The Blur said,
“Jim, let me challenge you, if I may. You’ll have a daughter graduating college in a few years. She’ll get a job and soon look to buy a house. The market will be looking to her and her friends for stability. Will they be able to afford something in North County with 20% down at or above today’s prices?”
I doubt it, at least in areas where she would want to live.
I think she, like many, would rather rent in a preferred area, than buy a home in area that she perceives as less desirable. Homebuyers used to consider compromising on location, because it was only temporary – they could move up in a few years using their appreciation gain.
Not any more.
Without move-up buyers, we’re left with three types of buyers:
1. Owner-occupiers
2. Flippers
3. Long-term investors
All three categories mean big money in North SD County Coastal. Either you have a big down payment, and/or income to qualify for a rather large monthly nut.
Every day we see people comment here that, “it has to come down, JIM!”.
Yet, it’s been a few years now, and the Big Collapse hasn’t happened around here. I’d call it more a return to 2003-2004, which if holds up will still be completely detached from fundamentals, and happening in a full-doc-qualifying only environment – leaving out virtually all potential self-employed buyers.
The battle being waged in North SD County Coastal is between the haves, and the have-nots.
So far, there have been enough “haves” spending what it takes to buy a house in NSDCC that the market has been kept afloat. Here are two charts for detached sales from La Jolla to Carlsbad:
| 2010 | # of sales | $$-per-sf |
| Jan | ||
| Feb | ||
| Mar | ||
| Apr | ||
| May | ||
| Jun | ||
| Jul | ||
| Aug |
How does last month compare with previous Augusts?
| Aug-Yr | # of sales | $$-per-sf | |
| 2002 | |||
| 2003 | |||
| 2004 | |||
| 2005 | |||
| 2006 | |||
| 2007 | |
| | |
| 2008 | |||
| 2009 | |||
| 2010 |
Given the on-going commotion world-wide, these look remarkably stable to me.
The “have-nots” are hoping that the “haves” run out of gas, and only time will tell. In an area whose population is roughly 275,000, I’m pretty sure we’ll find 200-300 buyers per month for the foreseeable future – at some price. The trend will likely be downward, but at a very disappointing pace for most buyers.
Hi Jim,
Thanks for the data. But these do not convince me for what is going to happen. That’s what has already happened. You got the picture by imaging the same line of data/argument was put forward in 2005.
However, as you mentioned before, the boomer downsizeing might be the real thing. Can we have a discussion on the population composition of NCC with focus on boomers? Thanks!
I’ve already come to that conclusion for myself. I graduated college in 2000 and watched this market sky rocket and then fall, but never in that period has it approached what I consider affordable. Since I’m not fortunate enough to be related to the haves, I’m completely comfortable in renting at affordable prices. Maybe someday the haves will have to sell, but for now they don’t. To be honest I’m perfectly ok with that, but I do wonder where their future buyers are going to come from if they really do need to sell.
More insanity.
http://www.dailybreeze.com/latestnews/ci_16085804
nct-Downsizing strikes me as, well, dumb, in most cases. The costs and hassles involved in selling one house, buying another, and moving from the first to the second are rarely worth it if one plans on living in the same area. The only way it makes sense to me if the difference in price between the house you are selling and the one you are buying is significant. Just moving to save on upkeep or A/C bills doesn’t make sense to me.
I can argue both sides of the downsizing thing… I saw my dad downsize to a single level, small yard house when he was in his 70’s. It was about quality of life & I benefited because he sold the old homestead to me. That said – a lot of my neighbors are the original or near orignal owners… in their 60’s-80’s… and hanging on to the homes. They have paid for houses, low taxes, and can afford to hire mow & blow services to take care of the yard.
Agreed there is a good sized group of “haves” who are buying today. Where do you think new local “haves” will come from to move higher volumes ? Seems tough for the “nots” to join the “haves” these days. One local biotech (Arena) just saw its hopes shot down today. Maybe Arena should have faked their data so employees could sell stock to get money for down payments like that guy at Sequenom last year. Sad when local executives have to commit fraud to afford to buy a house.
I agree with nct, past performance does not guarantee future results. We’re looking at what has happened recently (recency bias) and extrapolating forward based on those results. Just because there are a lot of potential buyers now, does not mean that there will be sometime in the future. Just because things are holding up now, doesn’t mean they will continue to. Too many things could happen, there are too many variables. No one knows how the California budget mess is going to play out, and how it may impact the economy, jobs, wages and consumer sentiment. No one knows if the apparent stability we’re seeing in the local and national economy is temporary or not.
