Wednesday, October 22nd, 2008 at 9:11 AM
How About You?
Here’s more evidence for your consideration on Carlsbad, Encinitas, and Carmel Valley.
How are the pendings? Let check those that went pending in September, and compare to previous years. It’s not a perfect data point, because those prior to 2008 have all closed escrow, while this year’s are in process.
But the 2008s are beyond their 17-day inspection period, so the buyers should have committed to the deal by releasing contingencies by now, plus there are so many short sales listed as active listings that really are pending that aren’t in this count – that I think we can call it a reasonable comparision.
In spite of the bubble, the impending ARM-resets, the Wall Street meltdown, new president, etc., this year is looking better than 2006/2007 (and a lot like the 1997-2001 era), when it comes to September pendings in Carlsbad, Encinitas, and Carmel Valley:
Ocrenter is advocating 2001 pricing for buyers, but clearly most of today’s buyers in the coastal region are satisfied paying higher than that.
At what point will you jump in?
More then just checking the internet for homes, what will it take for you to be out looking at homes, contacting a realtor to see the inside of homes, and making offers?
More statistical evidence? Government intervention? A specific year?
I’m just curious, at what point will YOU take the next step in buying/selling?
Posted on Wednesday, October 22nd, 2008 at 9:11 AM in Uncategorized | 85 Comments » | 
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When I can get a house in Carlsbad for around $350,000, with a yard.
Carlsbad Seaside Renter | October 22nd, 2008 at 9:22 amWhen I can put down enough money on a place that I really want to live in and have the outstanding mortgage balance < 3 X my base salary.
Just to give you an idea of how far away that is; at today’s prices, it will take about $800k in order to buy a home that I would really like to live in. That means I’d have to put down $500k, leaving an outstanding mortgage balance of $300k which is 3 x my base salary (commissions and bonus excluded).
I’m a very long ways off …
LagunaPaul | October 22nd, 2008 at 9:31 amPersonally waiting to see how the economy progresses a bit. Keeping a close eye on unemployment, future bailouts, etc.
We are entering the period of massive layoffs, and what is likely to be a horrific Holiday for retailers.
I see a lot of risk in the next 4-6 months, and think the most logical approach is to sit back and watch the show.
Prices are not going to start increasing anytime soon, so the only downside to waiting is the risk of higher rates or inflation. The former just pushes down prices, and the latter will most likely take a few years to kick in.
If the wife and I are both still employed in 6 months, the economy is not DOA, the DP has grown even larger and prices have fallen a bit farther then we’ll start looking for a potential purchase towards the end of next year.
We want a home to live in, and have already been waiting for many years. As long as we can cut the downside risk, can throw a huge down payment, and can afford the mortgage on a single income – we are likely to enter the fray if we can find what we are looking for, at the price we want. (And I suspect that last part is going to be the challenge).
Enjoy the blog, will probably give you a ring/email when we are ready although not sure if you work the areas we are interested.
sdnerd | October 22nd, 2008 at 9:39 amOther than whether I get a promotion and/or big pay raise at work, which would mean I could be moving up in price range, the things I’m stuck on are being able to get something at about $200 per square foot in the Encinitas, La Costa or Aviara areas and also whether I would end up with a mortgage payment the same as, or less than, what I would be willing to pay to rent that particular home. I certainly don’t expect 2001 prices in these areas, but am looking at 2002-2003 prices.
Also, I figure there is a limited supply of people who are paying cash, 40% down, or whatever it takes to get a particular house on which they have the heart set, so for the lower end homes for these areas, there is only a limited supply of people willing to pay the asking prices. Plus, people with that kind of money are buying the more expensive ones anyway.
Hoping to Buy | October 22nd, 2008 at 9:50 amI’ll buy when/if monthly rent+ 10% = mortgage payment with 20% DP. The $200/sqft number seems fair. This is assuming that I still have a job.
Anonymous | October 22nd, 2008 at 10:04 amWe have been looking actively since the past year and a half! But we havent come across anything that we really want to live in, within our price range, in our area of choice. If we can get a house newer than 2000, around 2000sq ft, with a decent yard in Carmel valley for $500k, we’ll buy! If not, we’ll wait till we get one and keep looking. Also, watching for $200/sq ft in parts of Carlsbad, Del Sur and 4S for houses with same criteria as stated above.
carmelgirl | October 22nd, 2008 at 10:26 amI’m going to continue to keep an eye on coastal properties on a good piece of land in need of updating. If there is something worth jumping on with a lot of upside after a remodel AND mortgages on jumbos become favorable again, I would not be hesitant to move. But it has to be close to the beach. That’s my insurance. Driving around San Elijo Hills — some of those streets look like ghost towns with the # of foreclosures on them (check out Orion Street alone — so sad, and what a total waste of good landscaping!); but the coastal areas of Solana Beach — those are looking good. And going up, up…
BAM | October 22nd, 2008 at 10:28 amWe’re getting close enough, that I continue checking listings. However, when even realtor association is talking about 6% down for the next year (and they are notoriously/understandable optimistic), I can afford to be patient. The longer I wait, the more cash buffer I have beyond the 20% down, and the more chance for at least a bit more decline in the pricier areas I like. Watching the economy go to hell in a handcart, and the continuing high level of foreclosures … a lot of reasons to watch and wait. No reason to get jumpy, and every reason to be cautious. In bad times … as the saying goes, cash is king, I’m not in a big hurry to throw all mine at a declining asset.
