March 9, 2006

Bursting Condo Bubble Puts San Diego In ‘Greatest Peril’

Rich Toscano writes about housing for the Voice of San Diego. “Not so long ago, downtown real estate. Condos for sale were hard to find and prices absolutely soared. Units were often bought and sold multiple times before even being built, each iteration allowing sellers to net six-figure profits without ever seeing the objects of their speculation. Those profits were often leveraged up to purchase even more condos, sending demand up even further. Those days are behind us.”

“The inventory of downtown condos for sale has increased more than tenfold since the glory days of early 2004. And it shows no sign of stopping: condo inventory has doubled in the past year. Given that inventory usually increases dramatically in the spring, the number of downtown condos should quickly blow through 600 and beyond.”

“As fellow Voicer Will Carless recently learned, there are 11,000 more units planned or under construction for downtown alone. Some of those projects will doubtless be shelved, but downtown’s ubiquity of cranes and construction sites makes it clear that many are already underway. That inventory number looks set to grow for some time to come.”

“Unfortunately, the buyers are not showing up to the party. According to Sandicor, downtown registered a meager 39 condo sales in February, down 20 percent from February 2005. Sandicor’s data indicates that 92101 condo sales over the past year have averaged 58 per month. Assuming that this sales rate holds up, an optimistic assumption, considering San Diego’s well-documented trend towards weaker sales activity, there is now about 10 months’ worth of inventory waiting to be resold.”

“But this figure does not truly express the imbalance between supply and demand. For one thing, Sandicor’s inventory figure does not include units that are being sold directly by developers. More importantly, it does not include the onslaught of new projects slated to hit the market in the future.”

“We can’t really be blamed for focusing our attention on 92101. Downtown was the belle of the speculative ball during the wildest days of the housing bubble. And now that the bubble is beginning to deflate, it appears to be the market in the greatest peril.”

And a San Diego TV station had this last night. “If you’re looking to sell a house or condominium, don’t hold your breath. It’s taking longer to reel in buyers. Two years ago at this time, about 3,000 homes were listed for sale countywide. Last year at this time, there were about 8,500. As of this week, the unsold inventory has almost reached 16,000.”

“A big drag on sales has been a glut of condos and apartment conversions, a phenomenon partly driven by speculators, experts say. ‘The key is, is there going to be an event that will pop the bubble?’ asked University of San Diego Economist Alan Gin.”

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Comment by Markmax33
2006-03-09 14:58:58

Alan Gin is the biggest joke in San Diego real estate. He claims to be some sort of economic expert, but has no clue about the #1 rule, Supply and Demand. I hope you are reading this Alan. I challenge you to a public debate.

Comment by Ben Jones
2006-03-09 15:11:07

Or maybe a debate between Gin and Rich. I’ll host the bandwidth! I’m scheduled to be on a SD radio call-in show soon. Maybe Rich can join the discussion.

Comment by mtnrunner2
2006-03-09 15:45:33

Ben, which one? I’ll listen to your interview!

I e-mailed the NBCSanDiego team, and wrote my story, about selling my house to cash out and the bubble, and Rich’s website. I told them they ought to present both sides in future stories. If they write back, I’ll let you know.

Comment by lililegs
2006-03-09 18:30:27

They won’t write back because you used polysyllabic words and they couldn’t understand you. The “talent” on that station are the worst I have seen anyplace. Worse than in Columbus, OH–and that’s saying something. If they do call, use dick-and-jane language and lots of visuals and maybe, just maybe, they won’t end up doing a story where they call you an axe murderer (because you made a killing).

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Comment by BKlawyer
2006-03-09 18:41:52

Ben & Rick and all- I had the same idea. Let’s have both you guys on for the full hour. Rick- you have no idea who I am so I’ll e-mail you privately. I do a little talk show here in San Diego on 1170 AM KCBQ. I’ve been ranting about the housing bubble for a few years and fending off death threats in the meantime. I had Ben on the show last year and had an incredible response. With the predictions becoming reality it’ll be a fun hour.

Comment by SD_suntaxed
2006-03-09 23:05:26

I really enjoyed the show you did with Ben last year, BKlawyer. I would love to hear Ben and Rich this time around! Wouldn’t miss it!

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Comment by GetStucco
2006-03-10 07:26:04

“I’ve been ranting about the housing bubble for a few years and fending off death threats in the meantime.”

Now I fully understand my gut-level instinct to post under a pen name…

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Comment by Only-A-Matter-Of-Time
2006-03-09 22:03:15

How can we here the discussion Ben?

Comment by equalizer
2006-03-09 23:28:52

This has to be the bell ringing. Ripping on Gin for being a bear when Gin claims that prices will still go up!!! Roger “They are out to get me” Hedgecock, former ousted mayor of San Diego (overturned on appeal) had a few choice words for Mr. Gin on the Roger Report on AM radio a few days ago. Roger went on a tirade, claiming that Gin has always been wrong and by talking about a bubble bursting he is just an idiot. “He’s talking about the bubble to make the Republicans look bad in a election year”. Then a few more choice words for Gin that I cant remember, but they cant be aired on this family web site anyway.
So its the Decomcrats fault if the bubble bursts. Duh, its always Clinton’s fault.
BTW Roger does own rental property in town. Does anybody have access to his property holdings?

Comment by crispy&cole
2006-03-09 15:41:06

“ there going to be an event that will pop the bubble?’
What the hell is this big event these clowns keep waiting for?? These guy is an idiot.

Just checked the UCSD website for a list of courses - Econ 101 is not included!

