George asked for an explanation of the frenzy-like conditions we’ve been seeing lately.
How do you explain it?Â
Lower prices are the #1 contributor, and in Carmel Valley that means roughly 20% off peak pricing.  Buyers are tired of waiting, and if the deal is seems good enough, many will buy just to be able to get on with life.Â
Four of these houses sold at peak pricing, and had to endure haircuts of -17%, -18%, -20%, and -21%. A couple of the sellers had to write a check for $25,000 to $50,000 to close, but the others had equity. There were no short sales or foreclosures.
Here’s a video of nine houses that have recently sold under $300 per sf in Carmel Valley, 92130:
I see you have those illegal basketball hoops everywhere as well.
Lower prices don’t mean much when the reference point is bubble prices. Median household income has been constant for the past 10 years, so unless the prices are at 1999 levels (discounting lower mortgage rates) we might be seeing a mini bubble.
Replying to Genius’s comment from way back:”The numbers in that article werenât in nominal terms. Adjust for inflation and I will agree with you.”
Inflation is irrelevant. People’s income has stayed constant for the past 10 years. They can only afford the same things they could afford 10 years ago, i.e. they can only afford houses at 1999 levels. If you factor in inflation that has taken place since 1999 on stuff like food, energy, rent, that means they can now afford less stuff than they did 10 years ago.
CV went from bidding up scenario 2 mos ago to a non bidding up scenario? I guess that means the market is balance at 15% – 20% peak. CV is finally taking hits, but will the SP return in Spring?
errr, I meant will the sales price increase in Spring 2010.
Low interest rates are not good for buying, just refinancing. That $300/sf at today’s rates equates to $200/sf at 1999 rates.
i>They can only afford the same things they could afford 10 years ago, i.e. they can only afford houses at 1999 levels.
How sure are you of that, if interest levels are far lower now than in 1999? In 1999 interest was at 7-8%, now you can get a loan for ~5%.
The other question is that total median income isn’t the same as home buyer median income. If the separation of the have’s and have nots has gotten greater over the years we could have a situation where total median income stayed constant, but the median income of the top 10% rose. You just can’t equate the population as a whole to the home buying population of Carmel Valley.
Will someone please come and wake me up in another two or three years when the bubble is over?
CV just start their correction.
If you must buy CV, then you have another year or 2 to wait.
If you just need good school, 4S/Del Sur or Scripp Ranch is ripe.
Worrying about price goes up next summer ? No way, because that is about time when Feb start raising interest rate and stop worrying about housing market, since most of US markets had hit bottom.
FHA is going to blow up soon. More prime loans are defaulting than ever before and unemployment is almost at Great Depression levels.
This is a bubble within a bubble ladies and gents.
When this silliness is over, some other bubble scam will come along and everyone will jump on that. When that happens, flipping real estate to get rich will seem absurd.
whay are my posts being deleted?Cant you handle the truth?
It’s the same garbage over and over again – get a life.
Jim you should do an article on where the best places to buy furniture in SD are. We’re still in wait and see mode. But, we found a really nice new rental in the area we’d ultimately like to buy in once the market is less crazy.
Don’t underestimate the Zimbabwe Ben factor.
I’m not buying yet, but the one thing that haunts me is the possibility that ZB succeeds in his quest to destroy the dollar, and buying a house at any price in 2009 is a bargain.
13: IKEA.
Don’t worry, WC.
If we eventually get high inflation, there will be a period when it is impossible to get a loan. If inflation hits 15% (for instance), loan rates will be 20% or more. Who could afford today’s prices as those interest rates? Remember 1980? There will still be a window to buy…
At the strip mall on Encintas/ECR there are two furniture stores. Last year I thought the one next to Trader Joe’s would go out of business. I was wrong, it was the other one that is going out of business. Also the furniture shop on Lomas SantaFe / S. Coast Hwy went out of business a while back and the store front is still empty. Oh well, at least there is a new yogurt shop next to Pizza Port.
NINE basketball hoops on that first street! That’s gotta be some sort of record!
You can take the sheeples out of the bubble, but you can’t take the bubble out of the sheeple. Real estate always goes up…..like balloons in Colorado.
Jim,why do almost all the posters on your site think that EVERYONE is broke?
