense” that houses must fall 50% to be affordable but the problem is that even then they won’t be affordable because there won’t be many people pulling down 100K jobs when the economy is in the weeds.
If they don’t drop that much, we continue on with this misallocation of resources. We can build our way out of a slump IF we are allowed to clear away the distortions in the markets (housing, stocks, commodities, etc.).
A 50% correction is what we NEED at this point to get back to a healthy (productive) economy. Doesn’t matter much what we want, IMHO.
but the problem is that even then they won’t be affordable because there won’t be many people pulling down 100K jobs when the economy is in the weeds.
Sorry, but those jobs (i.e. real estate related) aren’t useful in making the U.S. a strong player in the world economy.
The problem with the status quo is that the educated/skilled professionals who make the things that the world buys from our country can’t afford to live where they are needed. So you’re left with older workers nearing retirement, and a huge push to outsource overseas. This is not healthy for our neighborhood/state/country.
“‘I’m surprised we haven’t covered all of San Diego with granite countertops by now,’ he said.”
I predict a shortage of granite in 2007!
nah. the market is already getting flooded. granite is ole *tech* and high maintenance.
A 50% drop would probably only take us back to 2002-2003 prices. 1999 prices are where I want to see the market. Might be unrealistic, and even going back to 2002 prices would scare the crap out of a lot of people.
Actually John Talbott is predicitng a reversion back to 1997 prices (which is when all the madness started) so it’s only fitting. But you’re right, for many revisiting 2002 price levels would spell the end!
Back to 97 would be awesome
Try finding a job.
There will be jobs to be had. People need to have food, clothes, and shelter. Without, they die. The question is whether people will be willing to take a decreased standard of living and compete with the rest of the world, or simply die. In our current society, I think folks will be surprised at the number of people who will choose to whither and die vice accept a lower standard of living and plug away at a job not involving passing money or homes back and forth. And no, I don’t have a tin hat on. I’m looking at the facts and drawing conclusions. That is apparently beyond comprehension for too many Americans. They need someone else to tell them what the conclusions are. Without someone telling them how to think, they are helpless. There is no way this isn’t going to end more badly than anyone can imagine. The only way it can’t, is if debt truly never does need to be repaid. If that is the case, then my conclusions are all wrong. Like the saying goes, time will tell whether debt actually has to be repaid (creating money and saying “here it is” is the same as not repaying it at all–when it’s all said and done).
blue collars jobs will be ok,its the professional college educated people who will be hurting.in a downturn its middle mgmt who loses jobs.how many of the coat and tie types will do manual labor?if the economy gets bad enough how many of them will dig in trash cans for food and recyclables.the strong will survive its the lazy ass credit burdened pencil pushers you will see in homeless shelters.
Which blue collar jobs will be ok? I am as blue collar as you can get. I work in a factory surrounded by blue collar and we are very definitely going to be hurting. (Almost every ingredient we use in production is oil-derived) I dont know if the others I work with have made the connection that with lack of auto sales and increasing cost of supplies we will be toast but I hope they do soon. I am not trying to be a smartass, I really am curious. I will be starting school this fall semester at the local community college. Only one class but as i save more and more I will load up on more and more classes. I ask because this feels like my last chance to break out of the factory treadmill before the poop hits the fan. I need to get the most bang for my education dollar. My tentative plan was to go for a para-legal certification while also learning spanish. I figure it would position me to help with the real estate foreclosure/bk/immigration issues coming on the horizon. Any suggestions anyone? I am 37 and honestly this is my last chance to use education to move up. Ahh, misspent youth. At least I can use myself as a reverse role model for my children. “Work hard, learn well and save save save or you will end up like mommy” Thanks in advance and also thank you for opening my eyes to the financial world that has surrounded me. Reading here has helped begin my financial education.
You’ve obviously put in some careful thought there. Those sound like pretty good skills to have going forward. Best of luck.
thankfulrenter -
anything related to healthcare, where you PHYSICALLY have to be with the patient.
noone with a job involving pencil and paper will do better than the guy mowing your lawn over the next 10 years.
“back to 97″. you mean, inflation adjusted
Hmm…I guess it depends on the market. Many of the homes in my area (SoCal) need to be cut in half just to get back to 2003.
50% will get you back to 2004 on select areas along the coast. The truth is the list prices are already 30% below “asking” price 2005 (not that many ever sold at asking, and most have been for sale since 2005 anyway). It’s also clear, most pull their houses on and off the market repeatedly playing MLS games.
