‘There’s No Getting Around It’, Prices Reduced In San Diego
The Union Tribune has this update on San Diego. “No longer steaming, the San Diego region’s housing market continued a slow cooling trend in March. The end of the first quarter also marked the 21st consecutive month in which sales volumes were down on a year-over-year basis, DataQuick reported.”
“Kenneth Rosen at UC Berkeley, maintains that the market’s future is uncertain. ‘Prices are actually starting to decline in San Diego because of the inventory of unsold units, both single-family and condos,’ he said.”
“Tom Belway and his wife hope to purchase an investment property not far from their home in Poway. ‘We are hoping that the opportunities are starting to come back around in San Diego,’ said Belway. ‘We’re starting to see price reductions in our area.’”
“‘We definitely have noticed you getting more for your money right now, and it is not such a frenzy,’ Alexia Spivey of El Cajon said. ‘I have definitely seen the market slow down. Every single day I check the MLS (multiple listing service). Those homes are asking $950,000, and then two weeks later I see they have reduced the price to $875,000, $900,000. I don’t think they are getting top dollar.’”
“Clearly influencing the slowdown in price escalation is the growing inventory of homes on the market. In June 2004, the number of homes listed for sale was 6,657. Yesterday, there were 17,010 listings.”
“Richard Nesbitt, who manages (realtor) offices in Ocean Beach believes there is more sales activity at the upper end of the market in his area, which has helped boost the median price. But sales in general are down, he said. ‘We’re having people lower their asking prices because there are a lot of properties on the market, and buyers compare them, so multiple offers aren’t coming in at list price or over list price.’”
“While overall prices have continued to climb, one out of four of the 65 ZIP codes with at least 20 sales during the last quarter saw year-over-year declines. Experiencing the largest year-over-year drop was Chula Vista Northeast (91914 ZIP), with a median-price decline of nearly 32 percent.”
“In the new-home market, sales slowed dramatically, dropping 38 percent during the just-completed quarter. Contributing to the large decline was a big slowdown in condominium conversions, with sales numbering 801 during the first quarter, compared with 1,306 a year earlier. ‘It’s just slowed down. There’s no getting around it,’ said Alan Nevin, chief economist for the California Building Industry Association.”
I say: “San Diego condos for everyone!”
And you can find them here:
http://www.NewCondosOnline.com
Or here.
You think the market in San Diego is bad now? just wait about 2-3 weeks when the all-time inventory record will be surpassed!! According to homepricebubble.com San Diego listings are less than 250 away from the all-time high. Hopefully the papers will plaster the news all over when the record is broken(but its unlikely since that would be another whammy for the realtors). We shall see in a week or two!!
The people that are really going to get gutted are those that buy at 10-15% off the peak. They will back up the truck, and will get decapitated when the market sheds 80%. They will think they are buying the bottom.
condos, used BMWs and plasma TVs for all!
Interviewer: “What do you make of all the condo bubble talk?”
Brent Gleesen (NewCondosOnline.com founder and president):
“Frankly, I think there’s a lot of negative buzz out there that might not be accurate. Especially with San Diego, I don’t really think we’re overbuilt yet. The bottom line is there’s still too much demand. People keep moving here and people want to stay in San Diego. I think honestly in reference to the bubble bursting, I think the bubble has burst, and this is as bad as it’s going to get. Markets all over the country, some are going down, some are picking up.”
http://www.signonsandiego.com/uniontrib/20060414/news_1b14person.html
“People keep moving here and people want to stay in San Diego.”
Urm, actually if one looks at the facts they’ll see that San Diego County has experienced a decrease in population last year, the first time in THREE DECADES…. [story]
Facts and high sales revenues don’t mix well in the San Diego new condo market.
I think honestly in reference to the bubble bursting, I think the bubble has burst, and this is as bad as it’s going to get.
I like how bulls are now using the busting bubble metaphore to promote their agendas. If this is as bad as it is going to get, then it was no bust.
Here’s a good example of what’s happening in the Del Mar (San Diego) market. On Del Mar Heights (where the notorious ex-Congressman Duke Cunningham had his home), a 1 bedroom/1 bath condo is being offered at $369K (April 13, 2006). Last, July 2005, an identical condo sold for $410K. That makes exactly a discount of 10% from last year’s high.
