From sddt.com
San Diego, like many metropolitan areas, has been slammed by the housing market’s decline.
But if reports are right, the area may have already bottomed out at a much more affordable levels.
This assessment was made during the UCLA Anderson Forecast conference at the San Diego Marriott Hotel & Marina Friday.
Peggy Johnson, a Qualcomm executive vice president, said while the decline in the housing market has been bad news for many, she likes the fact San Diego is now a much more affordable market.
“We couldn’t attract talent here due to the cost of housing,” Johnson related.
The California Association of Realtors (C.A.R.) reported that a starter single-family home was affordable to some 61 percent of San Diego region households in the first quarter of 2009.
The affordability rate was closer to 20 percent as recently as three years ago.
Jerry Nickelsburg, a UCLA Anderson senior economist, said the decline does seem to be leveling off. He added however, that it might be a while before housing construction picks up again.
A UCLA Anderson Forecast document projects permits for a total of 56,000 housing units of all types will be pulled between this year and 2013 in San Diego County. The Construction Industry Research Board reported permits for only 5,155 housing units were pulled in 2008. This was the lowest figure in at least a decade.
Nickelsburg said while there could be some modest rebound in residential construction by early next year, he doesn’t expect the building activity to build up a full head of steam before 2011.
“There are a lot of lost construction jobs. You might have a plumber who was working for a homebuilder who got laid off, tried going out on his own, but was unable to make it and is now among the unemployed. It has been difficult out there,” Nickelsburg said. “Home prices have fallen way back and they have remained soft.”
Mark Schniepp, a Santa Barbara-based consulting economist to UCLA Anderson, added that following a 45 percent drop within the past two years or so, he believes prices have bottomed out.
Nickelsburg did say that with few homes being constructed and population continuing to grow, a “huge pent-up demand for housing” is in the process of developing. Schniepp sees this as well.
“Unsold housing is starting to diminish. The existing inventory is getting depleted and it may already be too late to get the best deal,” Schniepp said.
Schniepp, who believes that housing is poised to recover now, nevertheless expressed some concerns about a recent spike in notices of default.
Both Schniepp and Nickelsburg said they believe the defaults shouldn’t return in waves the way they did during the past year, however. “We’re starting to get these defaults behind us,” Nickelsburg said.
Schniepp said the good news for San Diego County is the housing meltdown started earlier here than it did in most other parts of the country and should thus rebound sooner.
“Housing is poised to recover pretty early,” Schniepp said.
Schniepp said we are far from out of the woods yet noting that while home resales increased by 134 percent between the first quarter of 2008 and the first quarter of 2009, most of these were bank owned sales or short sales of properties that were in trouble.
“Homeowner distress was moderating, but it recently rebounded in February and March of this year,” said a UCLA Anderson Forecast document. “Defaults are rising but foreclosures have not followed. The recent (federal) Homeowner Affordability and Stability Plan, which is targeted to prevent foreclosures by modifying loans or postponing mortgage payments for delinquent homeowners is now just gaining traction. It may help to prevent a sizable portion of defaults from evolving into foreclosure.”
The report said if the number of foreclosures does decline, housing values will stabilize and bank-owned transactions at fire sale prices will no longer impact the market.
“We need to turn these into non-distressed sales so we can turn things around,” Schniepp said.
If that happens, Schniepp said the San Diego region could see the beginning of a housing recovery by mid-summer.
Recall that Schniepp also said… (Feb ’08)
“Recession is likely to be avoided in Southern California, but we’ll be close,” said Mark Schniepp, director of the California Economic Forecast, which released its county projections for 2008. “It’s a slowdown, not a recession.”
AND
“There is a limit to how far a home can go down. It’s time for buyers to realize they are about as low as they’ll go,” Schniepp said.
AND
Among the forecast’s bright spots is commercial real estate.
Today, nobody is held accountable. Words only serve the purpose at hand and are forgotten. I started to read the article and at the first mention of UCLA Anderson et al, and CAR I started to puke – well almost.
Well, at least he’s consistent….ly wrong.