I do agree, however, that market conditions vary, on a neighborhood to neighborhood basis.
In 2005, people were extrapolating based on then current trends, believing that homes would appreciate ~25% per year forever, and look how that turned out.
I can map some of the SanGIS demographic data and post it as a JPG. Do posters have the ability to do that on this blog?
(huge fan of Jim & the contributors to his site)
I moved back to SD from LA, and relatively found SD to be more affordable and figured I could live in a lower end home in one of the top zip codes in NCC. I feel like many others who contribute to the site, but the thing that is puzzling to me is and i don’t see much discussion on is…are there that many high paying jobs in SD (or that many virtual telecommuters)? My math says that if you buy a 1M house with 20% down, your annual housing expense (loan/tax/ins) is about $75K/year, so at say 33% of your income going to housing, you need to be paid $230K/year. And for all of us who want to live the life (nice things too) I’d guess that you’d want to be in the $250K-$300K/year range. I still work out of LA, but most people I talk to say that the pay isn’t as strong in SD as the other large metros (feels like $50-$75K less in pay to live in SD). So the question is, (a) are there that many high paying jobs in SD or (b) do people just accumulate wealth else where and then move here? When I spoke to my mortgage broker the other week, he told me that I could have $ in my assets & bank account, but the key was the debt-to-income ratio (but he did say they would loan me 45%!)
So in addition to the fundamentals conversation, the bubble conversation, the boomer conversations, shadow inventory, inflation, interest rates etc. i’d love to hear what you guys are thinking how salaries fit into the SD market, and if there is a bevvy of big paying jobs down here to support these prices or people are just bringing their wealth to NCC and that is keeping prices on the steady side.
Thanks for the input!
My Two cents would be when will the sellers run out of gas !!
Once you get to a certain level, all willing sellers disappear.
(I have seen this first hand)
Then you are only left with REO’s and the other imaginary short sale.
Given the on-going commotion world-wide, these look remarkably stable to me.
So true.
leave ca and you might be able to buy a house at what is deemed affordable.
I don’t know what Jim’s daughters are studying, but the regular college student graduates with drowning student loans and very little job skills and prospects to show for it.
I don’t think a lot of people are ever going to sell in the prime coastal areas. Die in your house and leave it to the kids, who will keep it for their kids.
I just met a lady who sold west of I-5 for $1m in 2004 to retire to Las Vegas. She discovered that Vegas sucks and now she’s trying to get back to north coastal and the only thing in her price range is Fallbrook.
I don’t ever wanna have regrets like that.
I don’t think a lot of people are ever going to sell in the prime coastal areas. Die in your house and leave it to the kids, who will keep it for their kids.
I just met a lady who sold west of I-5 for $1m in 2004 to retire to Las Vegas. She discovered that Vegas sucks, and she lost a lot of equity there, and now she’s trying to get back to north coastal and the only thing in her price range is Fallbrook.
I don’t ever wanna have regrets like that
Greekfire,
You can email them to me.
klingerealty at gmail dot com
W.C.,
Good story, and agreed, once you leave it is very hard to come back.
It’s easy to say “leave ca and you might be able to buy a house at what is deemed affordable”, but for those who do it, they should be very comfortable with where they go – because it will very likely need to last them a lifetime.
Fantastic news! This means the govt can stop backing the banks/mortgage market, kill off the GSEs and FHA loans, and let interest rates rise. 🙂
Right?
Until that happens, we don’t really know what the market will bear. That’s the problem: all the intervention has caused a lot of people to remain on the sidelines because we don’t trust anything about the market right now.
Big Perm: I moved from LA (Palos Verdes) to San Diego (Carmel Valley), so relatively similar areas. I have found the salaries to be lower in SD and the house prices to be higher. I think alot of CV/SD buyers roll equity from prior sales, have high paying jobs (doctor, lawyer, researcher, executive), and many have money from family or overseas.
We’re also from L.A., and yes, the pay in San Diego is quite a bit lower than what’s found in L.A., outside of a few sectors: tech and biotech, for instance — because there do seem to be more jobs here in these industries.
What was told to me over a decade ago was that San Diego salaries are about a decade behind L.A. salaries.
Wow, I didn’t think my question would elicit such a thoughtful response! It’s a response I mostly agree with. There are, no doubt, Have’s and Have Not’s.