That’s because the tracks are so big, they far from any public or private playgrounds with basketball hoops. The parents have to drive the kids everywhere and the kids don’t want to get on their bikes and ride. Much easier to plop up a temporary basketball hoop.
Inflation such as that would gut this state. If you think the Fed would damage the dollar, they’d obliterate California to the point of no return with that kind of inflation.
No matter what society or what time(s), if you actually have the gold you can afford the goods. Californians more than any other Americans tried to pass ‘abstract’ money as gold. And as such if suffering occurs it is only natural they should suffer the brunt. And they will and are. Keep your powder dry.
I don’t know John, but I’m taking a beating on the youtube comments too, I had to delete a few there also. I don’t get it – I’m just showing people what is happening, and they attack me and the buyers.
I don’t know why anonymous commenters insist on berating people who want to buy a house now.
“Inflation is irrelevant. Peopleâs income has stayed constant for the past 10 years.”
This is absolutely not true.
Here’s one of multiple data sources showing that nominal SD incomes have risen well over 30% since the decade began (more if you went back the full 10 years you are claiming):
http://www.bea.gov/regional/REMDchart/default.cfm#chart_top
This is per capita, not median household income as you mentioned in your prior post, but you can (with some effort) dig up median household income data on the US Census site and it would show you the same thing results. Here’s a starting point if you are interested:
http://factfinder.census.gov/servlet/DatasetMainPageServlet?_lang=en&_ts=258927042485&_ds_name=ACS_2002_EST_G00_&_program=
rich
Underwater in a year? Highly unlikely with 20%+ down payments, low interest rates, etc.
Down 20% in 5 years due to rocky bottom, increasing interest rates, high unemployment? Possible, you could at least make a compelling pitch.
What do those rent for, $3,000-4,000 today? Let’s say rents fall and just use $3,000.
5 years of rent = ~$180,000
20% off current prices (850k) = ~$170,000
If you’ve got the money, and just want to move on with your life it at least seems like a fairly decently hedged bet.
(BTW, Youtube comment about the street being sponsored by the NBA was pretty good)
Those who have the money and capacity to buy, should buy – the sooner the better. There is a silent minority who have the money, savings and low debt to income ratio who deserve a home. Those who HAD the money/equity but don’t now are a bit upset. And those with a sense of entitlement should be happy because the Gov’t is doing everything they can to get them into a home albeit at our expense. How easy is it to save? Drive a beater otherwise you might as well throw $20 bucks out the window for everyday you drive that car – generally speaking.
I don’t know that there is a whole lot of berating going on of first time buyers who are wanting to buy now. They’ve been shut out of the market since 2004, there’s a government bribe on the table and the “low” end has pretty much stabilized and bottomed.
I can see mocking people buying at the mid and high end right now since those prices are going to continue to drop for another two years while liar loans and pick-a-pay shake out all the people who had no business buying such an expensive house in the first place except lenders were handing out bags of cash on the street corner with blindfolds on.
What I think we are seeing from speculators and flippers is just a gambling addiction. The dice are rolling again and they just can’t stay away from the table. Apparently, not enough of them got burned badly enough in 2007….
sdnerd,
What about property taxes on that $170k? Should people not be concerned with that?
Ronald,
What is that, $2,500 a year or so? Then factor in the tax write off…
Personally, I wouldn’t let ~2K a year in taxes be my deciding factor in waiting 5 more years to purchase. To each their own though.
And what if prices only fall 10% more? Now you are at ~1K a year. What if prices are up in 5 years? Etc.
Is it me or are we talking about the same crap constantly.Time jim to get some better content I think.
I have friends that just bought in SEH – new construction. They were tired of waiting for two years and they kept getting out bid recently but they finally closed on a home. They have been renting for a while, but the wife was expecting. So it was time to pull the trigger.
Then leave Mr. ‘bored to death’. What are you doing here if you’re not interested. It’s like a straight guy walking into a gay bar and complaining about getting hit on. Or going surfing and complaining about getting wet. Good for you.
As for interest rates, they definitely are good for buyers not just refinancing. I’ve seen many people suggest they don’t matter but the reasons given are circuitous and self-contradictory. That said, they can certainly be over-emphasized compared to something more important like valuation.
As for interest rates, they definitely are good for buyers not just refinancing.
