LAT: All Eyes on Home Market in San Diego (focal point of bubble talk)

[DeepModem Mom]

All Eyes on Home Market in San Diego
As the city's real estate upsurge begins to slow, the question is whether it signals a downturn that could spread or just a return to normal.

By Annette Haddad, Times Staff Writer


....Once Southern California's hottest real estate market, San Diego is feeling a real estate slowdown. It's a trend also starting to be seen in other regions, such as Las Vegas, Denver, Boston and Washington, D.C.

Dramatic rises in home prices, particularly on the West and East coasts, have sparked a nationwide debate about whether the housing market is engulfed in a bubble that is about to burst.

San Diego has become a focal point of that discussion. Those who believe the market is about to implode say San Diego's cooling could be among the first signs of a pronounced downturn or even a possible crash in California. But housing industry leaders say the slowing in San Diego reflects the normal damping of a sizzling market that made millionaires out of many homeowners and investors. Because San Diego was the region's hottest market, it's not surprising that it's one of the first to simmer down and return to more normal conditions, they say....

***

Amid concern that prices may be peaking, more homeowners are selling, doubling the number of single-family houses and condos on the market from a year ago. Yet fewer are finding takers. Homes that a year or two ago sold virtually overnight — in many cases triggering bidding wars — are on the market for weeks....

***

Other once-torrid markets are also catching a slight chill. The pace of home price increases in Los Angeles, Orange and Ventura counties is becoming more sluggish, although not as much as in San Diego. Housing activity and price appreciation have moved from "hot" to "normal" in Boston, the tight Washington, D.C., market is starting to see home inventories rise, and Manhattan's condo market "was less frenzied" in the most recent quarter compared with the spring, according to a Federal Reserve report last week....


http://www.latimes.com/business/la-me-homes7aug07,0,7037595.story?coll=la-home-headlines

[tinrobot]

1. Inventories are up in LA

Tons of open houses here in Silverlake today. More inventory is always a sign of a softening market.

[progressivebydesign]

2. No bubble here!

We had a few weeks of slowdown, because of vacations and great weather, but it's perked right back up! Multiple offers on the first day on many houses.

[fasttense]

14. Where is here, progressivebydesign? n/t

[progressivebydesign]

54. Oops didn't see your question.

I'm outside of Tacoma, Washington... and there are literally people lining up to see houses that come on the market. We are getting LOTS of equity refugees from California right now.. we've had a few cash offers on our home for sale already.

[David Zephyr]

36. Same near me.

[cliss]

3. There are several reasons why the market should crash.

Interest rates are probably going to rise. I'm expecting a 1/2 point any day now. Just waitin' for Greenslime to make it official.

Housing prices are through the roof in S. California. My brother just got back. He brought back a whole pile of slick, glossy real estate magazines and threw them on the coffee table for us to look at.

We were dizzy: $4 million $3 million, $11 million for upscale houses. We laughed and wondered: how do you make your monthly mortgage payment of $12,000?

What goes up must come down.

The US economy is not doing that well, regardless of what 'Einstein' Bush blabs about. Our manufacturing base is gutted. We import WAY too much crap from China. Gas is going through the roof.

....all the makings of the "Perfect Storm".....in San Diego, that is. Watch out, new homeowners!

[Oerdin]

6. I'm not really following you...

I'm not sure what you have against Alan Greenspan since he's done his job as professionally and competantly as any man to ever hold the position of Chairman of the Federal Reserve. Secondly, the multimillion dollar houses are not the norm down here and even in high cost San Diego the average single family detached home goes for around $550,000 while the the over all median home price (including all homes not just single family detached) is $488,000. The rate of appriciation has slowed down to "only" 10% per year from a high of 25% per year over the last two years. The average median income in the county is $54,000 per person with the average married couple making around $75,000 so we're talking about 6.5 years of gross income to buy a house which isn't all that high at all. There are areas which are much, much worse and which don't have San Diego's strong economic or employment groth nor the rising population.

The 60 year housing appriciation average from 1945-2005 is around 11% per year in San Diego so we can expect things to slow down for the next year or two but for the over all average to stay very good.

[cliss]

8. Yes, I was focused on the high end of the

houses for sale. There were lots of houses in the $500,000 range, as well. But there was an abundance of really high-priced homes down there. One magazine was entitled "Luxury homes over $1,000,000.