Comment by mtnrunner2
2006-03-09 15:47:45

I have a list of events that will pop the bubble:
1. Rising inventory. DOM is a leading indicator of price movement
2. Rising interest rates
3. CC minimum payment doubling
4. 1/3 of jobs added are in RE, and as these are lost, the decline will feed on itself. Sales are down 25%, so that means realtor income is down 25%.
#1 and #2 are all you really need.

What kind of “event” does he mean? An earthquake, a recession, massive layoffs? He’s an idiot!

Comment by turnoutthelights
2006-03-09 15:59:41

Actually, it just might have happened today - meaning the JCB’s announcement that their support of near-unlimited yen is over. The international monetary vacuum this event portends is only overshadowed by the giant sucking sound of yields (and interest rates) heading skyward.

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Comment by OutofSanDiego
2006-03-10 04:52:55

Total agreement with your 1-4, add:
5. Net migration of population OUT of California (legal residents) within the U.S.
6. and, the market has simply run out of first time buyers at bubble prices (first timers can’t afford a 500K starter home). The foundation is crumbling and will bring down all the prices above it.

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Comment by bubble_contagion
2006-03-09 16:07:25

Alan Gin is in USD not UCSD.

Comment by crispy&cole
2006-03-09 16:15:28

Not on their website either - LOL

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Comment by jjinla
2006-03-09 17:10:13

UCSD is a huge science school, so business as a degree is not even offered. Berkely is the only UC school offering an undergrad in Business.

Comment by KirkH
2006-03-09 19:01:20

Hmm, my friend has a BA in Econ from UCSD.

Comment by Only-A-Matter-Of-Time
2006-03-09 22:05:57

UCSD-Maybe only good for marine biology

Comment by shel
2006-03-09 22:53:00

as I understand it they’re good on psychology too, something at least as relevant to this deal as economics imho. They might be able to do function MRIs of people listening to realtors talk soon, and tell us which parts of the brain light up (I’m guessing fear centers, for one). That would be a fun study, I think someone in brain sciences there needs to do it soon!

Comment by Chip
2006-03-09 22:56:26

Economics is a Bachelor of Arts. Business is a Bachelor of Science. While that could explain why one is not offered at the other school, anyone wanting a marketable business degree had better have taken several econ courses, minimum 101 and 102, plus micro.

Comment by GetStucco
2006-03-10 07:27:48

Actually, UCSD has two nobel-prize winning economists on its faculty, and one of the best econ departments in the world. But again, Alan Gin does not work there…

Comment by agentjmf
2006-03-09 17:18:29

while i agree that the guy is a boob…expecting “an event” is not stupid. history has shown us that each bubble burst has been preceded by “an event.” rising interest rates, that’s “an event”…..have you checked out the financial pages today? uh oh, “an event”!

Comment by SunsetBeachGuy
2006-03-09 17:40:00

exogenous events like aerospace job losses in the early 1990’s are not necessary to burst a bubble.

However, they provide comfort and solace to the human mind to blame something other than our own greed and stupidity for the hard times we are set to enjoy.

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Comment by mad_tiger
2006-03-09 19:59:55

Interest rates are a factor but I wouldn’t call them an event. Which discrete event popped the .com bubble?

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Comment by GetStucco
2006-03-10 07:30:11

Long after the bursting SD bubble leads to massive layoffs in construction, real estate services, and the retail sector, it will be easy to muddle the direction of causality through the foggy lense of history…

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Comment by GetStucco
2006-03-10 07:26:40

And Alan Gin is not a UCSD professor…

Comment by lmg
2006-03-10 11:03:54

The relationship between the Catholic Church, which operates the University of San Diego, and USD’s Professor Alan Gin is of interest. Of course, the Catholic Church is one of the largest landowners in San Diego County, and might well have a proprietary interest in maintaining high property values.

Recently, there was a fairly long piece in the San Diego Union Tribune on Father Joe Carroll’s St. Vincent DePaul Center, just a few blocks away from the San Diego Padre-Petco Park. it mentioned that Father Joe valued the property at as much as 40 million dollars. This article made we wonder about a number of things: Why was Father Joe so interested in the value of that property, if it was going to be there for the next thirty years? Is he and the Catholic Church thinking of cashing it out in the near future? The only reason for such a high valuation would be if downtown property, and, in particular, projected condominium towers maintain their prices (Petco Park is virtually surrounded by new condo construction). And if such is the case, maybe Professor Gin has other reasons to make such cheery forecasts.

One other point, Father Joe is hardly a political neophyte in San Diego, being one of its most important players. Just recently, he was pleading leniency to the media for ex-SD Congressman Randy “Duke” Cunningham, convicted of taking the largest bribe in Congress’ history for political favors.

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Comment by GetStucco
2006-03-10 07:25:11

“A big drag on sales has been a glut of condos and apartment conversions, a phenomenon partly driven by speculators, experts say. ‘The key is, is there going to be an event that will pop the bubble?’ asked University of San Diego Economist Alan Gin.”

Bubble? What bubble???

Comment by pete in SD
2006-03-09 15:14:52

Well, Mr. Gin can sure ask but I don’t think it’s going to take any kind of “event” to sink this market. Exhaustion is settng in at the very least along with the realistic idea that RE doesn’t always go up.
I truly hope that an “event” does not happen. The reason being that I believe if we do have one of these “events” Gin is talking about, the assinine situation with RE is going to get extremely ugly and frightening. Say possibly another Great Depression? Best if this thing deflates in a somewhat an orderly manner although it has gotten so out-of-hand, I’m even beginning to doubt that it can.

Comment by Markmax33
2006-03-09 15:32:45

Markets are like springs. Liquid markets react like thin springs. Illiquid markets react like thick springs. Real Estate is like a really really think spring. The farther and harder that spring gets stretched in one direction, the farther and harder it has to snap back to fine equalibrium. It will probably even snap back past the point of equalibrium.