How did the Have’s get what they have? I think the majority of Have’s got there because of the bubble. Let’s call them “Bubble Have’s.” Jim, you’ve alluded that buyers are coming in with big down payments from home equity, which helps substantiate my theory. This means there’s a finite number of these Have’s, and we’ll eventually run out of them. For these people it’s easy to pay a big number for a home because, well, they didn’t have to work that hard to be able to afford it. But first-time buyer Have’s who worked hard to get what they have are more reluctant. These type of Have’s see some of these Bubble Have’s earning much less, and believe prices MUST come down. But how long will it take? 30 years? We could really have a generation of renters like livinincali. “The trend will likely be downward, but at a very disappointing pace for most buyers,” fits this scenario perfectly.
As time goes on, Bubble Have’s will have to sell to Have Not’s – especially if it’s a McMansion. This means, LC Greens, Oaks, Valley, Ridge, Bressi, etc. Bubble Have’s are only getting older, and probably won’t shop for 4,000 footers.
I also disagree with the notion that the government credits don’t affect areas like NCC. Bubble Have’s who want to buy here need to sell their existing home to Have Not’s before they buy their NCC house.
“We could really have a generation of renters like livinincali.”
That’s certainly a possibility as long as I stay in CA. I would guess that as time goes on it will be easier and easier to telecommute for a pretty decent paying job. If my desire is truly to own I would likely have to do it out of this state or have @#$% hit the fan. For now I’m good where I’m at. If I have to buy a house in the not too distant future for some reason it will be outside of SoCal. That much is sure. Maybe SoCal is different and will be a destination for the elite across the globe. I guess we’ll see.
Today’s price ‘stabilization’ is a mirage. The housing market is being managed furiously by the banks and government. They are guilty of ‘Strategic Foreclosures’ – holding off on foreclosures to not take the BIG HIT and to keep supply artificially low. The real question is how long can they keep the game going?
I’m one of the Have-Not’s. I rent in Carlsbad but will only consider buying when this charade flushes out.
#20
“How did the Have’s get what they have? I think the majority of Have’s got there because of the bubble. Let’s call them “Bubble Have’s.”
Thats like saying everyone who is losing their homes did not qualify in the 1st place. (which is true in alot of cases)
Alot of the halves worked for what they have. They started at the bottom. Bought what they could afford, even if it wasn’t “their” ideal location or size. Their equity was/is what they put into it.
The next generation still wants everything Now.
I have 14 nieces and nephews. They would rather buy that $30,000 plus car, live at home (parents ok with this,Dumb) instead of a $15,000 car and start saving for a down payment. They would rather pay $2,000 a month rent by the beach instead of finding something a little inland for $1000.00 and save.
Most “halves” live within their means
ocsecondhome, I agree with what you’re saying, but how old are the Have’s you’re referring to? I graduated in ’98 and was too late for the bubble. Let’s say you could buy a house then for $70k down, and $100k income. Today you need $150k down and $200k income for the same house- it just doesn’t jive with CPI calculators.
I’m not suggesting those Have’s didn’t work hard and buy within their means – I’m saying they didn’t have to work hard for that magical $400k in home equity the bubble created. If you earn $200k today and have to stretch for a house someone making $100k is living in, it seems like insanity. Doesn’t matter how much you’ve saved.
This goes back to the reference of Jim’s daughter. She’s going to graduate and get a good job, yet be priced out no matter how good her starting salary is. At what point will the housing market need her?
The Blur, your back to what I said early “people want it NOW”. Instead of buying a 1800 or 2000 sq ft home,stay for tens years, build their own equity, they’ll rent the 4000 to 5000 Now, and build nothing.
I look at my mortgage as “I have to live somewhere and pay something” so I might as well pay the bank the interest, which to me equals rent,which I get a write off on my taxes and my principal equals my savings. Yes, that may be a naive way of looking at it, but hey my husband and I are 51 and 47, our primary home is paid for, whcih we purchased in 1991 Our first place was a condo in 1988. I drive a 13 yr paid for car, purchased used, He drives a 4 yr paid for car, also purchased used.
“Alot of the halves worked for what they have. They started at the bottom. Bought what they could afford, even if it wasn’t “their” ideal location or size. Their equity was/is what they put into it.”
I don’t disagree that people worked hard, but I would argue that the current generation of graduates isn’t really afforded the same opportunity to buy that people who graduated before 1995 were afforded. For example a 3/2 1000-1200 SqFt house in an average community like 92116 (Mira Mesa) or 92117 (Clairemont) would be completely affordable for a 1995 graduate a couple years after they graduated. Figure they started out in the $40K area and by 1998 they’re up to $50-55K. In 1998 the median price per sqft was about $180 in San Diego so you could buy a small 3/2 in starter home in Clairemont or where ever for slightly less than $200K. About 3.5x income. High but typical of San Diego. It was reasonable.