1997 is when Clinton actually got something through the Republican Congress, no Capitol Gains for up to $250K per spouse. Pretty much when the bubble started and the smart money started to move in, once the general public figured it out ….. well we all know whats happened.
And before the Political ideaology attacks start flowing, the current administration ’s actions have done nothing but push this thing even farther out of whack…p
We have sort of gotten a lose/lose situation from the houseing policies from both these administrations.
I am a facilities manager for a manufactureing plant, the Government subcontract stuff keeps flowing and even getting pushed up. The general industial products have stopped on a dime. Anecdontally every time this has happened for the last 25+ years a resession has followed. My facility makes parts used at the very front end of productions in many field.
Take it for what it’s worth, just an observation.
OCBear
R U sure it was Clinton getting it through a Republican congress or was an Republican congress writing a law that Clinton didn’t veto? There is a difference.
Yes sir, 100% positive. Clinton’s plan and Hillary was very much involved. I know it’s a touchy subject, but truth is truth.
A Democratic President trying to make houseing more lucrative for the mass’s, easily understood. Unfortunatelly the foresight was not there.
Again, both administration’s have brought us what has come to pass. I realize many don’t like this.
As for elections, be careful what you wish for, for you may surely get it.
I work as a machinist making certain parts for many manufacturing equipment (mostly mixer type (general industries)). I keep waiting for a slowdown so I can take some time off but so far, we have been very busy. The last time we were slow was 2001-2003 and at times were real slow then. I hope your right that things have “stopped on a dime”, I could use a little vacation. mabey we are just lagging the trend by a couple months.
San Francisco is still crazy and signs continue to point towards people’s continued belief that real estate only goes up especially in prime locations like SF with its crappy public education system (parents with kids flee the city if they can’t or won’t pay for private schools - the lottery system for public school enrollment in SF is a joke!)
Examples, I pay $2,050 month rent for a SFH in SF that Zillow values at over $1M. The house across the street from me sold for $960K in Sept 05 (2BR + 2BA). They immediately tried to flip it for even more money but it the damn thing didn’t sell (they adopted the two prong tactic of having a for sale sign / for rent signs out at the same time). The scumbag realtor trying to sell the house (probably the owner / investor) stopped by my house and talked to me one day. She mentioned how I was throwing my money anyway renting and that I should should buy the overpriced POS across the street for only $950,000!! They have since rented it out to a hippie couple who they have subsequently tried to convince to adopt a lease to buy option (the couple look like they don’t have a pot to piss in, much less have the ability to come up with a $1M mortgage).
Another house down the street just went on the market for over $1M last week (they had an open house yesterday but I believe that it wasn’t very well attended but someone will probably scoop it up for ~ $1M). Lastly a nice home a few blocks away sold late last month for $1.65M (It last sold in June ‘98 for $836K). Actually whoever paid $836k back in ‘98 probably over paid quite a bit.
Reversion to ‘98-99 prices will cause considerable chaos in the San Francisco Bay Area - hoping and praying but definitely holding my breath!
I think that google and Web2.0 have postponed the bubble-bursting in SF bay area by a few years. San Diego on the other hand looks quite ready for the slide.
While I loved the gist of this article, one thing continues to puzzle me. It’s posted in the LA Times about San Diego. Is LA off limits? Seems we are going to have different city newspapers reporting in a round robin fashion about the RE busts in other cities while trying for the ’soft landing’ in their backyard.
I started to think the same thing. But the nice thing about the internet is that LA folks will be sending this article to SD and OC friends and so forth. Notice that this article is already both the most viewed AND the most emailed. A useful statistic the LA Times keeps.
I’m waiting for the day that they are as straightforward about their own city too. My friends in LA have mentioned to me for over a year that buying a house in SD may not be a good idea (as though I hadn’t already told them that
) based on news that they had seen up there about the market in SD. However, any suggestion to them that the madness just happened to start sooner in SD and that LA will eventally catch up is still met with denial. Meanwhile, my friends continue to believe that RE always goes up, except in SD. Oh well.
The article was in the LA Times because as has been reported many times, when the canaries start dying here in San Diego the shaft isn’t far behind for LA and beyond.
“Beggar thy neighboring city’s housing market.”
Give the L.A. market about 6-8 months and you’ll see a similar article; lots of those adjusting ARMS will start to do the trick in L.A.