Oh, and the selling point from the realtor’s is that it is “…cute as a button..”
Don’t forget the Option Arm!
“San Diego has had the biggest price increase of a major metro area in the last five years,” he continued. “You have the cash-out sellers now. You have investors trying to sell, and you have an affordability crisis for first-time buyers. We will probably have a soft landing, but if interest rates go much higher it will be a more difficult situation.”
Like UCLA’s Thornberg, Rosen was one of the earliest to point out that housing was overvalued (probably already back in 2000), and having been repeatedly humbled by ever-rising prices, it seems as though he is exercising considerable precaution in predicting the severity of the housing downturn. And like Ben Bernanke, he has a PhD from MIT econ; perhaps he knows something about Bernanke’s thinking which most of us do not?
I’m thinking very simply, but perhaps some of the answer is right in front of us:
“We will probably have a soft landing, but if interest rates go much higher it will be a more difficult situation.”
Rosen thinks if BB holds rates at or near present levels, then a “soft landing” with considerable inflation is likely (to quote another: “inflating their way out of it…”). Perhaps he also thinks there’s a chance of BB bringing rates down again (the “Helicopter” aspect) to cushion the blow.
If BB instead decides to be an inflation fighter of the Voelker variety, higher rates would obviously crush the housing market. Rosen may just not see this as a real possibility at present.
Of course, this makes an assumption that the bond market behaves as BB desires/expects.
Could someone explain how I’m wrong with the following statement:
To inflate our way (2-3% a year let’s say) out of the current high prices will take so many years to be rediculous, right? Unless inflation goes way up, in which case wouldn’t interest rates have to go up to support US debt? Thusly accelerating the downward housing price trend.
So inflating our way out is a bogus statement. If the is no significant inflation, then a drop in interest rates could soften a landing… assuming the credit environment holds up, which, is doubtful in a stagnating/dropping home price situation (high debt).
Sound right? (thanks in advance)
“So inflating our way out is a bogus statement.”
In some cases the foreign exchange markets take care of that which the central bank leaves undone…
How can you inflate your way out? There are 2 ways for housing prices to level off: home prices drop, or incomes catch up. Wages have been stagnant for at least a decade. But rising wages, a byproduct of inflation, could be a fundamental support to high home prices. However, the Fed is an inflation fighter, so I doubt they’ll let wages inflate. They’ll keep raising rates until inflation is tame.
Also remember the Fed doesn’t care if a few million homeowners are unemployed and lose their homes. Their task is managing the economy as a whole.
Thats right! They didnt care when it went up like it did, why are they going to care if they go down. If anything, as an individual, you should be responsible for your own debt management, the fed isnt going to save you as an individual, he may rescue the whole banking system if its in jeopardy, but if all these exotic loans puts banks into jeopardy as a whole, this may be the last time that you see easy credit with these loan with new laws & regulations being put in place permanetly
The situation is actually more precarious than you suggest, as there is a risk that either continuing to tighten now (a la Volcker) or stopping at 5% (or wherever) could lead to much higher mortgage rates and a housing crash. The risk in the latter case is that Ben Bernanke is perceived as too soft on inflation, and the bond market could react by pushing long term rates up even faster than they have gone up over the last six weeks (10 bps / week rate).
Of course, it is a foregone conclusion that housing will be a casualty if the measured pace of fed funds hikes continues much longer, but at least the dollar might live to see another day…
I see a perfect storm brewing for housing right now. Reduced demand for US Treasuries by Asian investors which is evident in rising bond yields, rising prices in commodities and precious metals which can find their way into the CPI numbers which will force the FED to tighten more than anticipated. I understand the argument for inflating our way out of debt in theory but the ramifications of that would be catastrophic and IMO the Fed knows that. Alan Greenspan came out this week and point blank said Asset prices will fall, the current situation we are in is abnormal due to the global glut of liquidity. His statement is more than likely a carefully thought out and planned leak of info giving warning that they intend to fight inflation in order to preserve the dollar. The wild card for the past several years has been the behaviour of the bond market. It appears bonds remained strong as a result of the carry trade and are now correcting. A rapid rise in bond yields is a nail on the coffin for housing. San Diego is the canary in the coal mine for bubble markets and the canary just flatlined.