Now you’re probably looking at a starting job of $40-45K if you’re lucky and might be able to get up to $55-60K in 3 years again if you’re lucky, but houses in those typically middle class neighborhoods are selling for $350K. You can migrate out further east like Temecula valley, Santee, etc., but even there things aren’t that cheap. The other issue with today’s graduate that is often overlooked is their starting debt load. You could easily be $40K in debt when you graduate college which is $500/month for the next 10 years that you can’t save on use on a mortgage.
If you’re somewhat lucky you have parents that are haves. They can help with the college debt and initial down payment.
All in all it’s not that bad it’s just I would have had a much better opportunity to afford and buy a home if I graduated in 1995 instead of 2001, but I didn’t so there’s really nothing to complain about. I think we’ll eventually see that opportunity again, but who knows if it will be because home prices fall or wages rise.
ocsecondhome, we may be more similar than you think. Your view of a mortgage payment is very simplistic and, in my view, spot on. The whole reason I want to buy a home is to actually own it. I want my house paid off when I’m 47 too!
There’s also the “I want it now” crowd I gotta compete with. The government is enabling this crowd with 3% down FHA loans, which drives me crazy. I’ve actually saved more than enough (well over 20% down) to afford the house I want. Saving for your 3000+ ft NCC home by your mid 30’s is definitely possible, but it takes, among other things, discipline. And if you’re disciplined enough to save that much, you’re certainly disciplined enough to make sure the fundamentals work out before you part with that money. I think the occurrences of people like me are far fewer than the number of $750k+ homes out there. Census data also suggest fundamentals are off (median home prices shouldn’t be 7x median income.)
Where we largely differ is perspective. You bought in ’91, at 28, before the bubble. When I was 28, in 2004, the bubble was in full steam and I had no chance. I also think I should live in a nicer house than someone earning half my income. (I know that sounds entitling, but it’s reasonable to me.) I also splurged on my car a little, but I bought it and I know exactly what its (lack of) value will be going forward – unlike the house I’m very unsure about. Most importantly, it hasn’t affected my home affordability.
The Blur is also about to become a parent for the first time – has it happened yet?
Congratulations to “the Blur”.
Haha, thanks! Any day now . . .
Wow, my congrats to TB too!!!
When the music fades….
http://www.youtube.com/watch?v=lf__QY29b7g&feature=player_embedded
@ The Blur
Congrats on your upcoming parenthood!
Also, I second your sentiments. I loathe the market distortions that are still putting highly-leveraged buyers into homes that it is questionable they can afford in the long term. With leverage that high, they have little room for any price depreciation. The cynic in me says that they are either blind to the downside, or worse, they simply plan to exercise their option with the bank and walk away if things go sour.
In any case, recent term market stability notwithstanding, I doubt the continued stability of the market in guaranteed. That makes me want to use even less leverage, and have even more reserves, which in turn makes it foolish for me to compete with folks leveraging 20 to 1 or more.
*Sigh*
Where we largely differ is perspective. You bought in ‘91, at 28, before the bubble. When I was 28, in 2004, the bubble was in full steam and I had no chance. I also think I should live in a nicer house than someone earning half my income. (I know that sounds entitling, but it’s reasonable to me.) I also splurged on my car a little, but I bought it and I know exactly what its (lack of) value will be going forward – unlike the house I’m very unsure about. Most importantly, it hasn’t affected my home affordability.
The Blur | September 17th, 2010 at 12:57 pm
—————-
Totally agree with your observations, Blur. We’re from the generation that graduated in the early-mid 90s, and it was indeed more affordable than for people who graduated when you did.
IMHO, you’re right to question the things you’re seeing; and yes, there is still far too much leverage out there. If someone only puts 3.5% down (and some or all of that can come from the seller, from what I understand — Jim or anyone able to elaborate?), they are underwater the second they walk into “their” new house because the selling costs would wipe out any downpayment, and then some.
IMHO, there is no way people should be buying with less than 20% down, with the possible exception of a VERY limited number of thoroughly screened applicants for low-income assistance. BUT…this should absolutely be limited in number (a very low number each year, for instance because you do NOT want these buyers to be more than ~5% of the market at any time), because the influx of too many of these highly vulnerable buyers is what can artificially and unsustainably push prices up too high and set the stage for another wave of foreclosures.