Did you read the rulebook.
When talking about RE declines, never talk about your own neighborhood it is just not polite.
All RE pundits when quoted follow this rule.
That’s right. Don’t sh!t where ya eat.
The problem with real estate today is not many people are willing to pay top dollar for an “investment” that is highly leveraged, losing value, illiquid and very expensive to hold. Throw in the fact the economy seems to be rolling over, the BK laws are harder, and you’d have to be out of your mind to buy today.
And buying a home at a reduced price today isn’t any help, since this down cycle needs to run its course and your purchase will only lower the comps and make the next leg down more possible. We have a 5 year correction ahead of us. Real estate won’t be an investment for atleast that long.
Totally agree!
It may not be an “investment” for another 5 years, but some of us still want to buy a house and settle down. Though I really agree with your comments, I plan to buy next summer (not in one of the bubble areas), for living, not investing.
Why not rent, the same amount of house but for less money, and less hassle, then invest the difference in treasury bonds, gold, antique books, world cruises, etc.?
The economists where I work have posted an article by a prominent real estate economist that said that prices were in line with fundamentals as of the end of 2004.
Assessing High House Prices: Bubbles, Fundamentals and Misperceptions† Journal of Economic Perspectives 02-23-06
The article concedes that based on past price trends vs. inflation, price to household income ratios, and rent income ratios, there was a bubble. It also correctly distinguish between the “income” portion on the return generated by owner-occupied housing (avoided rent) and the “capital gain” portion. A reliance on the latter not supported by the former is a bubble, the article agrees.
Here is where they get into trouble, in my view. First they say higher housing prices are more affordable based on low interest rates, and that it would be a change in fundamentals if interest rates went up “unexpectedly” and housing values fell. But could a rise in rates from historic lows be considered “unexpected?” Moreover, even with interest rates low housing was unaffordable in the bubble markets by most measures.
That’s where a second explanation kicks in. The article says that it isn’t current rents that matter but expected rents, since by buying you lock in future rent gains. And that the bubble markets were “superstar” cities where expectations of above average rent gains, and thus imputed rents from owning housing, were rational.
I agree to a point — people should be willing to pay more to own than rent, because the “income” portion of their return is thus locked in at a current price. But how much more? Double? And weren’t the superstar cities superstar cities in 2002, before things got out of hand? That might affect the rent level, but not the gain.
The article ends up by saying that instead of prices going up because people expect them to go up further (bubble) they are going up because people expect rents to go up (not bubble?). And when prices go down, the authors could argue that it is because rent expectations have also gone down (by definition).
In summary, my view is that we have a bubble based on both greed for the capital gain portion of the return (buy it and it will go up more!) and fear for the income portion of the return (if I don’t buy now I’ll never be able to live here) all accomodated by financing that defers much of the cost to later.
The trouble with prominent economists is that they are susceptible using such complicated arguments that they themselves fail to recognize that their unrealistic assumptions drove the spurious conclusions.
“expected” rents, rather than “actual” rents, sounds a lot like hedonics analysis in inflation. Hedonics allows you to computer much lower inflation rates, by noting that the computer that you buy today is much more powerful than the one you bought three years ago.
Hmm! wonder if hedonics analysis can be used to keep down the price of gas.
Sure it can. All you have to do is assume (demonstrate?) that the real value of vacations and other transportation demands have increased relative to the rest of the economy, and then use that increase in real value to deflate the nominal increase in travel costs. Sounds reasonable to me!
Anyone notice how the LATimes is willing to print a story about RE declines “far away” in some other place, in San Diego. Another dose of “Look, housing is going down… ELSEWHERE, but not here. We’re safe”
IMO, when the inevitable hits LA they won’t hesitate to report on it, but they aren’t going to predict it happening here and be blamed as part of the cause.
From the LA Times article:
The market also began to fade first in San Diego…Whatever happens here, optimists and pessimists agree, will happen later in the rest of the state.
Sounds like a prediction to me.
Point taken, but it’s merely a prediction of “whatever happens”, not a prediction of a downturn. It’s also not a prediction the LA Times is making, but one that “optimists and pessimists” are making. The LA Times won’t predict a downturn, they will only report on it once it happens.
Your point is taken as well, but perhaps we should consider that while not an outright prediction of a downturn from the paper itself, a quote such as that was unheard of in the past 4 years in just about any paper that I’ve seen. Which does fly in the face of the It-cant/wont-happen-here argument.