Mike | October 22nd, 2008 at 10:28 amWAIT IF YOU ARE BUYING AS AN INVESTMENT OR WITH CASH!!!!!
Come on, this is no credit crunch! How in the world can this be considered a credit crunch when home loan rates are so historically low!
When I bought in a “normal” market in 1995 home loan rates were about 8% on a $178,000 when my family was pulling in $80,000 a year (less than 3X income) from a govt job and there was no such thing as 3% down, and we were rejected until I could prove the wedding planned in a month was going to happen for sure.
Now in a “credit crunch” you can get a 3% FHA on a $200,000 making just over $50,000 a year on a house that EVERYONE KNOWS is a depreciating asset.
We are a long way from a normal home loan market.
When the real credit crunch happens (assuming it ever will since Fannie and Freddie have been ordered to lose money on every loan) home loan rates will move up to 9% or higher. That is another significant leg down from here in pricing.
When so many people have to borrow to buy an asset, and when the price of borrowing is at its peak, THEN buy with cash.
You will be buying an appreciating asset since as rates drop future buyers will be able to afford to buy it from you for more than you paid.
As they say, you either rent the money or rent the house. When money rent is cheap, house prices is high. When money rent is high, house price is cheap. Money rent can ONLY GO UP from here. When money rent is high, buy the cheap house.
Average Joe | October 22nd, 2008 at 10:31 amPersonally I am waiting to see:
a) what the economy does — if it really will be a deep recession and the unemployment numbers in SD touch 10% and my job itself will be at stake, then I don’t want a mortgage. The tech sector (where I work), has been relatively unaffected, but Qualcomm is pretty much on a hiring freeze, Nextwave declared bankruptcy, Broadcom is on a hiring freeze, HP announced layoffs and if folks aren’t buying up the Wiis and the Playstations and the cell phone and Ipods, I can see job losses coming mid-2009.
b) Secondly, IMHO, at the moment the downside risks outweigh the upside benefits. Ask yourself this, in the area you want to buy, is the probability that prices will decline/stay flat higher than the probability that prices will increase? My guess is that the former right now is greater than the latter.
c) The monthly rental vs the monthly mortgage for 20% down should be a bit more favorable..(someone else mentioned this)
Byomkesh | October 22nd, 2008 at 10:56 amI’m with SDNerd. I don’t fear prices increasing at this point. I want to ride out this current economic crisis and see what happens. Did anybody hear they just tacked on another $492 Billion to the bailout!!!
loharp | October 22nd, 2008 at 11:23 amI am going to buy again in San Diego when I am a “Haves” and not a “Haves Not”. I have a computer science degree from a reputable university and I make less now than I did 10 years ago. I’ve started up my own company and am working to once again be on the “Haves” side and can put down in the 50-100% range. Meanwhile, I watch the home prices in the desireable areas NOT go down. I’ve more or less decided that 1) I know I want to live in coastal North County. 2) The prices may not go down that much. In fact, they may not go down at all. 3) I have to compensate by changing my approach to making money so I can buy again. Meanwhile, I am stuck in the midwest.
Stuck In the Midwest | October 22nd, 2008 at 11:52 amToo many of you are spending way too much time figuring out where the market price will go instead of what makes sense for yourself. The real estate bubble exists precisely because people’s attention was on where the price would go.
temecula_guy | October 22nd, 2008 at 12:01 pmI have a pretty simple criteria. Since I do need a bigger living area next year, I do the following cash flow calculation: assume that I rent the house to myself and charge a reasonable rent (preferrable a good deal for my renter self), can I (the house owner) become cash flow positive if I do so? That is rental income should be greater than mortgage, insurance, property tax, hoa, maintenance all combined. I don’t consider any tax benefit as that is my reward for taking the risk. If the maths works out, I will buy. I don’t care about its future price trend.
That all said, I am looking into Temecula area, so its price depreciation is way ahead of NC San Diego.
I’ll jump in when the government decides it isn’t their place to fuck first time buyers and renters, and instead lets the Ponzi scheme die. Damn, it looks like I may never be buying a house. I’m not bitter.
If I found a decent house in La Jolla for $300/sqft I would buy… so I guess 2001 prices.
Genius | October 22nd, 2008 at 12:28 pmthere’s nothing price can’t fix
shadash | October 22nd, 2008 at 12:53 pmWe have the cash, but, hey, what’s the rush? It still costs half to rent what it would take to buy in this very nice neighborhood we live in. That would be with a 20% down payment at current interest rates.
Once the rent vs. buy ratio gets relatively close we’ll take a more serious look. Until then, we are hanging on to our money.
KC | October 22nd, 2008 at 1:02 pmI am with Temecula guy. Although his cash-flow formula would require at minimum 60% down practically anywhere in SoCal (and not typically a good ROI), I think that I will buy when cash-flow for renting works out (including tax savings) with a 20% down. Probably another 10-20% decrease in prices (or 15-25% increase in rents).
encinitan | October 22nd, 2008 at 1:04 pmWhen I can look at my zip code on Yahoo Real Estate and not see 1000 foreclosures in progress.