I do not share your view of Alan Greenspan. I believe that because he artificially kept the interest rate low, he created many more problems than he thought he was solving. One of them is the housing bubble.

It's not all wonderfulness.

Check out some of the threads and comments here about Mr. Greenspan. You can use the 'search' function.

[Oerdin]

49. Yes, there are enclaves of the very wealthy in San Diego.

Just type in Rancho Santa Fe or La Jolla into a search engine because I imagine that's where most of your multimillion dollar houses are located. Rancho Santa Fe by itself is the second wealthiest zip code in America so that squews the numbers more then a little.

BTW someone asked me for a cite so here is an article printed last May in the San Diego Union-Tribune. The median home price is about $30k more then I thought and now tops $593k which is up 12.6% over the last year which is a great return but well below the break neck 25% we were experiencing for a while. Still, San Diego County is still much more affordable then Orange County which has a median home price of $682,200.

http://www.signonsandiego.com/news/business/20050524-1319-sd-homes.html

Now where are the places where there is a bubble and where is the bubble likely to pop first? Here's a list of locations which have experienced unbelievable appreciation in the last year which really aren't justified.

Reedley, 68.8 percent;

Colton, 64.7 percent;

Twentynine Palms, 63 percent;

Atwater, 58.7 percent;

Rohnert Park, 57.5 percent;

Laguna Hills, 53.3 percent;

Norco, 51.6 percent;

La Canada-Flintridge, 50.9 percent;

Adelanto, 49.1 percent; and

Victorville, 45.8 percent.

[AirAmFan]

9. Greenspan has had great PR, that's for sure. But if any single person

is most responsible for the stock and housing market bubbles since 1981, it is Greenspan. As Reagan's campaign economist, he devised the "voodoo" tax cuts that have bankrupted us over a generation. To PARTIALLY fill the budget gaps caused by Reagan's 60 percent cut in top income tax rates, as chairman of Reagan's Social Security Commission, Greenspan engineered the most massive tax INCREASE in history. This was a 25 percent increase in FICA tax rates for the poor and middle class, along with escalation of the "zero bracket amount".

This huge transfer of income from the poorest to the richest is the fundamental cause of bubbles in asset prices. The poor and middle class spend at least as much as what they earn. But how many Lexuses, yachts, and mansions can one plutocrat consume? Inevitably, most of the transferred money went to inflate the prices of shares of stock, luxury homes, and other financial assets bought by those with increasing amounts of "money to burn", while declining demand for what the pauperized poor and middle class buy destroyed jobs.

Greenspan is the biggest screw-up ever in the history of management of economies. See http://www.buzzflash.com/hartmann/05/07/har05007.html .

[leesa]

15. My. My. Aren't you in dreamland. Work for the city PR dept?

[fasttense]

16. Don't know where you get your numbers from Oerdin but obviously NOT from

the the US Census. They report (in 2003 (last census) inflation adjusted dollars) average income for Household with ONE earner at about $45,000 in MD, $51,000 in NJ, $40,000 in California (high end states) and $32,000 in Alabama, $29,000 in Louisiana, $27,000 in New Mexico (low end states). http://www.census.gov/hhes/www/income/medincearnersandstate.html
Nowhere do they have a single earner at $54,000. You are quoting two earner income as one.

But this makes me question your other numbers too. So what is your source for all those great financial numbers that Greenspan has made possible for all us middle class folks?????

[Gormy Cuss]

18. Apples. Oranges

You linked to a Federal census table of statewide median incomes. Oerdin's post references county median income. They were not sourced nor did they reference the year those were median amounts. The most county level calculations by the Franchise Tax Board (our IRS) is for 2003. http://www.ftb.ca.gov/aboutFTB/press/2005/median2003.pdf
The San Diego County median income (AGI)for joint returns was $59,604. Since that's adjusted gross income, gross incomes such as Oerdin quoted are quite likely.

[Oerdin]

48. That's for the entire state of California

Not just San Diego County. The bay area has even higher incomes if you'd like to look it up.

[David Zephyr]

37. No crash.

Many of the folks purchasing those $3-4 Million homes are doing so with cash.

Foriegn investing in California real estate continues.

As rates rise, the fear of missing the market increases.

There is no bubble, although many are wishing for one.

