With moreĀ homes not selling – otherwise known asĀ growing inventory –Ā buyers can finally exert someĀ influence on pricingĀ (they’ve had virtually none over the last 18 months).Ā This should cause the pricing trend to stay fairly flat,Ā with sellers being reluctant to lower their price enough, causing only the better deals to sell.Ā During the frenzy it was different – everything was getting gobbled up, right price or not.
TheĀ San DiegoĀ ZHVI in AprilĀ was upĀ 12.6% YoY:
They predict it will increase 4.1% between February 2014 and February 2015, which is a logical guess in a cooling market –Ā though the statistical comparison to post-frenzy numbers will just confirm that pricing has been flat for a while.
But because the month-over-month San Diego ZHVI makes an unusual correction in their prediction below, rates are unlikely to drop further, and sellers’ pricing reluctance, I’m taking the under on their 4.1% appreciation by February, 2015:
SD County broken down by areas:
http://files.zillowstatic.com/research/public/realestate/ZHVI.San%20Diego.395056.pdf
All areas showing less than 1% MoM increases, and if it ain’t happening in April, it’s unlikely to improve the rest of the year.
In my opinion, prices are going to have to come down, significantly. Maybe not in the uber-rich, beach-view areas, but everywhere else.
I am one of the gen-Y, should be buying, but essentially am priced out, even with 100k income. I see cookie-cutter condos listed at 400k+ in North County. Who in their right mind expects these to gain significant value in the next year(s)? Who is going to buy these absent foreign / institutional investors?
Household creation is at an all-time low, students are graduating now with ever-more debt, wages are stagnant and real-inflation (food, energy, healthcare) is only going up. The only reason that California’s population has remained stable is due to foriegn migration, the majority which are poor.
The chatter on the streets is reminiscent of 2007. “You better buy now because prices are only going up”, “You better buy now because interest rates can only go up.”
No, they cant, no they won’t. The FED can’t raise interest rates without tanking the economy, really the only impetus to overpay for a starter-home is the off-hand chance that rampant inflation will eat away the debt, but that theory only stands if incomes rise at a raise comparable rate. That isn’t happening anytime soon.
As a previous article said many homeowners are locked in, wanting to trade up but can’t. What happens when all the homeowners who bought in the 60s and 70s try to sell / downsize?
Yes, the Baby Boomer Liquidation Sale is definitely a threat, and likely to commence without warning.
There will be plenty who hand them down to the kids though, and in the primary locations the kids might just move in – like we saw in La Jolla earlier this week.
maybe try looking inland a little?
Brian – you are very correct in your assumptions and analysis. You pretty much hit the nail on the head throughout your well written comment.
There is surely a 2007 mentality at least as far as development is going.
In Coronado right now, there is a frenzy to buy 1950’s style ranches,POS etc on semi decent/ decent lots for 1.2-1.5 mill , knock the house down then build either:
on the R3 zoned lots- 2 billie box type houses and sell them for 1.5 mill per.
or on the R1 lot- build a 4000 sq ft house and “dump it out for 3.5 mill +
Hey it pencils out great on paper. They are making a killing right now. Pretty funny actually.
My neighbor, who is house obsessed , just went into contract on a 900 sq ft dumper on a 3000 sq ft lot for just under 1.2 mill.
Went into a hour long pitch to me justifying how beach property only goes up and its a great investment.
Think I have heard that somewhere before? Maybe š
Brian,
Take a number and get in line. These prices are not coming down. I am looking for the last 7 years and saying the same what you said (and have been proven wrong over and over again).
The lessons that I learned are ā¦
(a) We are not entitled to live in North County Coastal … no matter how much I think that I “Deserve” to live in Manhattan, I simply could not afford and it does NOT mean that market is wrong.
(b) 100k income is not enough anymore. You are competing with folks who do not need incomes to qualify for a mortgage (check the stats on all-cash and mostly-cash deals).
c) North County coastal is going the way of Coastal Orange County ā¦ It is and is going to be a play ground for Rich and Wealthy, who don’t need to worry about paying monthly mortgages.
d) You can always RENT in the coastal North County, till the time it works out for you. You don’t HAVE TO buy.
e) If you still HAVE TO buy, then it would be a good idea to search in the inland area.
You start with the premise of ‘more homes not selling – growing inventory.’ I know the new MLS is a little quirky right now to dig out the numbers, but there is that little 10k info widget that pulls up graphs. I checked some local zips and it looks like inventory has come up a little, but is about the same as this time last year and still less than half of what it was from 2006-2011. Price, now that is a different story completely. I think we will be stuck in a long-term low inventory environment for awhile. People don’t want to sell and move. Its expensive to do, and where the heck are they going to go anyway? There is nothing the buy. Vicious cycle.
@ kishan Khurana
Pretty much right on. There’s plenty of people with cash to purchase property. Maybe not always enough for 100% cash but enough to reduce the monthly payment to something more manageable.
For those who might have to move out of SD for work, but plan on retiring here, why sell when Prop 13 locks your property tax rates. If they’ve been here for a while, the rent can probably cover any expenses.
For international buyers, SD is pretty cheap compared to NY, London, SF, or Hong Kong. Some of the higher end apartments in HK sell for >$6000/sq ft.
@Brian, Check out piggington.com, monthly payments are near a post-war low due to rates. And when rates go up, housing prices are not nearly as elastic – so prices won’t change as much as the rates.
All this data is noise…people who understand the psychology of markets…know that market cycles do not last 18 months. Additionally, with uber low interest rates, and cash buyers, buy vs rent is still very very close. Once we start to see a larger spread between the two and growing inventory, we may see a peek, not before 2015.
Home ownership doesnāt suit everyone. But if it suits you, then go buy a house you like (embrace some measure of imperfection) in a place you like and can afford and get on with enjoying your life. A Price collapse isnāt on the horizon.
What people need to understand is that bankers control the housing market. Notice how there’s no foreclosures happening lately? Bankers are keeping rates low this pushes up prices. And they’re not foreclosing (letting people live for free) this shrinks the number of houses for sale again pushing up prices.