Jenny in San Marcos | October 22nd, 2008 at 1:09 pmIf you think this is a bottom, think again. Look at the Case-Shiller HPI estimating a decline in Sept of 3%: http://piggington.com/. Declines show no sign of abating. How many times has a bottom been called over the past year only to go lower? Those that believed and bought are now underwater. I really don’t want to be another Lemming heading off a cliff. http://www.snopes.com/disney/films/lemmings.asp. Plenty of time to buy later when things stabilize.
realityrancho | October 22nd, 2008 at 1:11 pmJim,
Here are a few recent closings in the 92011 zip code – an area I would consider prime for the most part. Check out the closing price compared to the previous sales price. I’m guessing the info is accurate?
I usually look at the 1998 sales price if available. From personal experience, it doesn’t seem unusual for prices to double in a 10-12 year period in certain neighborhoods.
Maybe there is some hope here?
http://www.sdlookup.com/Property-BB4B2965-7085_Surfbird_Cir_Carlsbad_CA_92011
KC | October 22nd, 2008 at 1:28 pmhttp://www.sdlookup.com/Property-0CB75523-6995_Zebrina_Pl_Carlsbad_CA_92011
http://www.sdlookup.com/Property-3BFE1E18-7353_Gabbiano_Ln_Carlsbad_CA_92011
Government — there is something price cannot fix.
Seriously, one of the things that makes this whole process so difficult now is that there are huge distortionary effects of government intervention in the housing market.
1.) Tax benefits inflate the real value of a home.
2.) Artificially cheap debt inflated the bubble. These are not sustainable, but where they will go depends on what the Fed — not the market — does.
3.) The GSEs where “private” entities, but in retrospect it is clear that they were juicing prices as well with loans that eventually sunk the companies.
4.) Alphabet soup of lending facilities are also juicing prices.
Right now the debate is over what the FHA will use as the lending limit. If the Mortgage Bankers and Builders get their way, then higher priced home prices will not decline in response to market conditions as much, and US tax payers will be guaranteeing the price of homes in rich neighborhoods.
This has almost nothing to do with market fundamentals and everything to do with who controls Congress. If Congress determines the price of something, what do we call this (hint: It is not capitalism)?
The major victim of this crisis will be any pretense to having a market based economy in housing, financials, etc. Isn’t it great when central bankers and their money center oligopolistic clients cause a problem and then convince the politicos to give them even more control? Sounds like a real solution. I bet we will never have this problem again… only a bigger one.
Rational expectations | October 22nd, 2008 at 1:45 pmMy husband and I will be first time home buyers. Ideally we would like to purchase once homes currently listed in the $600k-$699k range fall to the $475k-$550 range. This will require another 20% drop on top of the 25% drop already seen in these neighborhoods. We have 10% for a downpayment now, but are hoping to save another 5% between now and then. We have been looking at a potential real estate purchase for the past five years, but have never felt comfortable with the properties that have been in our range…until now. There are already homes that I would consider acceptable in our $475-$550 range. However, I sincerely believe that if we wait a year or two more, that we will be in a position to purchase the home that we raise our family in vs. just a starter home.
Lisa in OC | October 22nd, 2008 at 1:50 pmI’ll buy in North County Coastalif the house is right size, reasonably around $400′s, Ok if fixer & likely sometime mid to late next year. What might short circuit that? The economy having horrid downturn, rates skyrocket or my downpayment needed goes up.
Donya | October 22nd, 2008 at 1:50 pmWhen a nice 3/2 home on a nonbusy street with a yard pops up for <= 2 X my household income after a 20% downpayment.
That may seem ultra conservative, but right now my husband and I are DINKs with good incomes. But someday we’ll have kids. I’d like to keep the option open of not needing to go back to work after becoming a mom.
garbler | October 22nd, 2008 at 1:52 pmI was ready to buy right now, but people keep outbidding me, and I’m not willing to pay crazy prices. With current interest rates, 2002 prices seem about right to me, but there are still too many people running around willing to spend way more.
I can say this much: the more bad economic news headlines I read, the more I think I’d be smart to wait another year.
Simone | October 22nd, 2008 at 1:53 pmJust waiting for alimony finish out. Can you help me with that?
mab | October 22nd, 2008 at 1:55 pmThe cash flow positive scenario is not that far away in Temecula. Suppose you buy a house at $250K with 20% down. Mortgage is about $1200 with 30 yrs fixed. Property tax is about $400-600 per month. HOA assumes $100/month. Insurance is less than $100/month. And if you buy one of the newer houses, $100-200/month maintenance might be enough. So that’s $1900-$2200, roughly what you can get with a 4+ bedrooms with 2500+ sqft.
The price is not there yet (I think such house still commands $280K+), but it is getting very close now.
I don’t want to include tax savings partly because that’s the return on my downpayment.
That said, the formula does not work for investors. They will need to fact in vacancy rate, management fees, etc. So they need still lower price to justify it.
temecula_guy | October 22nd, 2008 at 1:58 pmI just finally sold my place so I don’t think I will be buying anytime soon, if at all. After weighing the pros and cons, just seems to make more financial sense to rent vs own. Patrick.net has a nice post regarding this very dilemma.