In many parts of the world, it takes generations to finally pay off a home. Sadly, the 50 year mortgage is now a reality here in the U.S.

[Oerdin]

4. As a homeowner in San Diego...

I can confirm that the last few years have been very good to me. My parents have spent most of their spare cash over the last 15 years acquiring rental houses, of which they know own 6 in addition to the house they live in, so the tripling of prices over the recent years has pretty much assured a very comfortable retirement for them even if prices decline considerably.

Such a torrid rate of increase could not be sustained forever plus interest rates are rising so there is nothing unusual or unexpected about the rate of increase slowing down from the 25% per year appreciation rates we've been seeing over the last few years. That said, the current rate of increase is still the highest in the nation so, as yet, there aren't many people crying. During previous market downturns like 1991 or 1982 housing prices declined by 20% but were fully recovered in three years after the 1982 downturn while prices recovered in just two years after the 1991 recession. The fundamentals of the local economy continue to be extremely strong, unemployment in the county is 5.3% and dropping, income is significantly up due to the boom, the desirable location & climate results in net immigration and a rising population, while the supply of land is not increase.

We do have an issue with affordability when you compare income to housing costs, however, the San Francisco Bay area has been even less affordable for the last 20 years and that has hardly seemed to effect the appreciation rate or the local economy. The consistant talk of a bubble in the bay area haven't come true and we're not likely to see a broad crash in prices and instead will either see a flatting out or a period of slow decline followed by the resumption of modest price increases.

[nosmokes]

11. i made out like a bandit in san diego real estate

even with divorce and addiction in the picture. but it's insane. for what a 1 bedroom condo on the beach, not facing the surf, mind you, sold for, i'm sitting in a 4 br 2ba on 5 acres w/ river frontage15 - 20 minutes to downtown eugene. i have my very own mountain spring i get my water from, a two stall barn, a garage, a garden, apple walnut pear, and hazlenut trees, and i don't hafta share itw/ 2 millon people. and eugene/springfield has a fairly responsible growth ethic, with urban growth boundraeies and dedicated green belts. i

[henslee]

35. Fer a second\, I thought you said two still barn. Man, your spread

sounds great, I'm coming over! I love the nw.

[Misskittycat]

26. The view is a lot less rosy if you're a San Diego renter. n/t

[AirAmFan]

5. It costs 2.5 times as much per mo to buy as RENT the same SD house,

according to Paul Krugman (NY Times). That statistic tells me the party is at least winding down.

From http://www.nytimes.com/2005/08/08/opinion/08krugman.html :

"Business Week reports that by 2004 the cost of renting a house in San Diego was only 40 percent of the cost of owning a similar house - even taking into account low interest rates on mortgages. So it makes sense to buy in San Diego only if you believe that prices will keep rising rapidly, generating big capital gains.

That's pretty much the definition of a bubble. Bubbles end when people stop believing that big capital gains are a sure thing. That's what happened in San Diego at the end of its last housing bubble: after a rapid rise, house prices peaked in 1990. Soon there was a glut of houses on the market, and prices began falling. By 1996, they had declined about 25 percent after adjusting for inflation. And that's what's happening in San Diego right now, after a rise in house prices that dwarfs the boom of the 1980's."

[Oerdin]

7. Those statistics are nation wide and not California specific.

The 1990-1991 recession effected housing prices differently in different parts of the country. San Diego had a 20% decline since much of our manufacturing base revolved around defense industries however prices had completely recovered with in with in two years. Krugman normally does a good job so it is a shame to see him switch back and forth with statistics like that. Real estate is all about location, location, location and San Diego has one of the best locations on Earth. The northeast's housing prices were in a major funk after the 1991 recession and it lasted well into the 1990's but that didn't happen in California's coastal regions because the economy was better, the weather & lifestyle attracted large numbers of immigrants, the natural birth rate was high, and there continued to be a shortage of housing.

The rental vacancy rate in San Diego is still less then 0.5% so Krugman is very wrong about one thing. He claimed that buying a house only makes sense if you believe large capital gains will becoming very soon. That's incorrect. Many people buy houses in order to rent them out to people who don't have the capital to buy their own home. A 1250 sq ft 3 bed/2 bath in the suburbs rents for around $1600 while with good credit your mortgage is right around $1600 per month. That's a good investment even if prices remain flat or decline slightly. Sure, property taxes have to come out of your pocket but if you have the capital to place a larger down payment then your mortgage costs decline still more. Since there is a 0.5% vacancy rate you are not likely to find yourself with an empty house for long. There are simply to many young, well educate professionals who don't have $100,000 to put down in order to buy a house of their own so you have little fear of not being able to keep it rented.