Why is it so often those kinds of people speak as if the bottom third of the market is representing the whole market? Is it ignorance or willful deception? The subprime debacle is nearly over because: 1) The resets are basically done, and 2) a lot of foreclosures were processed. In the upper part of the market, neither of those two applies.
So…
1. Layoffs are still happening
2. Jobs aren’t being created
3. The only houses that are selling are foreclosures
4. The number of forclosures is going up
Yep, sounds like we’re on the road to recovery
Did you see the nut from CB in the UT yesterday? He was talking about reading the tea leaves, and they looked good, so you better not miss out. Mentioned that sales in Chicago were very strong.
If enough of these get printed, and those unsuspecting folks start/keep believing it, could it become a self-fulfilling prophecy?
Could the markets improve just because of babble? Isn’t that how we got here?
If people really want to believe that the market is improving, won’t people believe whoever steps up to the microphone?
I’m much more concerned about sellers than buyers.
These bottom predictions make me wonder if the study that said that medications like Prozac are getting into the water supply is bigger than I thought! What do you think Governator?
Governator: Personally I have felt much better since I have been living in Sacramento with all the normal people. In fact, I am on my vay to meet with Obama to become the emissions czar for the entire U S of A. I don’t vant to continue to be Governator of the state of faults that will not vote to increase their taxes and just listen to John and Ken on KFI radio all the time. You don’t like the double car tax? Yust vate untils I get in Washington……hahahahahahah
“Could the markets improve just because of babble? Isn’t that how we got here? ”
Yes in the short run. Nothing moves down or up in a straight line. Look how long people thought RE would never decline.
We got here because Greenspan believed Rand but he didn’t understood human nature.
I wonder how much Schnieipp was paid by CAR for his optimistic forecast. This is Value Range Forecasting, and his is at the high portion of the range!
This talk is just to get the fence sitters to act and help the recovery.
Facts are Facts and in Southern California, NODs keep increasing. It is only a matter of time before these hit the market as foreclosures. No job = no pay mortgage and until the economy turns around, we are in for a long, long recession. With what is going on in the auto industry, I just don’t see any positive news.
What industry is going to lead America back to solid footing? Biotech? HealthCare? Alternative Energy? Revived Telecom? Revived Internet? Who knows, but for the first time in my life, I’m seeing high and middle income earners where both husband and wife have no jobs, and their back-up piggy banks are getting smaller and smaller.
I personally don’t see a recovery for 3-5 years because there is no industry taking the lead to create jobs for the masses. I would keep an eye on the unemployment numbers to see proof when things are turning around. Since this is a lagging economic indicator, I would think that this would provide some basic evidence that the economy has already turned around. The stock market has started to rebound, but will it last? Time will tell.
On a side note, in Rancho Bernardo, I’m already seeing condos that were once at $220,000, now listing at $135,000. A year ago, these were thought to be great investment deals at $200 to $220.
Schneipp needs to stick with the facts and not wishful thinking.
Any thoughts?
Dwip,
I had similar thoughts running through my shaking head as I read the post and how they kept referring to the low-end of the market as “the Market.”
And let’s not forget, besides all these new foreclosure notices on the horizon, we have all these newbie “investors” snapping up the low-end REO’s because the rental numbers currently “pencil out.” Continued unemployment issues and increasing “rental” inventories are not going to let them all ride that train to riches as easily as they think.
I can easily imagine a whole new tsunami of lower-end “investment” defaults within a year or two. In addition to the coming landslide in the upper-end.
I can easily imagine a whole new tsunami of lower-end “investment” defaults within a year or two. In addition to the coming landslide in the upper-end.
Bingo. This is exactly what I see happening.
“The California Association of Realtors (C.A.R.) reported that a starter single-family home was affordable to some 61 percent of San Diego region households in the first quarter of 2009”
Affordable?
4x median annual income is what I consider to be affordable. The average price in SD is nowhere near that.
Buy now or be priced out forever!!!!!!!!
Future Qualcomm recruits can now afford a house in Chula Vista, what a joke.
Future Qualcomm recruits can now afford a house in Chula Vista, what a joke.