Mojo | October 22nd, 2008 at 2:05 pmI’ve seen some decent and only moderately overpriced houses lately, but it’s going to take about another 10% drop for me to afford something better than renting. When that happens, my payments will increase by 64% for a place I consider about 50% better. Right now it’s about 75% more, and that’s too high a premium especially with equity evaporating like it is.
The other thing is every person’s financials are unique. In my case I’m setting aside a lot of money for a down payment every year, so even if houses were flat over the next 5 years I’m much better off renting and building up a war chest.
BDiego | October 22nd, 2008 at 2:06 pmRenters keep renting! I have owned 4 homes in North SD county, 3 coastal and one in Vista. All have been good for me and my family, but to jump in the game now is tough. Those of us that have been in for 20 years have seen times that were not great, but not as bad as these. The 10 year run up 96 to 06 was too good to be true. But if you didn’t go “too huge” in move ups and too crazy in loan debt you are OK. We stopped the game in 2003 and holding tight, until Jim shows me the light at the end of the tunnel!
doughboy | October 22nd, 2008 at 2:41 pmAnyone who is sick of renting and ready, Jim can show you this one…
http://www.sdlookup.com/MLS-081028477-1583_Maritime_Dr_Carlsbad_Ca_92011
ed. note: This listing has dropped from $849,000 in May to $749,000 now, and literally dropping $20,000 per month wasn’t enough…..
doughboy | October 22nd, 2008 at 2:56 pmJtR,
I sense some frustration and/or anxiety in many of your recent posts. I assume some of that could be due to your dealings with REOs and Short Sales, but is some of it due to the rest of the RE market in general?
I also see, by my personal situation and many of the posters here, that buyers are being a lot pickier.
What happens to baby boomers that are set to retire, but due to their pensions, 401ks, home equity being all but wiped out, are they going to sell their homes for whatever they can get and move to a less expensive city or state?
There are many reasons to be pessimistic about housing prices going forward. I can’t see a single argument for high-end housing prices stabilizing or increasing over the next few years. CA is very different from the rest of the country, which is where all the government’s interventions are geared. (see: http://latimesblogs.latimes.com/laland/2008/10/economist-wall.html )
Here’s another indicator of where things are headed…
The Federal Deposit Insurance Corp. plans soon to sign a major lease of office space in Orange County, probably in Irvine, where as many as 600 people would liquidate the assets of troubled banks and thrifts based in California and other Western states.
The agency needs 200,000 square feet of space and has looked at locations across Southern California, FDIC spokesman David Barr said.
“It’s a temporary office — three to five years is what we’re looking at,” Barr said Tuesday. “We hope to find the space within the next few weeks.”
E-leven | October 22nd, 2008 at 3:07 pmI’m sick of these REO junkers, but more frustrated with having to deal with the bank/seller. These should be selling faster and easier, but CHL gets in their own way.
I love the rest of the market – it is as hard as it’s ever been to find the right house at the right price. But the challenge to find it and beat out the rest of the realtors is what I live for!
Jim the Realtor | October 22nd, 2008 at 3:20 pmWhen I move back to North County in a year or so, I’m calling Jim! Of course, that will also depend on the economic situation. For all of you out there that say “buy” even if the price you pay for your home turns out to be significanlty too much, you will eat those words if that happens to you. If you think renting is throwing money away, how would you feel paying interest on top of interest on top of interest for that “extra” principal you paid for b/c you didn’t wait for things to settle down? Or maybe you have an extra grand or two per month you don’t need. For the next 30 years.
Dr. Detroit | October 22nd, 2008 at 3:34 pmAs Jim knows, we’ve been looking for years, but if something is priced reasonably well, there is no shortage of people willing to throw money at it.
The bubble went on much longer and higher than most of us expected, and the downturn will probably take much longer and go down further than most expect. We are looking for 2001 prices, or better.
There is no reason to jump in right now, as the entire mortgage market is being subsidized by taxpayers. It’s only a matter of time before the govt realizes they cannot artificially prop up the entire U.S. housing market for all eternity. At some point, they will have to use that money to minimize the effects of the **real** economy slowing down.
It’s all about jobs, not houses.
CA renter | October 22nd, 2008 at 4:04 pmEveryone is so negative about buying right now that it must be a good time to buy. By the time you know it is a good time it will be too late and everyone else in this board will be positive too and then a bubble again. Be an individual and use your own brain. I am a bit irritated with the short sale situation out there… this seems to be a big waste of everyone’s time. Besides, I thought if they sold short the seller would have to pay taxes on that difference from their loan. Is that in effect now? Because if these people can’t afford their mortgage how could they ever afford the taxes….
Sean/Aviara | October 22nd, 2008 at 4:19 pmHere you go Sean:
http://www.irs.gov/individuals/article/0,,id=179414,00.html
Go ahead and buy now. Let me know how that works out for you over the next couple of years.
Genius | October 22nd, 2008 at 4:27 pmEveryone I knew was even more negative on buying towards the end of 2007, does that make end of 2007 the best time to buy? Right now those people are finally seeing a chance to buy in the next 1-5 years.
