January 27, 2006

Question for readers - 6 months from now, which US real estate market will be the bloodiest?


Phoenix was my vote all along, but San Diego could vault ahead. In Phoenix, the Arizona Republic once reported that over 40% of all jobs in town were tied to Real Estate. When people ask me what Phoenicians do to earn a living I tell 'em that they buy and sell houses from each other.

So what happens when that stops?

We'll soon find out.


Here's an essay on this phenomena in San Diego. Ahh, what a house of cards we have built ourselves..

But San Diego's economy is still overly dependent on a single, vulnerable industry. It's just no longer aerospace or defense.

It is the real estate industry itself.

Forty percent of all new jobs in the past 3 years were in either real estate or construction. This calculation doesn't even include the explosive mortgage industry, which unfortunately can't be isolated in the available BLS data, but which might push the real estate-related share of recent jobs up to as much as 50 percent

Given the decline in real incomes, how are people paying for their new BMWs and Fashion Valley spending jags?

The answer is that the money came from people's homes

There are 115,000 San Diegans employed in the real estate and construction industries, almost 26,000 of whom entered the industry since 2000, in addition to untold thousands in the mortgage business.

How many jobs are at risk should home sales volume continue to decline?

48 comments:

Anonymous said...

Keith,
I am here in North Coastal San Diego and I can tell you that this is right on the money. When the housing ATM runs out of money, we are in for a world of hurt that no one seems to care about or even see coming. Why they dont see a horrible ending to this situation? I dont know!! I own my own company, and make great money, but I cant afford (if I live responsibly)to live as high on the hog as people that I know that are making half what I am making. My wife and I always ask ourselves if we are just not understanding something. Is the secret to a successful happy life loading yourself up with debt that will hang over you for the rest of your life? The San Diegans are going to blame everyone but themselves. They dont have time to pay attention to all of the signs, they are too busy shopping and going on the 4th cruise in 12 months. Hey, when you are making money hand over fist and the market is just going to keep going up, spend, spend, spend!!!!
Remember, it is only wealth on paper!!!!
Come 2007-2008, I will be buying real estate here in San Diego. It is going to be much much cheaper than it is now.

000000000000000000000000000000000000 said...

Overpriced Badlands. Riverside, San Bernardino, Victimsville (Victorville), Bakersfield, Palmdale.

Anonymous said...

Back in 91, I remember all the U haul trucks ending up in the big city as everyone moved out of podunkville. Podunk gets damn ugly when it aint goin up no more.

Wes D said...

A vibrant economy is not built on buying and selling houses to each other. Keith, look at the GDP for last quarter. If it wasn't for the 1.5% boost that housing is giving the economy (according to Economy.com), we would be looking at our first quarter of the next recession.

This report alone should show just how vulnerable the economy is to a slowdown in consumer spending.

Anonymous said...

I concur with Keith's sentiments. We have been homeowners in North Inland San Diego for almost six years. As the sole breadwinner with two young kids, I keep my family on a tight budget because our monthly bills are so high.
350k in home equity is nice, but it doesn't look like it will last.
Meanwhile our neighbors drive by in their brand new Beemers and RV's and talk about all of their home upgrades. This is going to end SO badly for lots of folks that don't understand Finance 101.

Lander said...

Sacramento or other towns in California's Central Valley may give the "big boys" (San Diego, Phoenix, Las Vegas, etc.) a run for the money. Look at some of the recent news:

4.6% Decline in Median Sale Price since August Peak

Home Prices Decline For 4th Straight Month; Existing Home Sales Down 30%

Rural Central Valley: Highest Default Risk in California

Sacramento Market 61% Overvalued?

Sacramento County has seen median price declines for four months now. Can any other county in the country beat that?

jeffolie said...

The 92662 ZIP code will have the greatest dollar losses.


"A coastal strip of Newport Beach gained the distinction of being the only local area where everyone who bought a home last year used an adjustable-rate loan (ARM).

The 92662 ZIP code is also the county's priciest, with the median price of a home at $2.26 million, according to DataQuick Information Systems.

Anonymous said...

In Southern California, it appears that San Diego will be the first domino to fall.

cereal said...

the "flashpoint" for the LA riots was florence and normandy. remember that? those guys dragged the trucker out of his rig and threw cinderblock on his head.

it spread pretty fast from there.

i choose phoenix for the flashpoint. it's suckier than san diego. there is nothing even a little desirable about phnx. period. san diego at least is a beautiful collection of cities.

that's my tiebreaker logic and i'm sticking to it.

azfamdeals1 said...

Phoenix, (Maricopa County), is my call due to low IQ and low income levels.Coupled with high transiency and divorce rates and the majority of the population overextended, the "blood' will be running in the streets.

jack mehoff said...

Inland Empire will fall the farthest. The commute discount vanishes when houses in OC, San Diego and LA fall to the level of affordability. Riverside and Berdoo will become ghost towns, and Lake Elsinore will fall the hardest, IMO.

aznycblogger said...

I agree with those thinking Phoenix will be the bloodiest. While San Diego and Sacramento, etc. are looking real bad, at least those areas have some redeeming qualities and will at some point rebound. But Phoenix has nothing. Those who fled from CA to AZ will go back leaving Phoenix with tons of empty tract homes everywhere, bad schools and much less interesting people.