Perhaps LATimes reporters are flippers and don’t want to be caught holding the bag. They all want to unload before reporting that the market is collapsing. Let everyone else get screwed. That’s OK.
I’m not really interested in what the “LA Times” would predict. I rely on news sources for reporting of what has already happened, not to tell me what is GOING to happen.
I agree Feeps but in the context of this discussion (as I see it) Tom and Sally Homebuyer may read the Times but certainly not blogs like this nor do they share your informed understanding and intelligence.
BTW - the reality of what we’re facing is becoming common knowledge. Take a look at the numbers on the latimes poll. Just one year ago the “market crash” would have been single digits, now it’s greater than 50%. Things are changing quickly, and next year will be far worse.
True, but even so I’ll take any rare diplays of MSM honesty about housing whereever and whenever I can get them. Stories like this are like valuable gemstones: rare, brilliant and precious. They must be protected, nurtured and prominently displayed as often as possible.
Does anyone have any info on whether RE’s are suggesting sellers to print a higher selling price, x-it out to a lower value and then list the house as a bargain to draw in unsuspecting buyers? Personally I think they should be listed clean with any prior higher pricing kept off the flyer as I look at as very suspect.
I saw a sign advertising this URL on my way in to work this morning:
http://dumpingcondos.com/
Saw my first “auction condo” sign in Del Mar yesterday.
sounds like federal seizure and they say it has 2 floor safes one is extraordinarily large.another mexican drug cartel leader goes down.you never know who your sharing a corona with at your sd bbqs
“Finally, the seemingly unstoppable ascent of real estate here has stopped.”
Finally, the inevitable unstoppable descent of real estate here has commenced.
“Whatever happens here, optimists and pessimists agree, will happen later in the rest of the state.”
Scratch state. Substitute developed world economy.
I understand many “developing” nations have their own bubbles as well. It’s totally global because, well, everybody wants to live on Earth!
Condos for Earthmen, but not for aliens.
Or in the tail of a comet…that didn’t end well I recall.
Didnt Ben post about a bubble in Beirut? It is a sad thing but I guess their bubble has been demolished and is a physical metaphor for the rest of the world’s bubble. Crash bang and boom. Flattened.
guess one group who contributed to the bubble in beirut. californians with roots in lebanon.
“At a sales office in the Ocean Beach neighborhood, broker David Davis said the market had already bottomed out. ‘Our No. 1 industry is now tourism,’ Davis said. ‘Unless they take away the sun, we’ll be fine.’”
Once prices drop to a level where employees of our No. 1 industry can afford to live here, then the market will have returned to normalcy.
One area I am following in San Diego is the Carmel Valley area. On average, houses around here “went” for $1,000,000 in ‘05
They appear to have dropped about 15% from last year (per Union Trib and personal observation)
Can you imagine if you were one of the more “responsible” people that actually used 150K of savings for a 15% down payment.
Well, it is now gone- dotcom style…..
A case could be made that the smarter ones simply took out an I/O loan….buried their 150K down payment in the forest…..and after foreclosure or walking away they have 150K in hidden assets to help start their lives over.
“Can you imagine if you were one of the more “responsible” people that actually used 150K of savings for a 15% down payment.”
The logic that has been occasionally set forth in the mainstream press that buyers can protect themselves by using fixed rate financing with a sizable downpayment suddenly appears very suspect.
“A case could be made that the smarter ones simply took out an I/O loan….buried their 150K down payment in the forest…..and after foreclosure or walking away they have 150K in hidden assets to help start their lives over. ”
That would be a rare breed. More likely they spent the 150K on a jacuzzi and matching H2s that will soon be sucking $5/gal gas.
It’s tough to find a house on ziprealty that does NOT have granite countertops. I may have to refine my search, Linoleum counters only…
Linoleum counters! Oh my, you’re getting downmarket!
Me, I’m happy enough with my basic formica countertops.
there are about 5 or 6 popular materials used for countertops nowadays. some are even better (and more expensive and *better*) than granite.
Exactly, and don’t kid yourself - it happened that way a lot for this very reason. Keys on the counter and no serious consequences for the wary. Only the real chumps get screwed. The risk takers also took out insurance against suffering any financial harm. Insurance is: nothing risked - nothing lost.