Buyers of automobiles and appliances maybe, but not houses (unless, of course, you’re one who bought immediately after the FFR first went to 1% but before prices took off).
The bubble itself demonstrated that housing prices can and will vary inversely with rates when those rates change dramatically, and given that rates will eventually revert then housing prices will too.
@rich t,
http://seekingalpha.com/article/161271-u-s-median-income-from-1999-2009-no-gain-much-pain
(It’s inflation adjusted, chart says in 2008 dollars)
JtR,
I appreciate your reporting on what you see the market doing and I suspect that the silent majority around here agrees. I think that’s why most of us are here. I think some of the folks who get upset about people buying houses are convinced that they will be able to pick up the house of their dreams for an incredibly low price and they are frustrated that there are people who are continuing to buy at much higher prices. They see those buyers as keeping the market from hitting the target prices they are expecting.
What they don’t seem to “get” is that the market is made up of a lot of people with a lot of different motivations. Some people are sick of the landlord, some are tired of the barking dog or the annoying neighbors next door. Others have just reached the time in their lives where they are ready to settle down with their family. It isn’t logical to assume that any market that includes millions of people will all be focused in one particular way. The angry comments seem to come from people who think everyone should be seeing the market in exactly the same way they do.
I can only speak for myself, but I just want to hear what the market is saying. I don’t want to argue with it because I know that the market really doesn’t care what I think.
PV,
“Angry”? “Upset”? To which specific comment(s) are you referring? Honestly, I just re-read this thread and don’t see any that strike me as emotional (although I never did see the one(s) JtR deleted).
There are also those within the market with a sense of value. Not price, but value.
Let’s also not forget San Diego RE market is nothing like Plano Texas RE market. This unlike a stocks and such.
However RE and land cause much more and lasting damage in collapse than do anything else. Therefore I suspect people who buy will do very well in CA or they’ll regret the day they ever heard the name California.
This is not new- San Diego has been in this exact spot before and we know how it ended.
tj,
My comment was addressed to JtR (specifically his comment at 11:26 AM–his most recent comment at that point) and I addressed it to him so that it was clear (at least I thought it was clear) that I wasn’t responding to any of the other comments. JtR has seen all the deleted comments and he uses words like “attack,” “berating” and “taking a beating” when referring to the deleted comments. Those words don’t strike me as referring to joy-filled people and I am willing to trust JtR’s characterization of the comments I haven’t seen. Some of the posts that are deleted are online for a while prior to deletion. I have seen some of them posted on various threads and I have no reason to argue with JtR’s description of them.
I wasn’t taking issue with any of the comments on this thread.
I don’t know. Jim seems pretty reasonable. He’s put up with me for several years. đ
You can’t be angry with the guy he needs to make sales and being the constant bubblehead prob doesn’t help.
PV,
Thanks for the clarification.
@Whatswhat
Again, US median income does not equal San Diego median income. San Diego median income, doesn’t equal the median income of home buyers as well. You can’t take a national number and apply it to a local housing market. Rich T’s point is that while median income in the US has not gone up, median income in San Diego has gone up.
Thanks PV for the comments, both made a big difference today. Big enough that I finally looked it up:
Potemkin Village = Something that appears elaborate and impressive but in actual fact lacks substance.
For the record, the commenters above, ‘JTR is da man’ and ‘bored to death’ are the same guy, and he has a couple of other aliases under which he posts constant drivel so general in nature that it’s pure carpet bombing. I don’t understand why he does that.
I have to put up with a lot of crap. From my neighbor last night who got in my face about realtors, to guys stealing my audio and pasting it on video of Cambodia kids and thinking it’s funny – but it’s not funny.
America is known for tearing down people who are trying to do some good, and I can only hope to hang on.
I heard a lyric yesterday from Bruce’s Tunnel of Love, “You’ve got to live with what you can’t rise above”, and it struck a chord.
And so did this very nice email that came in today from Jane:
Hi, I am an avid watcher of your videos and the market. I just wanted to say thank you and let ya know I am enjoying your info. It’s very refreshing to find someone who’s honest and smart. I have a modest house and have been waiting many years to get my second modest house that will be used to help with retirement income.