Bottom line, don’t buy if you can’t afford. And at today’s prices, a lot of people still can’t afford compared to renting a nicer place. Buying on “opportunity” when you can’t actually afford a house is called speculation. Stop that.
BDiego | October 22nd, 2008 at 5:46 pmIf sales volume reach Sept’s level over the next 2 months, then I think that signals this winter will be as good a time as any to buy in this downturn. The only thing that will turn things around is volume coming back. Watch it closely and be ready to act if you are, like me, trying to pick the bottom.
Mike C | October 22nd, 2008 at 7:01 pmI’ll buy a house when it’s time to party like it’s 1999.
1999 Prices are coming. No one can stop it.
Prince | October 22nd, 2008 at 7:58 pmI talk about buying anytime my wife is in the room- However I have no intention of buying anytime soon…
Timeye | October 22nd, 2008 at 8:09 pmMy vote for comment of the year – thanks Timeye!
Jim the Realtor | October 22nd, 2008 at 8:27 pmAgreed, Timeye’s comment is the best I’ve seen so far. Timeye you might want to contact Jim to setup a tour of the worst houses in the MLS. Start with the La Costa retirement flop house. I’m sure seeing a few dumps for 500-600K would keep her on the sidelines and off your back a bit longer. A year ago I would have paid Jim $1000 for such a tour and it would have been money well spent. Instead I endured daily arguments and extensive silent treatments.
JE | October 22nd, 2008 at 8:49 pmI talk about buying anytime my wife is in the room- However I have no intention of buying anytime soon…
This is a t-shirt, isn’t it? If not, it needs to be.
Jim the Realtor | October 22nd, 2008 at 9:09 pmI think there will be a stready stream of houses for sale that everyone can plug in at the point they feel comfortable. Whatever the price is that day, then there it is.
Jim the Realtor | October 22nd, 2008 at 9:22 pmIt’s not that complicated folks. I’ve never met anyone who bought at THE bottom. Buy when you find a home you really want in a neighborhood you really like at a price you can afford to pay. Until then, keep searching.
doug s. | October 22nd, 2008 at 9:29 pmI agree it’s a tough market. It took us two years but we never let up on our efforts & eventually we got one we love at a price we’re comfortable with. We could care less if prices go down 30% from here.
If you’re ready to buy but not up for the agony of the process, I suggest you ask Jim the Realtor to help you.
Not even close to the bottom.
I am waiting to buy in Solana or Cardiff, but not until the mortgage payment is close to the rent. We are still in the PITI=3x rent range.
W.C. Varones | October 23rd, 2008 at 5:10 amI NEED A LIR LOAN
jeff horwitz | October 23rd, 2008 at 6:05 amI NEED A LIAR LOAN
jeff horwitz | October 23rd, 2008 at 6:06 amI’ll buy when I don’t fear the possibility of a global depression. ^_^
UnsureBuyer | October 23rd, 2008 at 8:25 amI am constantly looking and searching for a home. I have been for 9 mo. now. Looked at approx. 100+ houses and been in about 80 so far (kicking the tires). I have found out how to look for certain things quickly to learn a lot about the house in a short amount of time given the criteria I have developed for my situation. A tip I could give to anyone who is looking at homes is to not be afraid to talk to people who live in the neighborhood (if it is safe enough with minimal ice cream trucks). They typically are very helpful. I am hoping to find a house soon to raise my family in before interest rates go up and I get priced out of the housing market again. I realize that people on this blog keep saying that when interest rates go up housing prices will come down, but as I have seen in searching for homes, sellers and banks are very stubborn and reluctant to lower their price for any reason. It seems that there is a 6 month lag time between current market conditions and sellers/banks willingness to change with the times. My kids are very young but I want them to be raised in a good house with a yard to play in starting now while I can still afford it (at current conditions) and not have to play musical chairs anymore with all the exterior factors (Interest rates, loan documentation, inflation, economy, government bailout, future presidential direction, all cash buyers constantly beating me out, investors, will I have enough for a down payment, employment, waiting for months for an answer on an offer, taxes etc.) I may have forgotten a few and realize I will have to deal with some of these issues anyway in life, but on top of working so hard at my job and then with most of my free time pounding the street trying to find a home, I guess I have become a bit burnt out. In reading this blog every day I see that I am not alone and I do take some comfort in that. Thanks for the blog Jim and to all of you who contribute, I have learned a lot.
Neil Diamond | October 23rd, 2008 at 8:48 am50 comments. Congrats Jim.
It is trite and arrogant and simplistic and all that but my personal criteria are for a cash flow positive (w/20% down) house that I would feel comfortable living in.
Rob Dawg | October 23rd, 2008 at 8:59 amI’ll buy in Carmel Valley when sellers there pull there heads out of their asses and drop the price for a 3000sf home to $600,000, the price it was in 2001.
Todd | October 23rd, 2008 at 9:15 amThanks Neil for the update, and good luck!
For those thinking of buying, Neil’s timeline above is very typical these days.
It takes months to scour the countryside trying to find the right house, because so many are wrong on price, and it’s usually due to the lousy condition of the house.