Comment by mtnrunner2
2006-03-09 15:48:58

I love the description. Is this your own wordage, or did you read this in an economics text?

Comment by markmax33
2006-03-09 17:49:03

all mine. F=-.5kx(squared) baby

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Comment by Chip
2006-03-09 22:58:25

Nice analogy.

Comment by GetStucco
2006-03-10 07:31:58

Markets are also like waves. A really big trough (like the clearing of the water from the beach immediately preceding a tsunami) often leads to a massively destructive crest (like the wave of inventory hitting the SD condo market…)

Comment by Robert
2006-03-09 15:37:10

Condos for sale were hard to find and prices absolutely soared.

This reminds me of a related issue for some California voters. There’s a petition going around in the San Jose area to get an “open space” initiative on the ballot. Open space sounds good, like Apple Pie and the USA, right?

Well, consider this:

1. The land they want to save as “open space” belongs to people. People own it. Why should voters have the right to take value away from other people.

2. Beware the motivation! Could the “condo developers” be behind this initiative? After all, they have have a chance of selling their slap-dash housing if nobody else can build anything.

3. You’ve heard of NIMBY. This is BANANA: Build Absolutly Nothing Anywhere near Anything. After all, I got my McMansion, why should I get yours? My precious property values may fall!

4. Even if what they say about “freezing zoning” is true, that’s the worst thing you can do. Exisiting A-1 zoning allows from 1 to 5 houses every 5 acres. So by freezing zoning you may create 100s of miles of sprawl. Instead, if you start allowing dense zoning near other areas–dense mixed use zoning where houses, apartments, and businesses can co-exist, you may actually PREVENT sprawl. This simple fact will make you think about the Open Spacers true hidden agenda.

Comment by scinic
2006-03-09 16:19:01

Here in Palm Beach County, FL the county commission is talking about a building moratorium to force developers to build low cost housing. Funny how this is coming about just now - I’m convinced it’s a plot by RE interests to prop up the sagging market.

Comment by Lou Minatti
2006-03-09 19:37:08

How about no zoning? Zoning artificially drives up prices.

Comment by climber
2006-03-09 15:47:33

One of the big problems with condos is that they can’t be built one at a time. That makes the supply chunky. In a slow market the chunks of supply can really be hard for the market to digest as fast as the builder needs to sell them. If the market gets really slow the early buyers aren’t willing to wait long enough for the rest of the units to sell so the builder has even more trouble preselling units. Eventually building will stop until the pent up demand gets large enough to justify a new development. That’s probably why condos go up so fast and then down so fast. It is a lot harder to match supply with demand accurately. - Quantization error.

Comment by enron_by_the_sea
2006-03-09 16:34:11

Are you an electrical Engineer? (Quantization error?)

Comment by Chris
2006-03-09 17:29:27

Good point on the “chunkiness” of new condo supply.

Added plus - when the market *really* hits the skids, we can now say it “is blowing chunks”.

Can’t wait.

Comment by GetStucco
2006-03-10 09:38:51

Those chunks are like big boats washed in which crash into structures as a tsunami ravages the shoreline…

Comment by phucktheflippers
2006-03-09 15:49:31

A new record for Phoenix metro 37626 as of 5pm AZ time

7/20/2005 10748
7/21/2005 10968
7/22/2005 11122
7/23/2005 11424
7/24/2005 11338
7/25/2005 11112
7/26/2005 11315
7/27/2005 11353
7/28/2005 11390
7/29/2005 11471
7/30/2005 11656
7/31/2005 11609
8/1/2005 11599
8/2/2005 11590
8/3/2005 11635
8/4/2005 11714
8/5/2005 11710
8/6/2005 12196
8/7/2005 12658
8/8/2005 12919
8/9/2005 13244
8/10/2005 13099
8/11/2005 13245
8/12/2005 13389
8/13/2005 13846
8/14/2005 13801
8/15/2005 13607
8/16/2005 13779
8/17/2005 13992
8/18/2005 14087
8/19/2005 14279
8/20/2005 14321
8/21/2005 14457
8/22/2005 14336
8/23/2005 14391
8/24/2005 14529
8/25/2005 14617
8/26/2005 14792
8/27/2005 15011
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9/1/2005 15063
9/2/2005 15159
9/3/2005 15404
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9/11/2005 16609
9/12/2005 16697
9/13/2005 16538
9/14/2005 16900
9/15/2005 16952
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9/21/2005 17664
9/22/2005 17883
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9/26/2005 18435
9/27/2005 18483
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9/30/2005 19192
10/1/2005 19333
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10/3/2005 19362
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10/12/2005 20668
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10/23/2005 22769
10/24/2005 22806
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10/31/2005 23790
11/1/2005 23601
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11/5/2005 24786
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11/7/2005 24937
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12/1/2005 26792
12/2/2005 26915
12/3/2005 27238
12/4/2005 27295
12/5/2005 27356
12/6/2005 27387
12/7/2005 27403
12/8/2005 27367
12/9/2005 27649
12/10/2005 27706
12/11/2005 27664
12/12/2005 27512
12/13/2005 27411
12/14/2005 27566
12/15/2005 27517
12/16/2005 27603
12/17/2005 27791
12/18/2005 27776
12/19/2005 27722
12/20/2005 27604
12/21/2005 27554
12/22/2005 27516
12/23/2005 27486
12/24/2005 27311
12/25/2005 27014
12/26/2005 26810
12/27/2005 26822
12/28/2005 26687
12/29/2005 26649
12/30/2005 26547
12/31/2005 26497
1/1/2006 26462
1/2/2006 26401
1/3/2006 26751
1/4/2006 27403
1/5/2006 27564
1/6/2006 28224
1/7/2006 28337
1/8/2006 28542
1/9/2006 28595
1/10/2006 28786
1/11/2006 29222
1/12/2006 29507
1/13/2006 29689
1/14/2006 29899
1/15/2006 30415
1/16/2006 30391
1/17/2006 30707
1/18/2006 30817
1/19/2006 31085
1/20/2006 31457
1/21/2006 31463
1/22/2006 31497
1/23/2006 31607
1/24/2006 31766
1/25/2006 31830
1/26/2006 32142
1/27/2006 32002
1/28/2006 32477
1/29/2006 32458
1/30/2006 32512
1/31/2006 32563
2/1/2006 32684
2/2/2006 33087
2/3/2006 33145
2/4/2006 32953
2/5/2006 33368
2/6/2006 33576
2/7/2006 33550
2/8/2006 33684
2/9/2006 33844
2/10/2006 34234
2/11/2006 34588
2/12/2006 34753
2/13/2006 34815
2/14/2006 34815
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2/17/2006 35144
2/18/2006 35427
2/19/2006 36260
2/20/2006 35443
2/21/2006 35642
2/22/2006 35503
2/23/2006 35324
2/24/2006 35178
2/25/2006 36388
2/26/2006 36524
2/27/2006 36639
2/28/2006 36174
3/1/2006 36389
3/2/2006 36283
3/3/2006 36811
3/4/2006 36900
3/5/2006 37064
3/6/2006 37217
3/7/2006 36720
3/8/2006 36953
3/9/2006 37487
3/10/2006 37626