Marvin Gardens said...

I scan the google headlines routinely for bubble news, and it's just my perception that San Diego stands out in terms of "there's no bubble here" headlines. I always thought San Diego seemed the most delusionary, but I've never been to Phnx. Sounds bad there. I've been to Sacto. Pretty junky, out in the middle of nowhere. I don't really like any of those places with new shopping plazas with Bed Bath and Beyond baking in the hot sun as SUVs roll past on their way to Applebee's... Yuck!

Left Las Vegas said...

The "there is no bubble here, I assure you" capital is Las Vegas IMO, although biased.. LOL. But if don't believe me then check out some articles on the LVRJ's housing articles site: http://www.reviewjournal.com/news/housing/

What is so bad about Phoenix? It's a desert, much like Vegas, but probably without all the sex and gambling in your face and on billboards. I miss the desert. Maybe I'll move there once prices come down. Is Chandler nice?

Grinch34 said...

It is going to be bad all over. Phoenix prices are ridiculous, but San Diego's prices are insane. San Diego may have the more mild climates, beaches etc. but you do not find boat loads of money at the beaches or falling from the sky. Anyways, regardless of who retains the title (Phoenix, San Diego etc.) it will be a lose lose situation for everybody.

Tom said...

FL will be a bloodbath with rising taxes, higher insurance, hurricanes, and retirees MOVING out of FL. Plus we don't have the economy to support these prices. On top of that you are already seeing invetory rise at the same pace as San Diego and Phoenix.

The hardest hit areas will be:

CA, AZ, FL, HI, DC, Northeast, Las Vegas.

Secondary will be Seattle, Denver, Chicago, Boise etc..

Least affected, but still affected, TX, Atlanta (Huge inventories), PA, NJ, Michigan (even with the layoffs, they didn't have a huge runup in prices)

Areas that will do well... : Arkansas, Carolinas, Montana, Alaska :) places where there is still good value and retirees would consider living.

Anonymous said...

Builders must decide prior to completing unsold homes, to upgrade to granite , better cabinets, travertine ,etc. Homes had been selling before completion and the builders were make more money on upgrades. Now there upgrading at no cost to the buyer. Also new homes sales for dec were probably better than they should have been reported. Builders pushed to close homes due january to help dec #'s.

Bake McBride said...

Miami will be the bloodiest.....
Not only will demand dry up, but thousands of more condos will hit the market. They are buiding 3x as many condos in 2006 & 2007 then they did in the previous 10 years. Miami will take it in the shorts....

Grinch34 said...

Bake McBride said

Bake I just read an article (supplied by another blogger) on the over built condo market in Miami.

http://www.sun-sentinel.com/business/local/sfl-zconstruct28jan28,0,974215.story?coll=sfla-business-headlines

Sounds like your comment is right on the money.

Dave said...

Miami, LV, Phoenix, and California central Valley will be the hardest hit. The Central Valley has bad air, bad schools, no charm, and major pollution from large scale agriculture. There is no reason for a huge run up in this low wage area. Cities with a reasonable jobs base may not be hit as badly and Dallas and some midwestern cities may actually rise.

vrgopi said...

Hi, I have been looking to buy a house in the Phoenix area for sometime now. Its true that there are more houses on the market than before, but the prices dont seem to be coming down....

spacepest said...

devestment said...
Overpriced Badlands. Riverside, San Bernardino, Victimsville (Victorville), Bakersfield, Palmdale.

Hello everybody, my first post on this blog.

As an ex Californian, I can tell you those areas will be a blood bath. Traffic in Riverside, San Bernadino, and Victorville is absolutely awful now, compared to 8 years ago, and anyone commuting to a major city to work like L.A. had a two hour drive on average one way. Palmdale will be hit the worst in CA, because IMHO its the place where people who can't afford to live anywhere else or are supported by a nonemployed welfare lifestyle go.

vrgopi said...
Hi, I have been looking to buy a house in the Phoenix area for sometime now. Its true that there are more houses on the market than before, but the prices dont seem to be coming down....

Wednesday, February 01, 2006 4:36:41 PM

Give it some time. If you want to live the desert lifestyle in Phoenix, wait a year or two at least and see what happens to homes pricewise. Same thing for those people who want to move to Las Vegas (where I live currently).

So my prediction for really bad blood bath: Riverside, San Bernardino, Corona (nothing but an ex cow pastures with new houses build on them that smell bad), Las Vegas, Bakersfield, Victorville, Phoenix, and Palmdale getting my vote for most amount of "depreciation".

And for everyone who bought overpriced real estate in Phoenix and Las Vegas? What the hell were you thinking??? Even sucky areas in California like San Bernadino, Riverside, Corona, Bakersfield, and Lake Elsinore have much milder weather (and Victorville is within a 40 minute drive to nice weather for the miserable). So if it came to being stuck in an overpriced home that I couldn't get rid of, areas like Phoenix, Gilbert, Chandler, Las Vegas, and Lord help me, Pahrump, would be the last places in American I would want to be forced to wait out my debt.

BigDaddy63 said...

I gotta echo the votes for South Florida. Crack houses are going for $400,000 and up.

Speculators have purchased more than 50% of condos. It is all "hot" money and I/O's.


http://southfloridarealestatebubble.blogspot.com/

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