Gotta tell ya, one gets tired of excited realtors saying– it’s a great time to buy! What a mess. I teach high school. I have a student who is from the ghetto who profited $200,000 on his first house. Not bad for 18! Keep up the great and honest job. You’re doing a lot of us a good service with the education. Jane
Thanks Jane, let’s carry on!
I for one am very happy you are willing to take the time to police your comments section. There are many quality blogs which have unreadable comments because 90% of it is drivel with no addition to the conversation. For example if I open comments and see a “first” post I immediately stop reading because the likelihood of wasting my time has gone up about a thousand-fold. Similarly, blatant ad hominem attacks and random content free comments deserve no place in blogs of quality like yours. Thank you for taking the time to keep me coming back to the quality reader content of your comments section for additional color as well as your blog itself.
Maybe those basketball hoops were put up by overly optimistic parents who hope their kids will make it to the NBA and help pay off the mortgage. đ
I’m actually surprised that urban sprawl is still alive and well today despite all that we know about its effects. It might seem funny that the kids may not want to ride their bikes to the park. But when you see Jim drive around these neighbourhoods for long periods of time without a school or a park in sight, you have to wonder if the kids have a point
Jim,
Just caught #2 on YouTube and fully agree that the ‘net and videos will be a driver of future sales.
Speaking of drivers… (bad segue) how many miles do you log annually?
sdnerd (post #25), re: your 180K rent example.
Using avoided rent payments to offset a home price decline is faulty logic. When you borrow money to buy a house you’re essentially renting the money, so you can’t ignore the interest component of your mortgage payments.
5years of interest expense = 150K or so in your example. Roughly equal to your 180K rent estimate over the 5-yr period once you include the $45,000 property tax bill. Then there’s MR/HOA/Maintenance costs to consider.
So basically, if your house falls 20% over 5 years, you lose the 20% downpayment (at least in this example).
Duncbdunc,
As I said, it was highly simplified – you left off several other factors as well such as opportunity cost, tax write off, etc but that’s besides the point.
Your logic is off.
If prices fall 20% in 5 years you are looking at a Delta of $170,000. At 5.5% interest rate that is again roughly $9,000 a year in interest. Five years of that is ~$45,000 before your tax write offs.
You must be trying to factor the entire loan.
Remember, you are living there so all that matters is the Delta from what you paid to what it might possibly fall to. HOA, etc is irrelevant.
And again, back to my original point. What if it only fall 10% more? What if prices go up? What if prices stay flat?
If you’ve got the cash, and don’t feel like waiting 5 more years I still say it’s a decently hedged bet. If you think prices are going to fall another 20% on top of the 20% they’ve already fallen in a year or two then sure that changes things. I don’t.
Francois – I think the other fact in the basketball hoops/kids not riding to the park is paranoia. The media has spent the last 20 years whipping parents into a frenzy that danger lurks behind every corner and now parents overprotect their kids. It may not be that the kids don’t want to ride to the park, the parents may not allow them to go that far.
A basketball hoop in front of the house keeps the kids right where parents can see them. Many schools lock up their facilities now, too, to avoid vandalism. Kids can’t get to the school playgounds after hours, either.
In some areas the neighborhood streets are wide and cars have a tendency to speed. Throw in stress from the commute, long work hours or lack thereof and text messaging and there is a problem with driver attentiveness.
tj & the bear,
That’s another example of circuitous and wishful reasoning. Interest rates aren’t inversely in lockstep with houses. They do influence each other, but they don’t. It’s also irrelevant to the topic because your reasoning is that “If interest rates are low, house prices MUST drop in the future and that drop is gauaranteed to cancel out all benefits”. You’re making a huge blanket statement about the future here.
Frankly, that’s as crazy as the people who bought into the bubble in the first place. There is no guarantee no matter how much you’re convinced, and it’s moot anyways because it doesn’t show that low interest rates are not beneficial for buying. Your claims are predicated on all segments of the housing market tanking, and such a scenario being a provable guarantee.
My whole point is people on both sides have become irrational to the point of making wishful predictions in the future to justify why something that is usually good is in fact always bad.
sdbri,
People *are* crazy, and the bubble did start because of absurdly low rates. My *opinion* — I’ve never claimed otherwise — is that rates will revert to their historical mean and therefore so will housing prices. We’ll see.
sdnerd, if you are going to factor the entire rent, then you must factor the entire interest expense portion of your mortgage flows (unless the bank is letting you live for free).