Buyers will look at 80-100 homes hoping to find a spectacular one at a good price, but they are extremely hard to find. There are no perfect houses, so, to make the search a little easier, the buyers who resign to spending $10,000 to $20,000 on any house they buy, can save themselves a lot of aggravation.
Part of my job is to help make the deal once we find the right house. It can be irritating to think you might have found a good one, only to lose it because somebody else scooped it.
Jim the Realtor | October 23rd, 2008 at 9:15 amWhen, I as an upper middle class, can afford an upper middle class housing in Carmel Valley. My take home pay is just above $8000 after tax. This translates roughly into $120,000 a year. When the average price of Carmel Valley house nears $360,000, I will be the first guy jumping in.
JS | October 23rd, 2008 at 9:40 amIf you think this is a bottom, think again. Look at the Case-Shiller HPI estimating a decline in Sept of 3%.(see piggington) How many times has a bottom been called over the past year only to go lower? Those that believed and bought are now underwater. I really don’t want to be another Lemming heading off a cliff. Plenty of time to buy later when things stabilize.
realityrancho | October 23rd, 2008 at 9:41 amThe economics of buying Carlsbad does not makes any sense. I am interested in Calavera/Tamarack Area.
the houses we have looked at are in 650 to 700 range. They should be in 450 to 500 range. Renting there makes more sense.
Rent for the above houses I mentioned around 2800
Monthly payments (even with 20% down – the money that could make 4.4% in CD’s – loss of that income) around 4000 (includes HOA, Melrose, repairs etc etc)
There is a saving of 1200 a month by renting. By two years you have 28.8K cash (if you save that 1200 diligently).
Conclusion: House buying in Carlsbad still is a losing investment..Houses have to drop easily 30% to make me to go out and even look. In short Carlsbad median price needs to come down to 350K or 185/sq foot.
NKC | October 23rd, 2008 at 10:08 amWe’re settled into the house we bought last year for the long haul. What would it take to motivate us to buy another house now? A lottery ticket big enough to move us to oceanfront property.
GeneK | October 23rd, 2008 at 10:18 amMore and more government intervention…
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/23/AR2008102301517.html?hpid=topnews
FDIC now trying to insure mortgages??
Personally another wildcard is the government intervention and its extent. Given that we are in completely uncharted waters, I think the previous models of the 10-year San Diego Housing cycle could be seriously impacted. I am not enough of an economist to figure out whether its a good thing or bad thing, but until I am a bit more comfortable with the way the economy/govt intervention is going, don’t think it will be a good idea to buy.
Byomkesh | October 23rd, 2008 at 10:34 amI like it a lot more when you segment by price. How much price variation is there in these markets?
I believe you had said anything over $1MM is not moving. Is this still the case?
LV Renter | October 23rd, 2008 at 10:35 amThe answer for some should be re-worded to: “Never.”
Beautiful example of why some people will always be frustrated on the sidelines.
In the above comments you have one person waiting for the price of a Carmel Valley home to fall to $360,000. And another waiting for it to hit $600,000.
Previous poster said it best, if people are paying cash for what you are waiting to buy for pennies on the dollar then perhaps it’s time to re-assess your expectations.
sdnerd | October 23rd, 2008 at 10:55 amYou heard it here, bubble prices are cheap! If you don’t buy now, you will forever be priced out. Where did we hear that line from?
BDiego | October 23rd, 2008 at 11:03 amBDiego,
Please make a strong case for why a 3,000sq ft home in Carmel Valley, that peaked at 1.2-1.5 million will fall to $360,000.
I believe there is enough data points to make a reasonable argument for $600,000.
sdnerd | October 23rd, 2008 at 11:12 amAgreed.
Some people simply have unreasonable expectations. If you are waiting for detached homes in CV to average $360K, brace yourself for frustration.
Some realtors made absurd claims that you had to buy now or be priced out forever. Some bloggers make absurd claims that prices will fall to wildly unrealistic expectations.
What will it take for me to jump in? I’d like West MM to catch up to East. With a 20% down, the buy/rent calculation for me is where I’d like it.
James | October 23rd, 2008 at 11:54 amI agree with you sdnerd. Houses in Carmel Valley were in the mid-300s at the trough of the last real estate cycle (1994ish). I know because I bought a house in 1994 and looked in that area. Ultimately we bought in Penasquitos because our household income of just over 100k wasn’t enough to comfortably buy in Carmel Valley. Statistically, we were “upper middle class”, but that doesn’t mean much in San Diego. We sold our house in PQ 5 years later in the mid-300s and moved to Del Mar. In 1999, Carmel Valley houses were already in the 600s to 800s. Poster JS seems to think that he/she ought to be able to afford an “average” Carmel Valley home on his/her income, but I think it is an unrealistic expectation.
I am currently looking in La Jolla and have been waiting for about 2 years for prices to come down. We have a 7 figure household income and there is plenty of inventory that is priced out of our reach. Houses in the nicest areas are still coming on the market at 30%+ OVER 2005/2006 prices. Not much is selling, but apparently hope springs eternal.
Justme | October 23rd, 2008 at 11:59 amInteresting!
My option ARM which used to give me four payment options now only gives me three.