[AirAmFan]

10. Did you read my post? 'cost of renting a house IN SAN DIEGO was only 40

percent of the cost of owning..."

That doesn't sound like a nationwide statistic to me.

[cascadiance]

39. I wouldn't doubt this...

I've been renting here since 2001 after I bolted from the high housing costs in the Bay Area that were going crazy at the time. And as a renter up there in San Jose, I can tell you that for a while around 1999-2001, it was absolutely nuts, even after the dotcom boom had started to collapse. The reason was that the developers there had *really* shortchanged building reasonably priced housing units, which also affected the availability of reasonably priced rental units as well. Up until that point there was heavier demand in the expensive houses when certain folks were making a boon off of stocks and that was where builders were focusing their energies. The rest of us up there, seeing our stock options (that we were getting in lieu of salary in startups) diminish, far more of us were sticking in the rental market at the time. The rental market there was *far* worse (I'd say about double in prices to what I've had down here in San Diego for equivalent value of housing). With the availability tight, one had to often times wait in line with 10 or so people looking at apartments while owners reviewed your applications. If you had anything like pets, or the like that took you out of their "primo" list, you'd have a very tough time getting a reasonably priced unit there. And I was living in an older 4plex that was no great place by any means, but the landlord, like many others there was finding ways to kick out people when their lease expired and raising the rents 40% on the folks moving in. That was pretty common then. There were noted cases of people living in animal housing (dog houses and the like) there.

I've not felt the same pressure as a renter here in San Diego, though I do feel I'm getting to the age where I would like to start building more equity. Part of me wishes I'd started earlier buying a house. I started looking more seriously about a couple of years ago, but when a buyout of the company I was working at was happening not too long after I started looking, that uncertainty, plus the skyrocketing prices have put me back on the sidelines. If prices get back to where they were a year or two ago, or if I get a substantive increase of salary, with a more clear future of work here, I might get back in. But this is one buyer (and I think I'm probably like many here) who's not going to jump into an overpriced house with a problematic loan, and not sure whether I can be here more than a year or two as well. Would like to buy a house, but I'm content to wait it out now. If the crash of people being forced to sell happens, I might jump back in, but it would have to drop quite a bit (so that San Diego is closer to national averages, etc.) before I'd start looking seriously again.

I might even be moving to Vancouver or someplace like that, if Bush continues on his warpath as he has been over the last year.

[fasttense]

17. Oerdin, can you provide me a link to the numbers you quote?

Especially you income numbers. Please provide me some sources and links. Also, I read Krugman and don't remember him mentioning the terrific income numbers.

[Gormy Cuss]

23. Please read post 18 for some sourced income info

Also extrapolating from the income limits in the Fair Market Rents (used to calculate eligibility for subsidized programs)for SD county, median income estimates for 2005 are 48K for a household of one and 69K for a household of 4.
http://www.co.san-diego.ca.us/sdhcd/library/income_limits.html

I have no idea where Oerdin came up with any of the numbers, but his metric is not that far off the mark of government estimations for San Diego county.

[Oerdin]

50. Sorry.

http://www.signonsandiego.com/news/business/20050811-9999-1b11economy.html

I was doing the figures from memory so I likely did mix up the county figures with the city figures. Here is a Union Tribune article which estimates the city per capita income at $40k however that doesn't include the many richer cities which are officially seporate but effectively are just suburbs of San Diego. I'm thinking of places like Carlsbad, Solana Beach, Del Mar, Poway, Fairbanks Ranch, San Diegito, etc...

I'm sure if we included those areas which are effectively part of the city then we will get very close to the the figures I was talking about earlier; the low to mid $50k.

[AirAmFan]

19. $1600 buys a 3br/2ba house in SD County? You're off by a factor of roughly

TWO by my back-of-the-envelope calculation.

An easy-to-remember figure that jumps out of 30-year fixed mortgage tables is that a $100,000 mortgage costs about $600 a month at 6 percent (Get it? Two sixes--6 percent and $600.)