Comment by tauceti96
2006-03-09 16:25:22

Please continue to post new numbers as you get them complete will full history. It is amusing. In a callous sort of way.

Comment by death_spiral
2006-03-09 16:59:02

Do I hear 40,000??

Comment by cereal
2006-03-09 17:11:28

ptp - go baby go. those long long columns of numbers are music to my eyes.

better than a led zeppelin concert

Comment by cereal
2006-03-09 18:01:43

i’ll see your 40,000 and raise you 7,500

Comment by GetStucco
2006-03-10 13:19:33

Give it two weeks :-)

Comment by HK_Vol
2006-03-09 18:00:08

How come there are so many for sale?
I thought the buyers were going to “come out in droves” after the Super Bowl?
What? They’re not interested at the current offering prices?
What a surprise….

Comment by Casa$Loco
2006-03-09 18:00:53

Anyone know the all time record of houses ‘For Sale’ in Phoenix? We must be getting close.

Comment by turnoutthelights
2006-03-09 16:15:10

Reading through Rich Toscano’s article one can sense the coming of the future ’story’: since what everyone really likes is to rubberneck a trainwreak, the housing collaspe will be a story that never stops giving. Good Lord! This blog has been sooo early on this thing that I feel like I’m living in the future. Go Ben!

Comment by Housing Wizard
2006-03-09 17:26:51

If I was in the market for a cheap condo or house in Arizona I would see this as a upcoming buying opportunity perhaps , but those number are so high Im wondering if it has anything to do with the drought . DId the cities announce water rationing for next year ?

Comment by Casa$Loco
2006-03-09 18:02:06

If the drought here continues, Phoenix might turn into a desert!

Comment by Casa$Loco
2006-03-09 18:04:19

Seriously, the reason for the influx of houses on the market is because there’s a lot of spooked flippers. I think 1 in 4 AZ residents have more that one property.

Comment by death_spiral
2006-03-09 20:11:41


Comment by OutofSanDiego
2006-03-10 04:56:14

…and 1 in 4 California’s who have become speculators also are in the Phoenix market.

Comment by Housing Wizard
2006-03-09 17:32:59

Or is it that a high percentage of flipper/investors invested in Arizona last year because it was one of the few cheap places left to invest . Flippers cant stop themselves . If they make money on one property they have to buy more ….more …..more .

Comment by SB BubbleBeliever
2006-03-09 17:38:51

Kinda like Las Vegas… Those that actually “win”, end up dumping the money into further gambling. With this rapidly changing national RE market- there is going to be alot of people that end up with nothing, or worse yet- debt owed on properties that just simply will not be able to be sold for what they bought it for.

Comment by circling_vulture
2006-03-09 17:58:24

and people like myself won’t feel the least bit of sympathy for the greedy bastards. yeah, some of the smarter folks made a killing, but we all can’t be overnight millionares.

Comment by Casa$Loco
2006-03-09 18:09:48

What always got me was the way these *investors* thought rising real estate prices were a ‘Good Thing’. Unaffordable housing is a very bad thing, for owners and businesses alike. The reason I came to the valley in ‘98 was because I thought Bay Area CA housing was expensive THEN!!! In ‘98 there were 1600 sf brand new houses in Phoenix for $100K and TONS of them. I think Phoenix is going to get hit the hardest of all the bubble cities because it is WAY overbuilt. Mortgages are going to get harder to get, interest rates are going to continue to rise, soon lenders will be requiring 20% down to hedge against housing prices going down.

Comment by cereal
2006-03-09 18:48:20

bubble b -

guys that are “up” $500,000 right now can end up owing $250,000 when this all is said and done. how’s that for a 6 flags thrill ride?

Comment by phucktheflippers
2006-03-09 18:15:25

i think i messed up the date on the spreadsheet… i got so excited i must have looked up the data 2x in one day and put the AM on one day and the PM on the other… so i apologize for the date being 3/10…. the last two numbers should be on the previous days… just bump ‘em up a notch…

AAAAAAAAAAAAAAAND I must say, i would not doubt if we break 50,000 no problem. The more I look around and talk to people, the more they are clueless… some know the market has weakened but few, just about no sellers want to ‘get real’ and lower prices. Some how they all think, that their POS home that was 180k 2 years ago is worth 400k today. It is the same POS house. What is the worst to come, is if the property taxes go up on the ‘fake demand’ inflated houses. All those flippers were Fake Demand. I just hope thinks plummet 20% or so before the tax man does a round of assessing.