It’s no joke, they can really get a great deal on a new Chrysler or GM right now to handle that commute and start racking up those miles so by next year they will be just as upside down on the car as they are on the house.
Like it or not, things are getting better. Home prices and incomes are balanced. Things are still tough but stability is great news. Extremely well qualified buyers are now the norm.
We’ll piddle along for the rest of the year. Substantial price gains are a ways out but this grind along the bottom is over.
Mozart can you please cite your data on home prices and income being balanced. The median income in San Diego county is $50K with a median home price of almost $300K.
While I agree the median has a weakness since many people do not buy, but if you were to compare the SD ratio of home price to median income it is much higher than most other regions in the country. The North Jersey/NYC suburbs median income is 50% higher but it generates a lower home price. That regions unemplyment rate is also lower.
The REIC cheerleaders needs to admit many of the home price increases that occurred in Ca for decades was based solely on an expectation of fuure price increases. The fundamentals (and sunshine tax) generate an ever lower home price.
Isn’t this statement contradictory to reality…
“Extremely well qualified buyers are now the norm.”
I thought extremely well qualified buyers were a small percentage of the total number of buyers out there. If this is true it would mean a small percentage of buyers are purchasing the REOs and Foreclosures that get multiple bids because of price. Which would make sense considering only the lowest priced homes in the best areas are moving.
Home prices and incomes are balanced
Nope. Just not seeing it unless everyone is SD is making $200K per year. I think this last fall was a giant wake up call to a lot of people that it’s not a smart idea to be “house poor”. People need to save more and spend less on housing. This is why the middle is not jumping in and dropping $600k on a standard 4/2 home. Sellers still list their homes at that price and there they sit. If it was truly balanced those homes would be selling instead of just the bidding wars on the low end or reasonably priced homes.
Not true Shadash. Who would you describe as qualifying for loans right now?
Buyers are now putting 20% down or running the gauntlet of the FHA review process.
And, the higher end is selling with cash buyers. Check out Jim’s listings if you do not believe me.
Does anybody here look at that part of this website? Try thinking for yourselves sometime, it doesn’t hurt.
And, the higher end is selling with cash buyers. Check out Jim’s listings if you do not believe me.
There are sales but they are small compared to the total inventory. That’s the entire point.
That doesn’t make any sense. In a recession with double digit layoffs and people dipping into their savings, why would there be MORE buyers with lots of cash instead of less? What is happening with incomes and jobs that is creating this positive cash flow that can in turn be funneled into real estate?
I’ll keep going, this time with Doofensmirtz;
Do a small step and Google “San Diego Median Home Price” and “San Diego Median Income”. You’ll get the answer, it’s not the one you probably want.
HUD San Diego Median Income = $74,900
San Diego Median Home Price = $290,000 (includes condos)
Take another step; go to any mortgage calculator, plug in $290K at 5%. I didn’t assume any cash down payment. Mortgage at 1/3 of income = $56,016. This is why the media is reporting that median income and median home prices are balanced.
At least I stir things up here a little. Carry on with the group think, signing off for now…
Self-fulfilling prophecy? No. With time, the market will always prevail.
San Diego Median Home Price = $290,000 (includes condos)
Nope. Not finding that number for a SD median home price. I did find another number that you won’t like, ($435K including condos) – but we can Google all day and find different numbers to plug in. My point is statistics do not give the whole picture and it’s only a skewed piece at that. As long as jobs and incomes remain weak – people are not going to run in and purchase up all of the overpriced RE sitting on the market hoping for another bubble with all of their extra cash they have stockpiled during this current economic climate.
All what inventory sitting on the market? Inventory sucks out there. Everything we look at has multiple offers on it.
the problem with San Diego has always been that since it has a great climate, everybody and their brother tries to get a job down here, hence job wages are low for middle/entry level gigs. But all the VP’s and other execs who also are fortunate to live here have plenty of cash and are the ones that buy the Carlsbad and RSF homes with all cash. not to mention all the rich Mexican drug lords who are buying SD properties to launder cash. Moral of the story is that this is about as low as you are going to get in SD so buy now before your priced out again and inflation takes hold later this year!