No more “interest only” option.
Interesting!
DAve | October 23rd, 2008 at 1:00 pm…forgot to mention that’s a Wachovia option ARM…
DAve | October 23rd, 2008 at 1:01 pmTo put it differently…in order for decent SF houses in CV or Del Mar to go to 360K-ish, the economy needs to be Depression-eraish (i.e. 25% unemployment…Huge GDP contraction etc). Do you really want that? And if indeed that were to be the price, what would be the price of Oceanside/Escondido/ChulaVista? Free?
Let me ask a different question and see if someone can answer it..How much does it take a builder to build a 1500-1700 sq ft Single Family Tract House in today’s market including permits/cost of material/labor/etc etc That is surely the absolute lower bound, right? Probably not a tight lower bound, but still a bound nevertheless…
Byomkesh | October 23rd, 2008 at 1:02 pmByomkesh – Ask places like Murrieta and Riverside about your theory that building costs are a lower bound. Better yet open up redfin and look for yourself. Hint: They aren’t.
But remember:
1. They aren’t making any more land, so you should buy now.
2. It’s impossible to time the bottom, so you should buy now.
3. Houses double in price roughly every ten years, so you should buy now.
4. Housing will only be realistic in price again if we have another depression. You don’t want that to happen so you should buy now.
5. If home prices start to drop you will be outbid by cash buyers. Buy now and that won’t happen.
6. If you like the house and the neighborhood, who cares if the same house will be 30% cheaper in a couple of years, buy now.
Did I miss anything?
Genius | October 23rd, 2008 at 1:48 pmGenius didn’t miss a thing, but Rob Dawg’s answer was best.
Economic substitution is the name of the game.
sunsetbeachguy | October 23rd, 2008 at 1:59 pmGenius,
I didn’t say that if prices start to drop you will be outbid by cash buyers – it was a curious fact that today’s buyers are using larger down payments.
You heckle here regularly, and I’ve always let it go. Can you catch me doing something right someday?
Jim the Realtor | October 23rd, 2008 at 2:16 pmsdnerd,
You used $600K as an example of someone who will always wait for the sidelines and never buy. That’s a pretty strong speculative statement to be making. We aren’t even talking $360K.
I don’t think we’ll necessarily hit $600K. We might, but that’s not the point. The point is you were flat out saying someone waiting for $600K will never buy.
Anonymous | October 23rd, 2008 at 2:37 pmThe part Genius missed was the fact that not a single one of those bullet points been presented in this thread. Not a single person has said they are ready to buy now at today’s prices.
Genius,
Can you present a solid case for why the average SFH in Carmel Valley will go to $360K anytime in the conceivable future?
Can anyone? I highly doubt it. Why stop at $360K? Why not $150K? Where is the rational behind such a claim. 2001 draws a lot of attention because there is a lot of data, and strong cases can be made for such a correction.
What you see is people are angry, and frustrated. And rightfully so, but often it blinds them to reality. They see only what they want to see, and for some that is price declines so drastic that there is no factual or data driven analysis behind them.
Ironically… very much like the absurd statements from Realtors the last few years.
sdnerd | October 23rd, 2008 at 2:44 pmAnon @2:37,
My intention was to illustrate that one person is ready to buy at $600,000 and the other is waiting for $360,000. Look at the difference.
The person waiting for $360,000 is going to be sitting on the sidelines forever frustrated. They simply have an unrealistic expectation.
Look at all the people wetting their lips just thinking about 2001 prices.
In regards to $600,000 as your average priced detached SFH in Carmel Valley. Even that number I personally find to be pretty unrealistic for the AVERAGE. If I had to present a case for such a correction, I suspect I’d have a hard time making a strong argument. Will there be areas in CV that go for $600K? Sure I can see that.
sdnerd | October 23rd, 2008 at 2:54 pm“Excellent post Jim. The posts with pricing trends and pictures are my favorite.
Genius | October 13th, 2008 at 3:51 pm”
“Your videos are now my favorite part of the site, FWIW.
Genius | September 23rd, 2008 at 5:39 pm ”
I’d let ‘heckling’ like that go too, were I in your shoes.
Genius | October 23rd, 2008 at 2:54 pmSorry Genius, my apologies – I was thinking of somebody else.
Love this quote by you:
If I want my intelligence insulted I’ll give my ex-girlfriend a call.
Jim the Realtor | October 23rd, 2008 at 3:05 pmWhen I can get a jumbo mortgage for 5%.
CVman | October 23rd, 2008 at 4:01 pmPersonally, I’ll take the next step when the housing market in my area, and my price range, comes back into equilibrium. I don’t know just when that will happen, and I don’t know exactly what the prices will be when it does, but I don’t think it will be that hard to recognize when it happens.
You will see healthy sales and good active/pending numbers, with year on year price increases on the order of inflation. Right now I don’t see any of that. The active/pendings in the upper part of the market are still quite large. Also, having watched the housing market for some time (I was ready to buy 2 years ago but didn’t because it seemed like we were in a bubble) my impression is that only the dregs are coming onto the market right now. People aren’t selling if they can possibly avoid it, and I think that is why it seems unusually difficult to get a nice house at the moment.