Let’s keep this simple and focus on the cash flows.
$850k house with 20% down:
Mortgage outflow = $219K over 5yrs. $160,000 of this is interest expense (cost of renting money).
Downpayment outflow = $170K
VS.
Rent outflow: $180K over 5yrs (cost of renting home).
If you buy, you throw away $160,000 of interest expense vs. $180,000 to rent. They basically offset in this example. If home price falls 20% you lose most of your downpayment ($110k of the $170k, offset is principal reduction via mortgage payments). You are clearly worse off if you buy under your example.
I’m not suggesting that you shouldn’t buy; there may be other factors that drive the decision. But from a purely financial point of view, your analysis is wrong.
*** I ignore tax write-off because this is offset by property taxes, insurance and others expenses such as MR/HOA and maintenance costs. I also ignore interest income you’d earn on DP under rent scenario for simplicity.
Duncbdunc,
If CV falls another 20%, and these $850K homes in the video start selling for $680K – there is no question renting is cheaper from a purely financial case. I wasn’t trying to make a purely financial case. Lot’s of calculators that can compute that better then both of us.
How much is 5 years of your life worth waiting around and are you betting on 20% drops, inflation, flat pricing, pricing increases? Etc…
That would be the worse case scenario IMHO.
It’s a hedged bet; it guards against losses but doesn’t necessarily prevent them. Worse case scenarios typically are worthy of the name.
Sdnerd, I understand the sentiment, trust me. Is it worth waiting 5yrs to buy? I guess it depends if the expected capital loss is $20K vs. $120K vs. $220K. I enjoy your posts, so I hope you don’t take offense. I just think its important that we accurately assess the financial risk here. The great thing about Jim’s blog is that it provides a forum to test/confirm each others internal assumptions. I know that I’ve reconfigured my own based on many postings on this site.
Duncbdunc,
Absolutely no offense – trust me your counter point is a very valid one; glad you threw it out there.
And you are exactly right – assessing the financial risk is extremely important. For my wife and I, it’s the key consideration right now.
Fundamentals suggest one path, government manipulation is forcing another – at least for now. And the part that’s the most frustrating is I can make a reasonably compelling argument for each… so it’s all a bet. Considering I haven’t bought yet, I guess that says a bit about my feelings on the matter.
Down $20K in 5 years, ecstatic wife today? Done deal I’m calling Jim tomorrow.
Down $220K in 5 years, wife’s happiness is irrelevant. Time to find a good rental. đ
(760) 434-5000
If momma ainât happy, then ainât nobody happyâŚ.
Too funny! By the way, my wife and I are in the same boat. And you are right, government manipulation is the key factor that complicates matters. Now I’m wondering how to protect my cash purchasing power. The short answer is buy hard assets using low cost fixed rate debt. Should I be a housing bull now? Geez…
my conclusion: homes will be a terrible dollar hedge unless you believe inflation will show up in wages. Without wage inflation, housing prices will fall as interest rates rise. But this is an entire different discussion altogether. Now where to put my cash…
Jim, nice line! By the way, there is something that I’ve wanted to mention to you for a while and since this is an old thread that nobody’s looking at anymore, perhaps this is a good time to pipe in.
Many of my friends, colleagues and aquaintances love your blog but we hesitate to hire you because our presumption is that you are too busy. I wonder if it would be helpful for your business to devote a post to discuss your current level of capacity as I assume that there may be many silent readers/followers that would love to hire you but assume you are too busy to service their needs. I wonder sometimes if you are like the lonely hot chick that nobody ever talks to because they assume that everyone else is.
If momma ainât happy, then ainât nobody happyâŚ.
Too funny đ
Although I’m pretty sure the owners of the 5 houses on the same street I drove by last weekend aren’t too happy. All built in ~2003 and listed at ~2006 prices… and not selling on the MLS from 100-677 days…
If only the price was right…. 2002-2003 prices and I’m sold, beautiful homes.
Duncbdunc,
I don’t believe wage inflation is in the near future… but I also don’t believe noticeably higher interest rates are either. Which leaves several years of ‘blah’, which I’m roughly estimating in my head to be 5 years. Presumably like me your cash is also rotting away at 1.x% interest rate which is also another bet in itself.