Comment by cereal
2006-03-09 18:49:37


$5.00 fine. don’t do it again

Comment by Dreaming 07
2006-03-09 18:26:29

Can anyone in San Diego give me some insight on the Chula Vista area? I just applied for a job there and was shocked to see so many homes close to 1 M in the eastern zip codes of 91913-15, even more than many of the nice areas in North County. I know, like the rest of SD, this area is overvalued, but am interested to hear if you think this area would take a particularly big hit due to the number of recently-built high-end homes & the proximity to the border.

Comment by JJGittes
2006-03-09 18:38:51

I think CV will take a huge hit. It has enormous numbers of standard middle class type homes, it is not really considered an ultra prime location like, say, the coast, and I’d bet the creative financing game has been played to the hilt in the area. Also, if/when you do buy there, beware of the surface street commute to the major freeways. It can be miles of stoplights and crawling traffic, before you enjoy the privilege of also crawling on the 5 or the 805 to wherever you are going.

Comment by Waiting in Vegas
2006-03-09 18:43:42

“It can be miles of stoplights and crawling traffic, before you enjoy the privilege of also crawling on the 5 or the 805 to wherever you are going. ”

AHHHHHH the fishbowl….I remember that :)

Comment by OutofSanDiego
2006-03-10 05:18:13

Eastlake is actually a very nice community to live in, just learn some Tagalog and Spanish. That is where I jumped ship from and sold my house in July 2004. Depending on where you go and the times you drive ( I worked downtown) the commute actually was pretty good (25 minutes to go 14 miles, Otay Lakes Rd to Bonita Rd, 56 to Harbor drive…forget it if you need to drive up to Mission Valley or further - gridlock on the 805). I am shocked to see that homes are about on par with prices in North County, especially in the newer Eastlake Woods where there are multi-million dollar estates. I left the area because I simply didn’t like the fact that Spanish was becoming a language spoken on par with English, the influx of Mexican drivers was causing dangerous traffic (red light runners, etc.) and I was worried that the new SR-125 that passes right through the community to T.J. at the Otay border crossing would bring a huge influx of day shoppers and other folks from T.J. poking around the neighborhoods. It’s all relative though, I knew lots of great Mexican Americans and they think the new SR-125 is great…now their friends and relatives will be able to visit them more easily. Lots of wealthy Mexicans in the area have driven the prices up (yep with some of the resultant Drug Lord houses bought with drug money in the neighborhoods) as it is much safer for them to live with their families in the Eastlake area and commute back to T.J. for their businesses and executive jobs. Overall the Eastlake area is actually very pretty, well maintained, and has had well planned growth with nice shopping and restaurants developed in the last few years. People that don’t know the area will slam it (Chula-juana), but east of I-805 is a different city than west. The growth has been tremendous over the last 7 years. I think home prices are least 25% over where they should be and will settle back down to that level over the next couple years. The upward spike in prices in the first half of 2004 was completely unwarranted. I have tracked listings very carefully over the last 19 months. Zip code 91915 (just Eastlake Greens & Trails & Vistas neighborhoods) In May 04: 11 listings. June 04: 44 listings. Steady increase since then and this week inventory went over the 200 mark! Lot’s of people in the lower end homes trying to sell for way too much (homes that were under 200K in 2000 asking over 500K now). Ridiculous speculation.

Comment by We Rent!
2006-03-10 09:11:29

Yes, yes, East Chula Vista, Eastlake, and Otay Ranch are very nice-looking. The new highway should help the 805 onramp disasters (Orange, Telegraph, H, etc.). However, I think 25% decline is a bit light, considering that most of the houses are 5 bedroom, 4.5 bathroom monstrosities. I’d say we have a tremendous decrease in the cards.

Comment by OutofSanDiego
2006-03-10 10:07:16

I actually agree with you, but was being a bit conservative in my estimate. a 25% drop would put things about where they were at the end of 2003, which was already overpriced. I have a hard time seeing it going lower than about 30%. Long term residents (owners living in their homes, kids in school, etc) won’t sell if prices go down farther than that and people that have overpaid in the last 18 months will basically be stuck in their houses (upside down) and have to wait about 7 years until getting back to break even on the purchase price. The people with true flexiblity are anyone who bought prior to 2002. They have tremendous equity and can still do fine even if prices drop 40% from current levels. That might help drive the prices down over time.

Comment by dreaming 07
2006-03-10 16:50:17

Thanks everyone for your insight :)

I also think a lot of people that bought recently will just walk away if they can’t make the payments.

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Comment by JJGittes
2006-03-09 18:33:19

I believe SD real estate is already down at least 10% from the top already. If the avarge sales prices don’t reflect it, it is because people are getting bigger houses for the same $.

I’d like to see a $ per sq. foot analysis for the SD area. I’d personally like to sell my house that I purchased in mid-98, and then rent for a year or so before buying something bigger, which we need. It is hard to put that sign up though.

Comment by mtnrunner2
2006-03-09 19:00:50

Actually, median price is going up because the first time buyer is squeezed out, skewing the distribution, according to a San Diego realtor. The houses that are selling, are the more expensive ones, because the rich people can still afford to buy. MId-priced homes are selling for less than they would have last year.