The “knife catching” seems to be based on the theory that housing prices could start shooting up again any time now. I think the only thing that could cause that to happen is significant new government intervention (which as we know is not impossible). But left to itself, I think it supremely unlikely that prices will do anything than drop to their new equilibrium value, putter along for a year, then finally start picking back up at a modest rate. That will be the time to buy, since I don’t have constraints of kids, renting fatigue, an impatient wife, etc.
Dwip | October 23rd, 2008 at 6:34 pmsdnerd,
If we’ve learned anything during this housing bubble, it’s that if someone can’t afford a house even though it’s fair value, they shouldn’t buy! Don’t buy what you can’t afford just because houses are getting more expensive. We’re not even out of this bubble and people are thinking like they were on the run up again.
Like Genius I was just rolling my eyes at the same over-generalizations being made for the last five years, equating waiting to mean you’ll never buy. Yes some people have unrealistic expectations, but the vast majority of people have actual reasons for their criteria. In fact in most cases if their criteria won’t be met, they shouldn’t buy.
In other words, I think the number of people who won’t buy simply because of an irrational will as opposed to actual affordability are grossly overestimated. Some people won’t buy because they shouldn’t, not because they’re being silly.
BDiego | October 23rd, 2008 at 10:47 pmBDiego,
Right.
My statement was merely some people, who have irrational expectations, are going to be eternally frustrated until they re-asses reality. Nothing more.
I don’t suggest anyone purchase a home they can’t afford, regardless of the value.
As I’ve stated repeatedly, I do not see prices increasing for at least 3 years regardless of what the government does. Even if they try to inflate out, it will take time.
There is no short term risk IMHO to waiting, and as I stated that’s exactly what I’m doing as well.
It’s time start re-thinking if we do get wage inflation, or government intervention stems the # of foreclosures/stressed sales. If the latter happens, you lose the deep price declines and go into more of a flat long period where inflation chips away.
The only question is how long individuals want to wait, and how much the law of diminishing returns impacts the price point individuals are waiting for. This is different for everyone.
I think the #1 reason people will not buy homes will not be that they can’t afford them, rather it will be they simply won’t quality with the new lending standards (hopefully). People will always buy what they can’t afford, if you give them the money to do so.
sdnerd | October 23rd, 2008 at 11:28 pmJim:
for the record, as an infrequent reader, I read Genius’ post as more of a clarification of the FUD in some of the posters comments, not yours.
If there were decent jobs in North County SD, I would be calling and buying soon in your neck of the woods.
sunsetbeachguy | October 24th, 2008 at 8:58 amsdnerd,
You’re right that some people will be forever frustrated by unrealistic expectations. I didn’t mean to focus on your comments as an example, but I’m suggesting that many of those people shouldn’t buy at all unless houses become much cheaper. In other words, I think the number of people who shouldn’t buy but can greatly outnumber the people who should buy but never will.
I’ve seen first hand how people reason poorly through my relatives. In fact, I’ve seen less than 0% down purchases. And how’s that technically possible? Two ways – credit card balance, and borrow under the table from friends short term. The latter is actually illegal for this very reason – a “hidden lien” creditor that supercedes the first mortgage holder. They always get paid back, and while it rarely comes to it that can happen during the “free rent” phase of foreclosure.
If this happens in 2000-2003 you can make out ahead, if this happens in 2004-2007 you’re probably underwater. In other words, people are gambling Vegas style but if they lose they don’t have to pay up.
Bottom line, on the consumer side our economy has been nuked by the phrase “If I don’t buy today, I’ll never be able to buy”. Whereas on the bank side, it’s complicated but boils down to “Why *not* lend them money?”
BDiego | October 24th, 2008 at 11:26 amI’m still waiting for the high end to fall. I’m not looking for a high end tract home in CV – but rather a acre lot with an old or new home in Olivenhain, RSF, Del Mar, Solano, even west 920029 (Elfin), etc. Possibly something unique in Pt Loma or Alvarado Estates, Mission Hills, etc.
I have a feeling I’ll be renting for 2 more years. I think patience will indeed pay off BIG and I hope I don’t get too hasty with the first deal that I see. I’m tired of renting (since selling in 2006) but the cost of ownership is staggering right now.
Also, the gauge of price = 15 times annual rent is the key indicator of reasonable price.
Jbirdfunk | October 25th, 2008 at 9:14 pmOh ya – I also think a lot of people have money burning a hole in their pocket after hearing so much NAR spin (no offense Jim – you’re cool). These trigger happy types are definitely responsible for all of the overpriced head scratcher deals in the mid & high end I see still see happen. I think their presence is limited and after this initial pressure is released by them the market will sputter further. How many of these folks there are I don’t know.
But seriously, we’ve all seen these head scratcher deals recently, right? In my own neighborhood I witnessed a house sell for 1 mill in less than 1 month that should have been priced at 650-700. It’s like those are people without TV, newspapers, and internet?
Jbirdfunk | October 25th, 2008 at 9:29 pmCVman – As recently as 5 weeks ago, you could have secured a Jumbo Mortgage at 5 3/8%. I know because I did it, and we are closing in two weeks.
ThrowingStones | October 29th, 2008 at 9:58 pm