Our main area of focus is the North San Diego County Coastal region, which includes La Jolla, Carmel Valley, Del Mar, Solana Beach, Rancho Santa Fe, Cardiff, Encinitas, and Carlsbad.
To gain some perspective on where we’ve been, here are the number of NSDCC detached sales in May, and their average cost-per-sf:
While homes certainly are cheaper, they aren’t cheap.
Why hasn’t there been a further decline?
The median price has only dropped 15% since the peak of May, 2006 (1,050,000 to $891,000 last month). But the mortgage rates are about 2% lower than 2006 as well.
The payment difference between the two median prices with 20% down payments? Combining the lower median price with the 2% lower jumbo 30-year fixed rate equals a payment that is 32% less than in 2006. (7% on $840,000 = $5,588 vs. 5% on $712,800 = $3,826, a difference of $1,762 per month).
The doomdayers are guaranteeing higher rates when QE2 expires later this month, but when the Fed stopped buying MBS last year, the rates went down. Ben and the boys are hoping that’ll happen again, but if they don’t, they’ll probably crank up QE3, instead of another housing tax credit.
What do these graphs look like when you remove RSF and La Jolla?
Show this same chart for Chula Vista, and the lines would run off the chart – just as I have been saying for the past years – TWO TIER MARKET. People who can afford La Jolla, Carmel Valley, etc. have and did for the most part have the money to buy there – in most other areas people were buying with no down payment, and 100% financing, and buying houses they couldn’t afford. Doesn’t take rocket science to figure this out that quality will come back first.
Just think, the government and the Fed spent trillions in an attempt to prop-up real estate after the collapse in the asset markets in 2008. When you look at the chart above, it’s disappointing. Wall Street benefited, but real estate got nothing more than a hand job.
I bet this market sees pre-Y2K levels in Cost-Per-SF before this is all over. And if we see a shock in the debt markets, and rates spike, all bets are off — this market will get hammered. Just saying … it’s kinda like tap-dancing in a minefield.
As you keenly point out, the subsidized interest rate factor currently accounts for around an additional 30% fall in real cost. If interest rates move up it will smash the market. If they move down, it means we are in a catastrophic economic collapse. Either way, this is not the time to buy real estate, especially if you have cash.
prices are still too high. They will definitely come down to 2001 levels.
Are the prices inflation adjusted? If not, they’ve barely outpaced inflation from 2000-2011. Cumulative price growth is 3.2%/yr. If the prices aren’t inflation adjusted, they have declined significantly, back to 2000/2001 levels.
With housing I’d tend to look at adjusted to nominal wages rather than a general inflation number. Certainly if food and energy prices rise but wages don’t keep up then it would likely effect what people can afford to spend buying a house.