Comment by nhz
2006-03-10 01:56:53

interesting - the same has been going on for at least two years in my country (Netherlands). After about 15 years of price increases, it seems the most trouble is with selling the CHEAPEST homes. The people who would normally buy these homes can no longer afford them, despite double incomes, huge buyer subsidies and the lowest mortgage rates in 400 years.

Comment by mtnrunner2
2006-03-09 18:57:38

JGittes - sales price/list price ratio is going lower every month. 95% in January, 93% in February. Sellers who are not taking those offers, or who are priced too high, are still sellers. Exception: the multi million dollar market, because the ultra rich can buy homes regardless of the interest rates and economy. Check out
The longer you wait, the less you’ll get for your house. I cashed out in January, and am renting until I see prices come back up. Once that happens, we will buy again. Until then, my husband, I, my 3 kids, and multiple pets will be renters.

Comment by John in VA
2006-03-09 19:10:25

Well this looks like fun:
‘Oh The Places You’ll Go’
NVAR Chief Executive Officer Christine M. Todd dons a ‘Cat-In-The-Hat’ cap as she reads Dr. Seuss to attentive students during the Read Across America Day at Graham Road Elementary School in Falls Church this past week.

Check out the photo:

What could she be reading to these youngsters? I’ll bet it goes something like this:

Have I told you the story of young Donald Day
Who blew all of his hard-earned life savings away?
He purchased a condo
And then he bought more
By the end of September young Donald owned four
“This unit’s a steal!” Donald’s Realtor said
If you don’t jump on this one you’re out of your head!
“These condos are groovy” he thought, “I’m in heaven!”
So over the weekend, our hero bought seven
His craving for condos just couldn’t be stopped
“What bubble?” he chucked, “has anything popped?”
His bank gave him money like handing out candy
And for outbidding flippers, that cash came in handy

But even the funnest of parties must end
And such was the case for our happy young friend
Suddenly, lenders stopped pumping out money
“If this is a joke,” Donald thought,”it’s not funny.
If I cannot re-fi then what will I do
When the bills pile up and the mortgage is due?
And whom will I flip to if no one can borrow
to buy the six condos I’m closing tomorrow?”

Our entrepreneur was in quite a pickle
Despite millions in “assets” he had not a nickle
His real estate kingdom came tumbling down
like a great house of cards, then he skipped out of town
But creditors found him and hauled him to court
A grueling ordeal, I’m sad to report
The bankruptcy laws weren’t as loose as they’d been
No longer could Donald just wipe the slate clean
After twenty long years of hard work Donald paid
Enough to clean up the huge mess he had made

Today Donald Day has a regular job
And a regular life as a working class slob
But still he’s much happier now than back then
Though he still checks the classifieds now and again

Comment by SD_suntaxed
2006-03-09 23:14:17

Well said! :D

Comment by rent2home
2006-03-10 02:19:05

This is fun! Hope more there is more to come :-))

Comment by ca renter
2006-03-10 03:18:33

That was terrific!!!! :)

Comment by Housing Wizard
2006-03-09 19:32:46

I cant stop laughing . Maybe these flippers will file lawsuits claiming
they were taken advantage of or they were on a sugar high and the sellers should of stopped them from buying .

Comment by Housing Wizard
2006-03-09 19:42:30

Has anyone thought about all the lawsuits that might come as a result of a housing crash ?

Comment by nhz
2006-03-10 02:11:19

I don’t have a doubt there will be massive lawsuits. In the Netherlands we have a nice exemple of what will follow:

In the late nineties at least 700.000 citizens (5% of the population) joined the stock market mania through a kind of heavily leveraged (tax-deductible) play on the stock market. In the first years most of them made huge gains; after 2000 many of them got spectacular losses, sometimes big enough to loose their home etc.

A large chunk of these people are now suing the companies (big bank/insurance companies) that organised these leveraged plays claiming that no one told them that there could be a loss. The way they understood these contracts it was free money and they demand what they were promised.

Even the government got involved because they fear all these lawsuits may grind the justice system to a halt. It could take many years before the mess is sorted out in court. The companies that are responsible will probably dissolve into thin air or go bankrupt long before they can pay out their ‘victims’. The only winners will be the lawyers on both sides.

in the housing market the leverage and amount of money at stake is MUCH higher …

Comment by Lars
2006-03-09 19:44:17

Regarding Phoenix historical inventory, this was about the best I was able to find… Interesting graphs…

Comment by Lou Minatti
2006-03-09 19:44:51

Sorta OT, but not really. Ben, have you seen this? Californians are buying more RE in Texas than Texans. Click here for the small PDF file. It seems to me that California “investors” should dwell on this before buying. But they probably won’t. They are caught up in a mania and their craniums are no longer functioning.

Comment by mad_tiger
2006-03-09 20:15:09

That is an eye-opening chart. Is that just Marcus & Millichap clients?

I love Marcus & Millichap’s line: “The advantage to our clients is that we are able to efficiently move investors’ capital across the country, thereby maximizing their return.”

Isn’t that how Kirk S. Wright’s hedge fund got into trouble, by moving his football-player clients’ capital efficiently across the country, thereby minimizing their returns (and maximizing his)?

Comment by Baldy
2006-03-09 20:15:08

Great blog. Here’s my view of my city. While homes are “cheap” here (Pittsburgh), there are brand new homes, at $1 Million down the street. I live in the best city neighborhood, but these things are not being sold, AFAIK. Downtown, there are new articles about more & more condos being built, but I see many ads say “PRICES REDUCED!” Storefronts in my neighborhood have been either empty, or turning over often. Used to have more stores. Now, restaurants everywhere (it just occurred to me today, who is giving the people money to open the hundredth restaurant here?) Been going on for a while. Also, the fact I, who spotted the NASDAQ bubble, but invested anyway (like the shoe-shine boys in 1929 - when someone like me gets in, watch out) - in the back of my mind, I was thinking of buying something recently… the Real Estate section at my Barnes & Noble, which was 2 full bookcases, is now down to less than 1. And, luckily, we have casinos coming to PA! What a new concept.