All what inventory sitting on the market?
There is no shortage of sellers listing their homes at bubble prices in any area. For just $649K most of them would be happy to sell you their home they purchased in 2002 for $300k or less. But hey, they put in granite counter tops and stainless steel appliances. And of course they do need to pay off that pesky home equity line that they used to buy a few cars and a few vacations, so don’t you dare insult them with a low ball offer on their Palace/ATM machine.
At least North County Coastal is still above the normal. I wouldn’t want my area inline with SD median income, but then I don’t want my area over 4X – that is unless I live in RSF or SB or DM.
A couple of links to get more info:
1) Chart of jobs created or lost in San Diego county:
http://www.slate.com/id/2216238/
According to the data, 29k jobs have been lost in SD county in the 12 months from March 2008 to March 2009. Most of that is in the last 6 months if you adjust the time window on the bottom of the chart to get different time windows.
2) Mr. Shiller thinks house prices are going down further and is creating a security to allow investors to short home prices:
http://moneynews.newsmax.com/streettalk/shiller_short_housing/2009/05/15/214868.html
As for housing’s current status, Shiller doesn’t think the market has bottomed.
“The conspicuous fact with our [Case-Shiller] data is that prices are still falling, although at a somewhat lower rate,” he explains.
Mark Zandi, chief economist of Economy.com, puts it in only slightly more optimistic terms.
“I think we’re clearly moving in the right direction,” he tells Bloomberg TV. “I think a year from now we’ll find a bottom.”
3) How many houses are needed for new employees when there is a hiring freeze at Qualcomm.
http://www.forbes.com/2009/03/05/apple-layoffs-economy-technology-enterprise-tech-apple.html
While Qualcomm isn’t laying off, it is clamping down. Chief Executive Paul Jacobs announced a wage freeze and a hiring cap, ending a hiring spree that saw the company adding thousands of jobs to its payroll over the past few years.
Anyone know anyhthing about the hope for homeowners plan?Is this the classic hope in one hand and sh@t in the other?I’m glad the gubernmet is so helpful to all the gamblers.Can I get my money back I lost at the casino this weekend?Or do I have to rent a home from the bank to qualify for help?
FuturesWatcher,
Thanks for the heads up about the shiller housing short security. I just called and am having information emailed to me. It isn’t trading yet but will in a month or two.
Doofensmirtz –
2006 called, and they want their median price number back.
Regardless of whether I think there may be some more downside to the market, your innaccurate median price of “$435K including condo” demonstrates a complete lack of credibility.
As of March 2009
Median SFH : 319K
Median combined : 285K.
http://www.signonsandiego.com/sdhomes/area_homesales/index.php
-Mozart,
Median household income in San Diego City for 2008 was $49,422 and a bit over $53k for the county. This is from San Diego Area of Governments demographic info.
http://www.sandag.org/resources/
Median home prices, which are currently skewed by the large number of low-priced sales and the lack of movement in the upper end of the market, are currently $290k in San Diego county according to DataQuick.
http://www.dqnews.com/
That’s a median price to income ratio of 5.5. This is about the most affordable its been in San Diego in the last 30 years (see piggington), but is hardly affordable in terms of typical ratios discussed nationally (3 to 4).
Scooter,
Who peed in your Cherrios this morning? I just Googled exactly as Mozart instructed and the first link that came up was this
http://www.housingtracker.net/asking-prices/san-diego-california
Since you like catch phrases so much – “Don’t hate the player, hate the game.” But if that makes my credibility worthless, then I guess your right, don’t listen to me. What do I know? Hurry up and buy now because the bottom has been reached.
I for one believe prices will continue their slow decline.
Thanks uber_snotling for bringing some relevant figures to the table.
Does anyone think that median asking prices are relevant to measuring affordability ?
Here’s a little LA perspective, courtesy of the LA Times…
Sales were at record or near-record levels in foreclosure-heavy inland areas. Higher-priced coastal areas, including Malibu, Pacific Palisades, the Palos Verdes Peninsula and Manhattan Beach, as well as Beverly Hills, saw record or near-record lows in sales.