Since your $1600 is two and two-thirds times $600, your example house costs about $266,667 (two and two-thirds times $100,000). But the article linked in the OP says the median home in San Diego sells for $493,000. That's about 1.85 times $266,667. The article didn't say what the size of the median home is, but I'm guessing it's smaller than what you specified. Hence my rough estimate that you are off by a factor of two.

You yourself (in post #6) quote an average price for a detached single-family San Diego home at $550,000 = 5.5 x $100,000. That would put the monthly mortgage at 5.5 x $600 = $3300. If your rental cost estimate of $1600 is accurate, then by your own implicit admission the ratio of monthly mortgage cost to monthly rent for the same San Diego home is $3300 / $1600, close to what Krugman and Business Week say it is.

Such a ratio is not sustainable indefinitely. That is, San Diego has a real estate bubble.

[Oerdin]

51. I bought a house a little over a year ago.

Put $90k down and my monthly mortgage is slightly $1624 per month. I do have to pay homeowners fees on top of that but they aren't to bad. My father owns the same model in the same development which he rents for $1595. I'm telling you as recently as a year ago people could get a house in San Diego and end up only paying $1600. Hell, if you want to go with creative accounting the interest only payment on my loan is $1000 per month though I would recommend that.

[sendero]

20. Really?

So let me get this straight. An "investor" is going to buy a house he can rent out for $2000 a month when his mortgage payment is $5000?

The ONLY reason anyone would do that is if they think that rents are going to rise to the level where they can profit. With rents at 40% of buying costs, that would require some serious price appreciation, exactly Krugman's point.

How do you refute his point?

[AirAmFan]

21. In your example, the price of the house would have to rise

by more than $5000 - $2000 = $3000 A MONTH just to cover the mortgage payment, let alone recoup the down payment the "investor" had to pay upfront and generate a profit worth the risk.
That's assuming the "investor" has a renter in the house, or else appreciation has to be at least $5,000 a month.

I'd bet that many such "investors" don't bother to rent out their properties, expecting to "flip" them within a few months. I wonder how many renters of "investor"-owned homes have month-to-month leases?

[sendero]

22. That is exactly my point...

... the only reason an "investor" would buy in such a market it that s/he is expecting massive price appreciation.

That sort of price appreciation cannot go on forever. Some would say it is already in its end days for this cycle.

In a "normal" environment, a person buying houses to rent would expect to recover *most* of the mortgage payment with rental income, at a bare minimum.

[AirAmFan]

24. And most "investors" will HAVE to sell the moment prices start leveling

off. After all, they're paying monthly mortgages, and will be forced to choose between cutting their losses or adding to their losses every time the monthly mortgage is due.

Would you pay $3000 to $5000 a month indefinitely, hoping that somehow the good old days of several percent appreciation a month will return? That could take YEARS!

[sendero]

25. True...

... and this is why when speculative bubbles unwind (and an easy measure of whether or not this is "speculative" is the ratio of rents to ownership expenses on a similar property) they often do so with amazing speed and carnage.

There is a "rush for the exits" and that depresses prices quickly and decisively.

People who are owning a house to live in are not in particular danger, folks who bought in a long time ago aren't either.

But the "investors" who buy on speculation of continued nutso appreciation will get creamed. At least there is some justice in the situation :)

[Oerdin]

53. $5000 per month?

I think you missed the point of my previous post. My mortgage is only $1600 and the same house in the same development is renting for $1595. I'm not sure where you are getting the $5000 figure but I'm telling you as recently as one year ago a single person with an average income and a nice nest egg could pick up a house in San Diego and the mortgage was about the same as the rent. This is in the Mira Mesa area so maybe that isn't true in the "rich" parts of town but there are still nice middle class areas where that is still true.

[Voltaire99]

12. Scary times.

It would be nice if all we had to do now was experience schadenfreude over greedy speculators getting their comeuppance.

But as Krugman notes today, there'd have been no recovery at all over the past four years without the housing bubble driving "soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing."

Take that away, add rising interest rates and soaring oil prices, stir in the decimated manufacturing base and the shrinking middle class, top off with a dash of outsourcing, garnish with massive borrowing against a losing war, and serve with severely reduced bankruptcy protection.