“Alan Greenspan came out this week and point blank said Asset prices will fall, the current situation we are in is abnormal due to the global glut of liquidity. His statement is more than likely a carefully thought out and planned leak of info giving warning that they intend to fight inflation in order to preserve the dollar.”
AG is retired; are you suggesting that he is performing some kind of contract work for his former employer?
P.S. The canary is dying in San Diego.
Either way, I agree that housing is dead.
Its more important to save the $, if $ is the reserve currency, you can inflate away your problems later. If $ dumping deepens (Japanese sold $2.4B/day over the last couple of days - their holding went down from $690->$660B. That is why I think bond rates are spiking already), you get higher 10yr anyway, makes much harder to pay debt down the line.
BB is becoming less relevant. Japanese/Chinese/HedgeFunds will dictate the cost of money. Here is what I think is likely -
BB will go up to 5% to 5.5% and pause. Japanese/Euro will start later in ‘06. By nov’06 japanese 10yr will 2% - 3%. Euro will be 3-4%. Since US$ stopped in June/July, increase japanese/euro yields will cause $ selloff & $ 10yr will be more than 6% to compensate. Given higher defaults rates by Nov. due to subprime reset (2/28 of ‘04 spring sale/summer close will reset this spring/summer, which means higher defaults rates surely by Nov this year), means MBS mkt will demand 2% spread at least => 30yr fixed will be 8%.
So, I think that the fun starts after this spring is over may/june timeframe, by Nov/Dec we would all be very gloomy. Your cash in bank will cover more than your rents by then.
That’s what I am doing. Cash in 3mo treasury & renting. I will not buy before 2008 summer, since I suspect nominal prices would have fallen far enough by then. I would not care about additional 5-10% short term loss on my long term home.
GetStucco, you would like this one
http://usmarketblog.com/article/9037
You were talking about stock conundrum with rising bonds. This stuff is what crashes are made of…
Yup — beginning to look like deja vu all over again for the stock market…
I agree that the bond market’s upward moves over the past couple of months are most likely the result of selling pressure. There was a sale this week of 10yr notes that apparently had weak demand.
Bond sellers however, that bought in 03 & 04 will get creamed as the rates go up which might keep the selloff in check, I imagine.
There was an old lady who lived in a shoe(box house) and she did not know what to do. The kindhearted old lady sold her shoebox house quickly at 18% (with 4 bids in one day) off the other not kind ladies in shoes who wanted the kind old lady to die before closing. Long Beach, CA
“No longer steaming, the San Diego region’s housing market continued a slow cooling trend in March.
Trust me, it’s steaming all right.
That’s your best one yet, Rainman!
A big old Cleveland Steamer for the speculators.
OT, the Pets.com of the flipping world, Condoflip.com, is “on hold.”
We’ve decided to postpone the introduction of our new search engine until June 1, 2006. We’re doing this for a few reasons:
1.The Miami real estate market is currently sitting in an unusual “holding pattern”, and we found that while there are a growing number of units for sale, the buyers seem to be waiting to see what will happen
2. As things are with technology, it’s never a good idea to launch a high-transaction tool unless it is absolutely perfect. And, we’re fussy about quality. So, we’ve introduced some new features to our developers, and they need the extra time to make things just right
3. We’re in no rush to get the flipping of units going. We have predicted all along that 2007 will be the year of the Condo Flip, so we’re going to use this first half of 2006 to get our rhythm going.
http://www.condoflip.com/find_a_condo_flip_search_city_d1.asp
Nice to see these arrogant “Bubbles Are For Bathtubs” fools go down in flames.
yeah, I wonder how long that’s going to be on the website.
Wow- Another client giving back the home and the decision was as if they were renting. BECAUSE THEY WERE!!!!!!!!!!!!! They bought with Zero, Nada, 0 down 2 years ago and are now upside down. Condo Mtg. pymnts $3,500/mo and they can rent a LARGER house (with a nice yard) for $1750. No brainer for anyone. As Toscano says: “No skin in the Game” means throw the keys on the bank counter and thank them for the rental.