Comment by shel
2006-03-09 23:05:26

interesting to hear about pittsburgh (to me, anyway). Do you feel the sense that there is any reason for new condos to be built there? Is there growing population? Unmet housing needs?
Sometimes I feel like the whole real estate is local mantra isn’t really very applicable anymore, what with investors looking to put money on anything anywhere they feel has room to appreciate or any sort of potential ’sucker’ market.

Comment by oc-ed
2006-03-09 23:40:59

Pittsburgh is one of the most interesting cities I have ever lived in. Easy access to numerous excellent universities, libraries. museums, etc. When I was a kid we walked from my Aunt’s house to Forbes Field where I saw Roberto Clemente for my first baseball game. The east end is a series of decent to very nice communities with huge parks.

The problems are as follws. Your real estate taxes are high. Your infrastructure has not been upgraded since the mills closed down and Sophie didn’t help much. Attempts to bring in high tech have only been luke warm IMHO, so employment is weak. The school system is marginal for city schools. The poverty in certain communities is overwhelming.

That said, I think it is a great city with a great sense of history and the houses are impressive. Us expat burgher’s often talk in terms of a “Pittsburgh” house. 3 story 4 or 5 bedroom stone or brick on a 60 x 130 lot with a nice big front porch and within walking distance to a deli, the bank, a theatre, and the newstand and it doesn’t have to be north of Forbes either, but that helps.

Not sure where you are right now in the bubble. Last I heard things had not bubbled that much, but I think with those high taxes folks are more likely to sit tight for a while and see if things cool in the burgh as they look like they are or will elsewhere.

Say hi to Joe Aiello from us expat burgh - ers and think of us when ya go dawntawn fer a fish sanwich on da square.

Congrats on the Stillers, the men of still are fer rill.

Comment by Ted
2006-03-09 20:33:07

Regarding Californians buying the Texas property in the PDF, that is only THEIR clients. Not *all* of Texas. It’s probably typical of all *investment* homes in Texas, but not an offical statewide stat. If you look at their other charts, for apartments, Californians were 55% percent.

Comment by accroyer
2006-03-09 20:50:54

If everyone just sits tight and waits as these foreclosures escalate, the housing prices will drop considerably…my prediction is July -August 2006…the bubble will be in effect.

Comment by sdrealtor
2006-03-09 22:34:05

You are going to have wait alot longer to see the kind of price declines you are dreaming of. Most homeowners have substantial equity and will find a way to hang on if the need. While there are plenty who won’t be able to, they make up a very very small % of homeowners in SD.

Comment by Chip
2006-03-09 23:12:06


Comment by tj & the bear
2006-03-09 23:13:51

You are going to have wait alot longer to see the kind of price declines you are dreaming of.

Yeah, it’ll be at least a few more months. :) Everyone knows prices are set at the margin, therefore any percentage of FBs above zero is sufficient.

Comment by OCobserver
2006-03-09 23:00:42

Most of the new purchases in the past 2 years are financed w/ I/O ARM. These guys will go belly up fairly quickly, perhaps by the end of this years and mid next year.

Comment by frank
2006-03-09 23:17:48

Check this lovely picture of the weather in Phoenix:

So this is the paradise that everyone is moving to nowadays?

Comment by feepness
2006-03-09 23:36:38

An oldie, but a goodie.

I personally can’t wait to pick up a place downtown and hopefully one in Vegas as well. In 20010.

Comment by Auction Heaven in '07
2006-03-10 00:00:48

sdrealtor said…

“You are going to have wait alot longer to see the kind of price declines you are dreaming of. Most homeowners have substantial equity and will find a way to hang on if the need. While there are plenty who won’t be able to, they make up a very very small % of homeowners in SD.”

Gotta completely disagree with you there, sdrealtor.

Your equation leaves out ‘flippers’.

Are flippers going to sit on a property for ten years so it goes back up?

You, like many in real estate, have underestimated the percentage of flippers in your city.

They outnumber the homeowners- possibly 3 to 1.

Flippers aren’t going to hold tight very long.

Soon, they will throw in the towel, cut their prices, and take their losses like they have to.

Please see the entire equation.

Flippers- not homeowners- created this artificial run-up in prices.

And flippers- not homeowners- will consequently bring those prices down.

Comment by nhz
2006-03-10 02:19:45

flippers … they outnumber the homeowners- possibly 3 to 1

that sounds very unlikely to me. Maybe this number is correct for sales numbers of the last year (even then I would be surprised) but certainly not for the total number of homeowners.

I agree that even 5% flippers can cause a huge price decline if they all want to get out at once. But there are also many other homeowners that purchased their homes longer ago, and most of them have no urgent reason to sell. The rising tide has lifted all boats and only the heavily leveraged buyers of the last 1-2 years (probably a large percentage of them are flippers) are at risk now.

Comment by jm
2006-03-10 07:08:23

nhz, keep in mind that the market price is the price as which sales are made, so people who have no urgent reason to sell have no effect upon it except to the degree that their unwillingness to sell at the market price makes the for-sale inventory less. But except in bubble times when some fraction of such people may list for sale just to see whether someone will cash them out at an amazing price, they aren’t a factor, and I suspect that even in bubble times such people are few.

I now you’re writing from the Netherlands (and your posts on the situation there have been much appreciated). Here in the US, where employment is much less secure than Europe, and a job change is more likely to require relocation, the fraction of home sellers who urgently need to sell is almost certainly much greater.