Given the huge number of people who refi-d and/or HELOC’d this time though, leaving the keys on the (granite) countertop for the bank may not be an option. Refis & HELOCs are considered “recourse” loans in CA. As in they go after pretty much everything you’ve got –salary, assets, tax rebates, etc.
The only way to completely avoid this trap is to file Ch.7 BK, which Congress just made a whole lot harder. Alternatively, you could try to negotiate a short sale with the lender (get them to eat the difference), but you’re still on the hook for income tax on the amount of debt “forgiven” by the lender.
There are few good options for FBs going forward.
Can you short sell your helloc? Short sales have traditionally been with the primary lender. Are we going to negotiate short sales with multiple lein holders? That will surely require specialized agencies. It will be the next growth industry for SoCal.
Don’t the lenders need a judgement first? Imagine 1M + FBs tying up the court system and Barbara Boxter standing by. Don’t expect any miracles.
Fortunately, even chapter 7 bankruptcy doesn’t discharge the IRS debt that they will incur when the lender cannot sell the house for enough to cover the mortgage.
Nice! Though, it’s too bad they will be on the hook only for (difference) x (marginal income tax rate). For some flippers, this may not be enough “hard medicine” to deter them from trying again in the future.
but there is such a thing as irs *tax forgiveness* (i am not sure if that is right term). you will need to hire a lawyer to get a better deal.
I don’t know about you guys but I collect fliers from the “For Sale” signs in my area and my impression is that Landlords are bailing on their rentals while they still can. A lot of the units I look at are unoccupied while for sale or have been obviously staged with high end rented furniture.
Very interesting you mention this. Just yesterday, I noticed a number of rentals in my neighborhood being cleaned out (seeing moving vans, trash bins, etc.). It definitely looks like LLs around here are getting ready to put more inventory on the market.
Look out below!!!!
South Carlsbad (San Diego), BTW.
Some have suggested that the effect of investors leaving the market has already played out, but I fully disagree. Many investment properties (like the one I live in, for example) are rented out, and the lag effect of the time until lease expiration plus a prevalence of uninformed investors who believe the current correction in prices is a temporary blip imply that the full effect of investor capitulation may take years to play out.
Claiming speculators are out of the market is wishful thinking by the real estate complex. The speculators are trapped, not “out”. Just look at the stopped condo projects looking for another round of financing. The speculators are here, their extra cash isn’t. They won’t sell until its too late, and it will make the crash much worse.
The house in my neighborhood is for rent for $1,500 / month + $3,000 deposit. (1996 three bedroom, two bath, two car garage in an HOA with $100 / month dues). It’s been on the rental market for months with no takers. I looked up the last sale information on Zillow and it looks like the owners paid $340K for it in late ‘04. Looks like they are trying to rent and “wait the market out”. Even if it were rented out, I estimate owners would be losing at least $1,000 / mo.
On a similar note, a friend of mine just rented a place in town for $1,750 / month. The original asking rent was $2,000 / month, but when he told the LL that was too much, they lowered the price right away. Its a 2100 square foot four bedroom three bath built in ‘01, also in an HOA. I looked it up on Zillow and the current owners paid $489K for it in ‘05. Looks like they are going to wait at the market as well. I told my friend not to be suprised if he gets a letter from the LL’s bank telling him he has to move because the house has been foreclosed on. I’m guessing the owners are losing about $1,500 / month on this place, even with it rented out.
I must be nice to have money to burn to keep your ‘investment’ afloat. I don’t know about the rest of you, but losing $15-20K / year of my takehome pay would cause a serious dent in my quality of life. Maybe these people were in desperate need of a tax write off.
this is what i heard about how a re *investor* does it. say he has a 200k equity in his house. he helocs that that and buys a 800k (i/o loan)house with 10% down. the 120k left will be use primarily to pay the monthly of the 800k (3 year) i/o loan for the next 3 years. the rental collected for the 800k is used to pay the 200k heloc. 3 years from now, before the i/o loan reset, he will seek to refinance the 800k house. the problem is if the 800k house is worth less than that. of course 3 years from now the 800k house will be sold for 1.4 millions so will pocket at least 300k. dream on.
‘It would be better for everyone if the price of housing fell.’
Yea, right — especially for those who drank the 100%-financed I/O Option ARM koolaide during the past couple of years.