$1750 / month ( $3500 - $1750 = $1750 … ) for a year is quite a bit of “skin”.
They may not have any equity left… but they’ve been skinned!
ALA, 1981 & 1991….
That’s exactly why I think Californians will more or less shrug their shoulders at price declines (no real $$$ invested), whereas in places where people fled to after cashing out here and monetizeing their bubble gains, those folks are going to freak when housing prices decline, because they’ve put real equity into their homes that they won’t be able to get it back out so easily.
bad bear - no cookie
californians will be in a world of hurt. you get jaded living down there in the southbay.
think fresno, merced, visalia, sacto, dtsd, bakersfield…….
Absolutely right. The RE speculation that flooded into the cheaper parts of California and jacked prices up wildly went there first before heading elsewhere much later.
The freaking out will commence soon enough, statewide.
BK,
Thank you, as always, for your insight. This is why people with REAL money should not even consider buying now or in the near future. We have to let the Monopoly money run dry and shake these suicide borrowers out of the market (wait ’til the bulk of the resets have happened and then give it even more time (six to twelve months) for the market to squeeze all the housing-heads from the market.
Patience will be greatly rewarded, IMHO.
Now starting to see the sad situation (Although many of you will disagree) where people mortgaged the primary residence (owned many years with much equity) to purchase investment properties. In the past they held and took a loss but then flipped after a period of time and recouped at a profit. That option’s now over and now their losing the properties. All of them. . .
From the article:
“In June 2004, when the market was at its peak, the number of homes listed for sale was 6,657, according to the San Diego Association of Realtors.”
Isn’t that maybe double the level in Spring 2004? Does anyone have the actual data? It seems like the market was already in slow crash mode by Summer 2004 — sort of like the HIV outbreak back in the early 1980s before everyone realized there was a major global epidemic underway.
Yes, GS. The inventory was at its lowest level around March/April of 2004 (when we sold our house). By the time our escrow was closing (June), the market had changed **thatfast** and it never really came back. I think I’ve heard an inventory level in the three or four-thousands.
BTW, they were measuring inventory levels by “days of inventory” as opposed to today’s six-month’s worth.
Tom Belway and his wife hope to purchase an investment property not far from their home in Poway.
More willing students in the art of “catching falling knives”.
Exactly. These two idiots take stupidity to another level. Prices are going down, inventory is at record highs, rates are going up, and real estate is quickly becoming a four-letter word (facts that these “investors” already know). Yet, here they are, ready to buy after a few homes have dropped in price a few percentage points. I hope they buy two or three and see any remaining savings, cash or self-respect quickly disappear into the mist.
Folks like these will make this crash stretch out over several years. I guess it’s really hard to crush out the dream of making lots of money for doing absolutely nothing. The real American dream.
Wouldn’t it just be a wonderful (dream) world if we all could buy investment properties not far from our home?
My friend was asking me when we were going to buy. “Prices are down.” she said. (They are down like 5 or 10%). I told her “When the median dropes to under 200K I will start to think about it, until then, no way.” She asked me if I really believed it would get that low again, I don’t see why not, it was something liike 162K in 2000. (why I will only start to think about it at 200K)
The above prices are for my area, not SD.
Karen,
where are you? Would expect at least -20% to -30% nominal in the bubble areas. Will take some time, don’t see -20% by the end of 2006.
Karen, I would suggest looking at comparison to rental costs instead.
3% inflation puts $162K in 2000 at $193K in 2006 and $199K in 2007.
If you set your sights on $200K you may be waiting a long time. Granted things may overcorrect on the downside as well, but if you are looking for a home and not speculating, a LITTLE downside is ok.
Obviously no one should pay today’s prices, and late 2008 is the earliest I would think about getting in.
3% inflation is fine BUT wages are flat, and IMHO will be flat for some time. As long as someone in China or India is willing to do a job for $2…Energy prices are through the roof. This is making other things like grocerys more expensive and more and more Americans are getting stretched too thin.
Right now we rent a 4bd 3bath 1800sf house for $1,100 per month. If we were to pay $185K for a house with 37K down, at 8% our payment would be $1,085 (p&I only).