Comment by nhz
2006-03-10 07:25:21

the market price is the price as which sales are made, so people who have no urgent reason to sell have no effect upon it except …

I agree, but the flip side is: many of these people are not influenced by the current valuations either (assuming they are not extremely leveraged etc.).

Regarding job security: the difference between EU and US is getting smaller quickly. And if someone has to move I guess there is only a serious problem if home prices are moving in different directions in their old/new location (which is not very likely). It does add some extra risk (= cost), but not much I think.

Besides, I do think that the current inventory buildup is partly caused by owners who are just trying to cash out at the top, and who don’t have another reason to sell. In my country that is definitely a huge factor (RE brokers are already complaining about it because these customers have very unrealistic asking prices) and probably a growing factor in the US as well.

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Comment by Ted
2006-03-10 04:25:00

Come on we a frickin’ know it doesn’t matter one twit’s worth of realtor BS what “most” homeowners have in equity. The market, like all frickin’ markets, is priced at the MARGIN. Once comps are lower, comps are lower — see how simple that was. Please stop spread Marxist theory of real estate equity. When houses sell for lower prices, ********ALL******** houses are worth less. Who cares how much equity “most” homeowners have. God, this is old. What economic classes do they teach at “realtor” school?

Comment by OutofSanDiego
2006-03-10 05:28:58

They don’t (teach economics)!

Comment by arlingtonva
2006-03-10 05:54:30

Yea I don’t understand. Are you saying if I put $2,000 dollars into a stock, I have $2,000 dollars in equity? Therefore I should be ok?

Comment by Housing Wizard
2006-03-10 04:40:03

It cracks me up that the builders are all pissed off at the flippers
now because they are screwing their sales , but builders were more than willing to sell to Flipper/investors a year ago

Comment by Housing Wizard
2006-03-10 04:48:48

I did a flip once back in 1990. It was a distress sale ,( a divorse ). I bought it under market , fixed it up , put it back on the market for a modest profit .I like to think I kept the sellers from going into forclosure and I corrected the property but I still felt bad about the gain I got . Never did a flip after that .Guess I wasn’t meant to be a big time investor , so I became the Housing Wizard .

Comment by flat
2006-03-10 05:12:07

how about focussing on then and now
1990 and 2006 that’s the real issue

otherwise this place is a broken record
inventory blah,blah blah

Comment by Sunsetbeachguy
2006-03-10 06:21:28

OK why don’t you do some research and post on topics that you are interested in sharing?

Blah blah blah…

Comment by SDsurfer
2006-03-10 06:24:15

As I said before inventory is the single most contributing factor to price drop or price gain if inventory is very low. Interest rates might be the next contributing factor. Thanks to all for posting the inventory numbers, those Phoenix numbers are unbelievable, I might be able to pull some good lotto numbers out of that spreadsheet!

Comment by sdrealtor
2006-03-10 08:41:33

Hey numbskulls…your right they dont teach economics at realtor school. I got my Economics and Accounting degrees at an Ivy League College along with an MBA in Marketing (specifically in market research) and an MS in Financial Management. I understand well about pricing at the “margin” also.
But I spend my days and nights following home prices and sales activity on the ground level. I sit accross the kitchen table with buyer’s and seller’s. I’d say that i have a little better perspective on things. Incidentally, I’ve been a “bear since Spring 2004″ when the real problems started. It takes alot longer than you (and that I used to) think it will. When people have equity they have options. I’ve watched homes that should have been lost many times over be rescued by refi’s, hard money etc. Sure there are plenty of Speculators in Downtown SD, but SD is a heckava lot more than Downtown. Sure there are buyers that paid a very high premium the last two years but many of these rolled huge equity gains from prior homes. Yes the comps will go down, but many of those with equity will decide to hang on for better days. Whether there will be better days is another story, but that is what they will do.
BTW, I beleive we are headed for a correction of about 15 to 20% of where we are now. Just don’t hold your breath waiting for it to happen or you will likely suffocate. Be Patient!

Comment by We Rent!
2006-03-10 09:40:13

Here we go again: typographical errors are perfectly understandable, but this “your” vs. “you’re” crap has got to go - especially from an Ivy League graduate. I know that people write fairly quickly, so that the capitalization of “i” is intentionally dropped (among the many errors you have demonstrated above) - but “buyer’s and seller’s” should be plural, not possessive. Most people on this blog do not hesitate to overlook such things. Honestly, I tend find myself in the same boat. That is, until you take off the gloves and start insulting people.

Glass houses.

Crispy boy had the same problem - and he liked to call people “morons.”

Keep the topic on the discussion at hand, please. Most folks here agree on the general trend of the market - no need to get bent out of shape when someone counters with a dissenting detail.

Comment by need 2 leave ca
2006-03-10 10:52:26


Housing Wizard, if you flipped such house in 1990, you actually performed a service and did some real work to improve that property. For that, you deserved to make money. Today, flippers, purchasing a hot potato just to merely toss it to the next fool haven’t done a thing except screw up the market for everyone. Equity won’t matter when housing prices come down. Equity does NOT equal what someone’s mortgage amount is. People owing less will be able to ride this out, where as underwater people are in trouble, especially when ARMs reset.

Comment by Housing Wizard
2006-03-10 13:04:55

When I was in lending in the good old days ,( that nobody wants me to talk about ) ,I use to try to talk flippers out of quiting their day job thinking they were going to get rich . Most the time a so-called friend broker was just trying to unload a elephant fixer that had no potential for a reasonable profit . At least I can sleep at night that I helped my fellow man . Today the situation is different because we have a massive amount of flipper/investors caught in a downturning market .

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