Another observation - just returned from S Lake Tahoe back to Bay area. Lots of houses on the market in SLT. Most of those with a flyer box had plenty of flyers for the taking. This morning, a few homes in San Leandro (monday morning) had a lot of flyers in also. Just a few short months ago, most flyer boxes were empty because so many people looking at homes taking them. To be sitting after a nice weather weekend means very few folks out really looking at homes, even just driving around. Any other thoughts.
Lots of neighbors take flyers to use as comps so they can get HELOCs or cash-out-refi 100% LTV based on their neighbors’ flyers. That’s all you need to liberate the equity!!!
I rode my bike through Sausalito last weekend, and again this weekend. Last weekend I hardly recall any for sale signs as I rode north along Bridgeway. This weekend, many, many, many. Not sure what happened, in one short week, maybe I missed then the prior weekend, but I keep my eyes out for these things, and the for sale signs seem sudden and dramatic there.
For Sale signs also slowly popping up around the Richmond District of San Francisco. It’s not terribly great in number, I’ve noticed more in times past, but what is interesting is that they are more using real estate companies that I’ve never, ever, heard of before.
Writing this from Barcelona, Spain
Took some of my downpayment money, which is patiently waiting in various investments and took off for a 3 week Europe trip. This is the first time I have checked in on the blog.
This is another massive step in the right direction. From my experience, the buzz on the street has done a 180 in the past 3 months. Just wait until the Fall… The correction is on it’s way.
Enjoy your vacation! Sounds like a lot of fun!
“The housing category dropping the most in value here, DataQuick says, are newly built single-family homes and new condos. Median prices of these are down 8% since June 2005. Condos for resale are down much less, 2.1%, but sales volume has slumped by about a third. ‘There’s an 11-month supply on the market downtown,’ Toscano said.”
It looks like the sales of new homes and condos are being treated more like business transactions (that is, do what you have to do to sell them). I suspect many resale homes have some emotion attached or some target to match (as in ” I have to get so much out of my house”…) and this is slowing down the sales process and the inevitable decline (a decline which is likely to be worse the longer they try to hold on.)
“Toscano says that the decline he is forecasting won’t happen overnight. When he extends the tour through a number of residential neighborhoods, what’s most striking is not the presence of ‘For Sale’ signs but their absence. ‘We’re at the very, very beginning of this,’ he said.”
Although we have seen some declines, it’s only the beginning. It can still a good time to get out, if you can do it soon…
“The housing category dropping the most in value here, DataQuick says, are newly built single-family homes and new condos.”
This observation is due to a lack of insight amongst the data grubbers. They don’t realize how hard it is to measure the market value of an asset whose sales have recently fallen off a cliff (used homes), particularly when the substitute asset (new homes and condos) is selling much more quickly due to falling prices.
“This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
Winston Churchill
Although I hate to see misery in others…I must admit I am kind of excited at the prospects of getting the home I want in a few years. I am excited that San Diego will be one of those areas…it seems to me a desirable area. I’ve seen downtown and I think it would be fun to live in an artist’s loft (if that is what they were actually building). Will someone share with me the desirable areas in San Diego or the areas to stay away from? lv2breathe@aol.com
Simple, it’s called the arjis crime map. Learn it, live it, love it.
Oh, dude, there’s a bajillion localities in the San Diego area… you are going to have to be more specific than that! If for whatever reason life events brought me back to San Diego, the first place I would look is somewhere around Hillcrest but not actually in Hillcrest. What culture and distinction San Diego does have–the beachy, balmy, close to Mexico vibe– is found there. The best restaurants are there, and so is Balboa Park.
i was at an orifice meeting last week,and the boss was just back from the weekly realtors breakfast,all aglow with the information that there might be a problem in overbuilt areas of the central valley,but there was no chance of prices dropping anywhere along california’s coast,or 50 miles inland.yes the world famous eyler had graced this breakfast with his wisdom as part of his tour,sponsored by car.we were all urged to share this message of cheer to all and sundry.i called my father in law,and congratulated him on getting out with only a small loss,he sold for health reasons,$18k loss in two years in a good part of contra costa county.my roses have all the nitrogen they need,and there’s another orifice meeting next week….i’ll have lots of extra …..just leave it in the bag til all the weeds sprout and die and it’s good to go.drop me a line it’s free.it’s natural,organic and high in fiber too.
If you want to see examples of San Diego property that is selling at a loss to the current owner check this blog: http://sandiegomarketmonitor.blogspot.com/
Maybe as the negative articles start coming out in the media. They will start referencing Ben’s blog and the word will spread even faster!