I would love to see their stock portfolio. I’m sure they stole CMGI at $75 (after topping $160) and sold it at $1.00
It’s when you stop hearing about people like this that signals the right time to think about buying. This attitude shows how ingrained the RE mania is (look at all of us addicted to a RE bubble blog). This bursting of this bubble will not be pretty for anyone. By the time it is over, RE will have a very negative stigma and folks will be very afraid of losing money on any RE “investments.” We have to let this thing fall to the ground first. It will be a long, long time.
And I agree with rudekarl that this is going to take years, not months.
FWIW people are still buying rental properties here in Australia at gross cap rates of 5.2% or less. It’s been 2 full years since we peaked; prices came down about 10% but in Canberra are starting to edge up again, and our 10-year bond pays 5.625%.
Yes, agree with years. Possibly many, many years, depending on geopolitical events, inflation/deflation, globalization, baby boomers without enough $$$ for retirement, etc.
I sure hope we don’t have an uptick like you and the U.K. Let’s get this thing going already.
Thanks for all your input from abroad!
I think I actually got this link of this blog before but this is a nice little SD condo open house pictorial and narrative, quite hillarious:
http://www.capitalstool.com/forums/index.php?showtopic=7644
Does anyone have an opinion on the direction of BUILDING COSTS? I have been holding off on building a home and am hoping that the imminent slowdown in construction will have an impact on costs. I can see bidding wars between subcontractors (although perhaps not radical price reductions) but how about supplies? Any input would be appreciated along with timeframe guesses.
Raw land has gone way up in price (you didn’t say if you own land all ready or not). It makes sense that the cost of supplies would go down when demand goes down. Same for subcontrators. IMHO some of the subcontractors will be in a world of hurt soon.
Auger;…In the near term (Labor) probibly depends on where you are building…As for materials, with over seas demand, Katrina and the like, I would not expect much relief…
Bummer!
Auger. I’m an East Coast builder. For several reasons I think high material costs are with us for a while. In fact I think high material costs may serve as a real estate crash softner as houses may remain cheaper than replacement construction costs. Labor is another thing. Around here everybody with a hammer and a thumb is a “custom builder”. You have the lowest guy on a crew driving a brand new $30,000 dollar truck, and no one remembers when you had to out bid another contractor to get a job. And this time around as things start to slow here these guys are going to have to compete on price with the workers from Mexico who operate on a whole other price level. Be patient and you will get a deal on your labor.
Waaahoo, what is your estimate on east coast construction cost for standard-grade SFH quality? I asked this earlier and found estimates from $60-$80psf in FL to someone suggesting $200psf in DC. My sense is that decent new construction (minus land cost) is in the $100psf range in the mid-atlantic states for 2 storey homes with basements in the 2000 -2500 sf range. Any broad brushstrokes you could share? To me, the replacement cost of a house has more to do with value than does what it could rent out for…
I’m on a summer resort /beach area near Philly so homes are a little on the upscale side but $150 - $200 was the going rate this past summer. Somebody acting as their own GC and watching the pennys should be able to get it down closer to $100. Materials are just incredibly expensive and I don’t see that going down with oil in the 60’s.
Doc,
Don’t know what Waaahoo will come back at ya with… but count yourself lucky with what you have written above-
In Santa Barbara, contractors are quoting $250 sq ft for basic, entry level construction and $300-500 sq ft. for no frills custom work. $1000 sq ft on up for the really good stuff- and all of these sq ft costs are NOT including the land, of course.
thanks for the input!
Time to raise cash before the deep recession hits. It is already late for some markets but not too late store up cash for tough times. Time to be on the light side in stocks and especially RE.
Yes. Just be careful what the govt will be doing with that cash. Be hyper-vigilant signs of currency debasing/hyper inflation. I think it’s starting already. I think the Fed will tighten up on interest rates, and inject money some other way.
Since CA’s Real Estate market has begun to crash, anybody have any guesstimate on how fast, how deep, and how long it’ll go?
The Governator is going to try and save the state so that we can “invest in “Koliforea”. It is the greatest place in the world. Just ignore the crackheads, homeless, dirty streets, high taxes, highcrime, decaying infrastructure (oh yeah, $30B in bonds to rebuild”, etc