Let's just say that the prospects for emergency socialism are improving all the time. Pity we don't have a competent, let alone a humane, federal government this time round.

[2Design]

43. you are so right about the false economy

it is fuel with false money from over inflated housing

people are using their homes as banks

and others are making hand over fists on buying and selling.
So many homes have gone up 50% in less than two years

the people hurt are those who want to buy at the low end

peoples income is not there - the housing is continued to be bought with profits from flipping or on complete speculation

Many have multiple homes while others have none

It is a sad country where so many people, and children are homeless while this continues -

affordable housing is impossible in most areas
People have no idea how there is only debt and no real income

[The Sushi Bandit]

13. What about here on Maui?? It is TOOOOO HOT

and totally unrealistic prices... nothing is affordable

[Robbie Michaels]

27. Another Reason To Consider

I had a discussion about this last night with a friend of mine, and what no one is talking about is how San Diego's fiscal crisis could be a factor in this mess.

The city of San Diego is near bankruptcy, and their credit rating is just one tier above junk status. In order to improve on that rating, the city will have to find a way to lower the deficit in their pension plan, among other things.

How can they do that? Raising property taxes!

We've already seen a few longtime businesses leave San Diego for other states because of the high cost of doing business here, and raising taxes will only make matters worse.

Buck Knives, who were based out of El Cajon for many years, left for Idaho last summer. Who's next?

[slackmaster]

28. Proposition 13 severely restricts ability to raise property taxes

The only time the tax on a property can get raised significantly is when it's sold on the open market.

[Robbie Michaels]

30. That's How They Will Do It

It wouldn't surprise me at all if this takes place.

[slackmaster]

31. They won't get mine

I'm not selling no matter what.

[nini]

47. The taxes are what's keeping me from buying

I can afford the mortgage but 650 dollars a month for property taxes is killing me. AND the folks next door only pay $600 a year?!!??!

I think we've gotten to the point where something has to be done for those of us who weren't old enough to own a home in a good area when Prop 13 passed.


btw: I'm not targeting you.. your post just allowed me to whine about prop 13.

[CAcyclist]

32. They need a 2/3 majority to raise property taxes

as a bond measure, otherwise they can't raise property taxes more than 2% a year, if I am remembering correctly.

I do believe that we should amend Prop 13 to allow revaluations of commercial property, though and I speak as a business owner who would have to pay more if that ever passes. Businesses can pass along increases as a cost of doing business to their customers, who are not just the local public, but also people all over the world.

I live in the Bay area , which is the most expensive area in CA, and I DON'T see businesses leaving this area because of high taxes. There are a lot of considerations about where to situate a business and business taxes are a very small part of that. My professional dues cost twice what my business taxes cost - it's a very minor cost compared to all my other expenses. My rent is very expensive but that clearly has little to do with the actual property taxes since the owners inherited this shopping center from their dad, who had the property in the 60's.

[12345]

33. right. you don't have to raise the tax rate if the values increase.

taxes rise all by themselves as property values increase. we renovated a place, and the property taxes increased $1000/yr over the past year, and they haven't even re-appraised the property and factored in the renovation...

i guess it's just another way to use a real estate bubble to create artificial wealth, in this case for the local governments...

[demzilla]

29. "Risky loans" have financed the boom

To quote further from the LAT article:

Another worry is the high level of risky loans. San Diego has been a standout in the use of unconventional lending. It ranks No. 1 in the use of so-called piggyback loans, which let borrowers with low down payments finance a home purchase without paying for mortgage insurance. And the majority of buyers in San Diego still use loans with an "interest only" option, a type of adjustable rate mortgage in which borrowers need only pay interest in the first few years before the monthly payment mushrooms.

"In order to purchase a home, a lot of people have to resort to risky mortgages," said Celia Chen, an economist with the national research firm Economy .com in West Chester, Pa.

I am amazed that a MAJORITY of buyers are using interest-only loans; this means the majority of buyers cannot really afford the houses they've bought -- looks more like the houses, aka mortgage companies, have bought them. This market will work only so long as rapid gains in value continue, and that's not happening anymore.

[David Zephyr]

40. Interest Only Loans are Really "Bridge Loans"

Nothing exotic or risky about them at all.

A Bridge Loan allows a homeowner the opportunity to buy before selling in most cases and then wait for top dollar for their home.

