San Diego 10pm News..."now is the time to buy" condos!

I was in the middle of writing my post for Tuesday when I heard a story come across the 10 o'clock news about "San Diego condo's...a time to buy?" Needless to say, I stopped what I was doing, and watched the entire piece. When it was over, I saved the post I was working on for another day, and decided to write this one.

Before I get into the news piece, I feel that I must offer you a very important trivia question: What is the official bird of San Diego??
Answer: THE CRANE!

Now that we are all a bit smarter, or laughing a bit harder, let's look at this news story and see what they had to say. The story started off by talking to a Real Estate Consultant and a then a Real Estate Agent. They said the days of 20%+ returns were pretty much over. They also said that investors and flippers, who were responsible for the big increases in price, seem to have left the market. They also went on to say that many people could be renting their condo's with negative cash flow for a while. They agreed that people need to be ready for more normal returns in the single digits for a while. They mentioned that there is a growing inventory of condos downtown and in San Diego area.

Ok, nothing in there that I can really argue with. I think anybody with a normal medula oblongata would agree that the 20-30% annual returns are over in San Diego for the foreseeable future. The news piece showed pictures of condos under construction, for sale signs, condo conversions, and more.

Then it was time for the story to answer the question "is now the time to buy?" They spoke with both real estate "professionals" again, and it the answer is.....YES, it is the time to buy! BUT hold on a second...there was a caveat!!!!! The caveat was that you plan on staying there for a few years. The realtor said that unlike past years when you grabbed your realtor and there was only 5-6 condos to look at, now there are a dozens. They went on to say that with the increase in inventories, you had more choice in finding the right property for you. So YES, now is the time to buy, just make sure you plan on staying a few years!

Whew, I'm glad they answered that question for me. I was getting worried it might not be the time to buy. Before they conclusion of the piece, they mentioned that some other experts say San Diego prices could decline as much as 15% over the next 2 years. This was quickly followed with the 'real' experts who say that property will probably go up about 10% a year, and worse case, property will just 'flatten out' for a while. The reasons San Diego won't burst is because of strong job market, population increases, and property shortages.

So there you have it. It is just amazing to me how people can look at the data, yet come up with a stupid conclusion. Why would it only be a good time to buy if I plan on staying put for a while? If property is going to keep going up 10% a year, why do I need to stay for a while? