January 17, 2006

Sacramento last week. San Diego is now official. Pop goes the housing bubble.


One classic trait of bubbles is the feeling among the bubble asset holders that they'll be able to get out in time

Most times the crash comes to quick and too severe - think 1929, think tulip bulbs.

However, with housing, it's even worse, as it takes many months to list and sell a house.

Especially when there are NO buyers.

Here's the POP in San Diego. Memo to San Diego homeowners: It's too late to get out now. You'd be lucky to sell at a 30% loss from the top.

San Diego County resale house prices tumbled last month by the biggest number in 18 years of record-keeping and contributed to the smallest year-to-year rise in overall prices in six years, DataQuick Information Systems reported Monday.

The median resale price for existing single-family homes dropped $15,000 from November to December to stand at $550,000, the largest month-to-month decline since DataQuick began keeping records in 1988.

23 comments:

Anonymous said...

Well well well, all of a sudden we're seeing "smallest year-to-year growth in X years".

I myself was thinking we'd be well into 2006 before YOY comparisons against the tippy-top of the bubble in mid-2005 would be yielding these kinds of embarassments.

Wes D said...

I don't see how it's a negative when values decline from stupid silly highs to more reasonable costs. If a banana costs $1 in 2000 and rises by $1 a year, it shouldn't be considered a negative if the 2005 price of $10 per banana drop to $6 a banana because it should only cost $5 based on historical precedent.

Every asset always reverts to the mean. We will be in a really hard row to hoe for the next couple years in this housing market.

Anonymous said...

As a San Diego "local", I am scared to death about what is going to hit here. People here still do not see it coming, they still believe that these POS track homes and homes in neighborhoods you wouldnt want your worst enemy to live in are worth $750K+. "Prices will just keep going up", they say. WHO THE HELL CAN AFFORD THIS???? The housing ATM is what is running San Diego and it is going to be very ugly when these people realize that there are NO BUYERS (suckers) and they are now very upside down. If you bought a home in San Diego in the last 1-2 years for the flip, you are screwed!! I will be happy to see the flipper extinct.

Anonymous said...

I'm not sure I'd say it's too late to get out of the housing market in San Diego. Yes, you'll lose money if you bought at the peak. But if the market has a long ways down to go, you could still avoid some of the damage by selling now.

Of course, where's the bottom? Timing the bottom of the .com crash turned out to be very difficult (many people thought Sun was a great buy at $25 and $15 a share, because it had been selling at over $60 earlier... now it's under $5 and looks to stay there for a while). Same here... it'll be difficult to know when to sell and/or buy.

Another problem with housing markets... you can't slowly get in or out. I lost money during the .com boom, but because I kept investing a thousand a month over several years, I didn't get slammed. I kept buying as the market went up and down (and stayed very diversified the whole time). It's worked out alright.

Housing is like a stock market where you only get to invest in one company at one moment. You don't really have the option of spreading out your risk. In addition, people are vastly more leveraged in the housing market.

As a result, there are big, big winners and big, big losers. The last 5-8 years have created a lot of mighty winners. If they get out now, most of them will still do incredibly well.

There was also a dip just after the 9/11 attacks in 2001. It turned out to be a buying opportunity (the nasdaq gave a few of these fake-outs on its way down).

Those who got in this year may become the big, big losers. Or they may ride another couple years appreciation. I really don't know what will happen. I'm bearish on housing, and I have been since 2003 (when the ARMS took off). I wouldn't be surprised if housing takes back the gains since late 2003.

You rolls the dice, you pays your price. It's on now, no question about it.

Left Las Vegas said...

From the article: "Local housing experts expect prices to keep rising this year but probably by not more than 5 percent on a year-over-year basis."

The article overwhelms you with evidence of a downward slide in prices, yet they conclude the article with this sorry attempt at spin. "We have apples and oranges here, but the experts agree these are grapes."

The "this is not a bubble" crowd fail to realize that a continued runup in prices will make the housing crash even worse. Let's get this crash over with now before it gets any worse!

AmazingRuss said...

They talk about 5% appreciation at a 6%+ interest rate as a good thing?

On 500k, you're making fat payments for the priveledge of losing around $400/month for several years on the interest, and another $400/month on property tax forever.

Have heard to budget 1% of the house value on maintenance, so add another $400/month expense, for a grand total of $1200/month down the crapper for the priveledge of being a homeowner...in addition to having to come up with a $2500 payment every month.

If 5% appreciation is the best predicted outcome. I'll just stay in my $1100/month 500k rental house, and hang on to that other $1600 worth of payment thankyouverymuch.

The housing money's been made for this cycle. I didn't make it, but jumping in now won't change that. Keeping my cash reinvested in my business so they can't inflate it away.

Anonymous said...

> and another $400/month on property tax forever.

At least! For $500K house in the South Tampa area you'd be looking at $800+ a month in property taxes!

Anonymous said...

Any info on the reno,nv market.

Idaho_Spud said...

moman said: "I don't see how it's a negative when values decline from stupid silly highs to more reasonable costs. If a banana costs $1 in 2000 and rises by $1 a year, it shouldn't be considered a negative if the 2005 price of $10 per banana drop to $6 a banana because it should only cost $5 based on historical precedent."

How negative it is depends on an individual's circumstances. If I leveraged myself to buy that $10 banana, and might soon have the payments on my $10 banana going up, it might cause problems.

If I've borrowed against my banana being a $10 one, it might cause problems if I suddenly need to sell it. Say for insance if I lose my job financing banana sales, when suddenly nobody thinks they're worth $10 anymore.

It depends on an individual's circumstances. If you purchased before the big run-up, or if you can actually *afford* to make the payments on the loan you signed, and if your income doesn't depend on the housing market... then the paper loss of value of your house won't matter, any more than the bubble did.

On the other hand, if you ARMed your way into something you could barely afford, or took out a huge HELOC to buy something you couldn't really afford... well, expect some heavy surf.

BTW, I'm an ex SD resident (La Jolla and Poway). Got disgusted with being priced out of the housing market... back in 1988. I visit friends there occasionally. They all think they're filthy rich, while having done nothing to *earn* it. Smells like Tulips to me.

Anonymous said...

I love that picture! Ha ha! It's perfect.

Wes D said...

"How negative it is depends on an individual's circumstances. If I leveraged myself to buy that $10 banana, and might soon have the payments on my $10 banana going up, it might cause problems.

If I've borrowed against my banana being a $10 one, it might cause problems if I suddenly need to sell it. Say for insance if I lose my job financing banana sales, when suddenly nobody thinks they're worth $10 anymore.

It depends on an individual's circumstances. If you purchased before the big run-up, or if you can actually *afford* to make the payments on the loan you signed, and if your income doesn't depend on the housing market... then the paper loss of value of your house won't matter, any more than the bubble did."

Agreed- and it shows how little understanding people really have of economics. Realtor talking points about population and running out of land sound great but the numbers don't support it.

It's a huge bubble that will blow, just like the $10 banana that should only be $5, the housing market will revert to the mean. The real question is will it go under the mean in a more severe correction? ($3 banana in 2008 when should be $8)?

Anonymous said...

$15k isn't a huge drop considering how much it went up. true the market is saturated and overpriced but owning is better than owning unless you're putting all your $$ into one. Moderation in prices and moderation in materialistic wants = good.

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Anonymous said...

The median income for Encinitas is $63,954. Doesn't this say it all? Who is going to keep buying 750,000 2 bed cottages? Any market needs people buying into it at the entry level...it's on the verge of collapse.

The people that have houses already can try to buy up or down...but no one can buy in.

My husband and I make 120,000 a year and as a young couple with good credit, a masters level education, and about 20,000 saved, were told that the max mortgage we would qualify for would be 450,000.

Who is buying into this market? What young couple can save a quarter of a million dollars on the salaries offered in San Diego?

Please check this link to average incomes:
http://en.wikipedia.org/wiki/Encinitas,_California