Interest only loans have been a part of banking transactions in business for over a century. It's only recently that this tool has been available to homebuyers. It should have been available eons ago.

Also, I must correct your statement that a majority of loans are interest only. This is not the case.

[ljaycox]

41. The last time these loans....

were available to purchase residential real estate in the US was......(drum roll please): 1929
These loans (also known as ballon notes) are used in commercial real estate transactions. They are a terrible idea for people to use to purchase their homes. I think you may be a mortgage salesman.

[David Zephyr]

46. Ha.

Well, you guessed wrong. I am not a "mortgage salesman" as many here at the DU well know as I work in the technology sector (nuts and bolts stuff). Bridge loans are a terrific tool for buyers.

Your drama about 1929 is laughable. Are you really suggesting that single family home owners purchasing their homes caused the crash? You've got to be kidding me. You do no help to your argument by suggesting such nonsense unless...

Since you speculated about me and my motives, I'll return the favor...I think that you may be shorting REIT options in the market and perhaps are down talking the market in internet forums perhaps to hedge your bet?

[demzilla]

44. "Majority" wasn't my term

"Majority" was in the quote that I quoted from the LAT. A majority of San Diego buyers, according to the LAT, are using these loans. I doubt that a majority of buyers are using the loans to "buy before selling and then wait for top dollar for their home." This implies a majority are trying to flip properties, as opposed to find a way into the housing market.

At any rate, this proves my point: If they can't get top dollar anymore, and if the market fails to appreciate, they're screwed.

[Oerdin]

55. Of course a "majority" have an interest only option!

EVERY SINGLE mortgage company I ever saw, and I've seen a few, has a mortgage only option just like a credit card has a minimium payment option. The fact is most people don't use that option. Most people stick to the 30 year plan or, if they can swing it, the 15 year plan. I alternate back and forth between the 30 & 15 year payment in order to get a bit ahead of my loan.

[BiggJawn]

34. In my area, we have a "stagnant" market.

Foreclosures are up, not only on owner-occupied dwellings, but rentals are being seized, too.

And I don't get it. Existng houses are going to the Sheriff's sale, but they keep destroying farmland and making new "McMansion" and "planned" communities so far out of town that you need a gallon of gas just to drive to the video store.
Guess people are getting squeamish about sleeping in a bedroom somebody else has screwed in or touching a bathtub that's had strange bare buns sitting in it..

[markam]

38. bathtub that's had strange bare buns sitting in it

My wife made me replace all the toilets in our 80 year old house when we bought it, so you may be on to something.

Off-topic, but I wouldn't trade my 80 yo stone house for 10 McMansions.

[girl gone mad]

45. I moved to a rural area..

to get away from suburbia and yuppified city life. Now our beautiful pastoral landscapes are rapidly being replaced with eyesore McMansion neighborhoods. Hastily built clone houses on near zero lot lines easily sell for twice what I paid for my beautiful home, built by the original owner, with reclaimed wood siding and floors with acreage.

I do think that people are lured by the idea of something new and they don't care that it isn't built to last. The 'bigger is better' mentality is also at play here, as stupid as it is considering the hot Texas summers. We couldn't afford the electric bill on one of those giant places, let alone the mortgage payment. The irony is that most of the people buying these homes probably can't afford it either. They are just trying to keep up with the Joneses.

I'd love to see the growth come to a halt. Sadly, I don't see it happening soon enough to preserve my sleepy town. The McMansions are the housing world's version of the SUV. Developers can make them on the cheap and sell them at inflated prices. They have managed to tap into some deep psychological desire that people seem to have for new, conformist, over-sized, overpriced, inefficient things.

[sintax]

42. The avaricious rent-seekers and greedy bankers

are all around these days. The opportunistic home sellers say, "That's what the market will bear", as if to assuage their conscious. It's a frenzy of self-interest with many of those involved claiming to be 'liberal' in their politics. It's gross.

The fact that we live in a society where people have to go into debt for shelter is a gross injustice and a sure sign of a pathologically sick culture.

Children out on the street.