A tale of two markets is clear in Southern California, with low-priced areas appearing close to recovery, while wealthier areas face greater uncertainty as sales languish amid an economic downturn.
In lower-priced markets, “we’ve seen signs you’d expect to see not long before prices would normally stabilize: robust investor and first-time-buyer activity, 10-plus months of year-over-year sales gains, and less price erosion, if any,” said John Walsh, MDA DataQuick president.
Wealthier areas may face new troubles because “we still face two big threats to price stability: layoffs, which can cause foreclosures across the home price spectrum, and possibly a new round of foreclosures triggered by defaults on ‘option ARM’ and ‘stated income’ loans used in mid- to high-end markets,” Walsh said.
San Bernardino County showed the sharpest price decline in April, with its median price falling 48% from a year ago, to $138,500. Riverside County’s median price of $180,000 was a 39% decline. Los Angeles County prices were down 31% to a median of $300,000. Orange County’s median price was down 24% to $380,000. Ventura County’s median of $340,000 was down 24% from April last year and San Diego’s median of $290,000 was down 28% from a year ago.
http://www.latimes.com/business/la-fi-homes20-2009may20,0,4474695.story
*****
That last paragraph is what is driving some into the market. While many here are aware of more of what is going on, I know of at least two couples who are buying homes this summer. They see the discounts from the peak in the areas that they’re looking, and are also reading the headlines that ‘housing prices have bottomed out!’ or ‘housing prices have stabilized!’ They have run into bidding wars at decent homes with reasonable prices, primarily because those are few and far between, and that just feeds into their belief that the RE market has turned a corner.
Personally, I think that a lot of the purchases are being made by first time buyers and investors who are either looking to flip or cash flow. I believe this will lead to more vacant rentals (former renters becoming first time buyers and investor properties hitting the market as rentals) which will drive down rents. That will mean that sales prices will have to come down further to make the purchase a reasonable alternative to renting. If you combine that with the mid to high end defaults that will hit the market as REOs, this coming winter will be the beginning of a major decline for the higher end areas. We’ll probably even see the median sales price increase as buyers move to the heavily discounted mid to high end market.
While unemployment may be a lagging indicator, this housing bust and eventual recovery will be anything but ordinary. The government interventions have seen to that. It will eventually correct, but it’s very difficult to predict when that will happen.
http://www.calculatedriskblog.com/2009/05/median-price-mix-example.html
has a good example of how the median can be skewed.
“This illustrates why we need to be very careful with median prices (like from NAR, DataQuick or other sources). The mix can distort the price, and I expect to read about median prices increasing later this year or in 2010, even though actual prices are still falling!”
Remember that the California Association of Realtors CHANGED THE EQUATION for housing affordability in 2005.
In Orange County affordability went down to 11% in 2005. They (CAR) changed the game by releasing a new algorithm and viola more people could suddenly own a house!
Don’t forget that you can make statistics say anything you want them to.
In the meantime, I have a nieghboor who has pocketed close to $50K while he tries to ‘short sale’ his house. I don’t have evidence, but I have a gut feel he and his agent is in the scam.
When you use “viola” rather than “voila”, you lose at least 50% of your credibility.
Also, uber_snotling, it appears that your numbers are 1999 dollars adjusted for inflation rather than actual numbers. HUD has the 2009 median income for the county at $74,900.
What planet is this guy living on? All the moratorium did was keep those that were flourishing off the forclosures from making any money for that month. Foreclosures will be back four fold next month. Word from the top to all of us out here in the title industry is that we are about to get busy, real busy. Don’t let the media fool you. The moretorium was just a pacifier for naive, clock puncher Americans. The prices of REOs are still not realistic for today’s market. Today’s home buyers shouldn’t have to pay for the mistakes of the seller. It’s not their fault the sellers got took when they purchased their home in 05! Oh, and to 3 chicks, don’t forget your neighbor probably took cash out of his refi and bought a new Mercedes, leaving the 2nd mortgage lender to eat their mortgage. – Atlanta, GA.