[Oerdin]

52. I see no reason why a liberal

Cannot also be a capitalist. Infact I'd say by definition a liberal and even socialist remains commited to the capitalist system because it is the best system though we'd like to see the rough edges curbed and the working class recieve state help (in the form of universal health care, universal higher education, a progressive tax system, a large inheritance tax to prevent a perminent upper class, etc) in order to curb the rough edges. The only "leftist" who isn't supportive of the capitalist system is a communist but their ideology has failed every where it has ever been tried so most people don't take it seriously.

[cosmicdot]

56. just being curious, did a search in zip code 92107 (Ocean Beach)

in SD ... just for fun ... to see what a half-a-million buys ...


the first single family property (not condo/TH) that came up using realtor.com is this house ...



2 Bed, 1 Bath $545,000
nice if you can afford Estimated payment: $2,593 Per Month




1 Bed, 1 Bath
500 Sq. Ft. is accepting offers betwen $569,000 - $589,000
$2,597 Per Month




$699,000
2 Bed, 1 Bath
814 Sq. Ft.



$939,000 - $987,876
3 Bed, 1 Bath
1,000 Sq. Ft.


When I recently visited SD, I noticed a number of luxury (do they build any other kind of housing these days?) high-rise condo units downtown ... are they 100% sold? ... the buildings appeared to be either nearing completion or looked vacant.

[Oerdin]

58. That's because OB is on the BEACH! Go inland.

92126 is the Mira Mesa area which is a nice middle class area about 12 miles from the beach so it is far enough back that you don't have to pay extra but close enough to the ocean where the weather is still very nice.



3bd/2 bath single family detached home, 1441 sq ft, 0.12 acre lot. $545k
http://www.realtor.com/FindHome/HomeListing.asp?frm=byxmls&xlid=1048957548&fh=on&lnksrc=feathome&poe=realtor


3/2, 1405 sq ft, 0.12 lot $535k
http://www.realtor.com/FindHome/HomeListing.asp?frm=byxmls&xlid=1049963310&fh=on&lnksrc=feathome&poe=realtor


3/2 1350 sq ft, town home with no common walls, $410k
http://www.realtor.com/FindHome/HomeListing.asp?snum=6&locallnk=yes&frm=byzip&mnbed=3&mnbath=1.5&mnprice=0&mxprice=550000&js=off&pgnum=1&fid=so&mnsqft=&mls=xmls&areaid=92126&typ=1%2C+2%2C+3%2C+4%2C+5%2C+6%2C+7&poe=realtor&zp=92126&sbint=&vtsort=&sid=052B83270311C&snumxlid=1049189509&lnksrc=00001


3/2 apartment with car port, 1000 sq ft. $375k
http://www.realtor.com/FindHome/HomeListing.asp?snum=2&locallnk=yes&frm=byzip&mnbed=3&mnbath=1.5&mnprice=0&mxprice=550000&js=off&fid=so&mnsqft=&mls=xmls&areaid=92126&typ=1%2C+2%2C+3%2C+4%2C+5%2C+6%2C+7&poe=realtor&zp=92126&sid=052B83270311C&sbint=1&sblo=1&snumxlid=1049399650&lnksrc=00001

If you wanted to go out to east county you could take off another $75k but I like living on the coast. Prices are bad but there are still places which are pretty obtainable if you realize your taking the first step up the property ladder. That said I'm glad I bought a year ago when things cost $100k less.

[Barkley]

60. San Diego: "America's Finest City"

San Diego was one of the first places to experience California's energy crisis a few years back.

Unlike other areas, San Diego's deregulation allowed energy retailers to pass on the higher wholesale market prices to the customers.

People experienced very, very high energy prices.

I believe the price caps were eventually placed on the retail market

[Zorro]

57. There's a definite slowdown in my San Diego neighborhood

There's a couple of nice homes that have been on the market for over 5 months now, and the prices don't seem unreasonable compared to what I've seen in other areas of the county.

And the year-to-year price increase for my zip code was only 3% for July.

IMHO prices are stagnating here. I think the bloom is off the San Diego housing rose; the next 6 months should indicate whether the prices will hold steady for the short term.

But I'd bet on a gradual price decline.

[Oerdin]

59. I agree

Prices rose to much to quick and now we'll see stagnation for a while or even a slight decline. Most people won't rush to sell their house in a soft market and instead will hold until things firm up or income catches up to the price increases. My whole point has been that the crash some people have been claiming is coming likely isn't in the cards unless the economy seriously heads south or the population stops rising and starts falling.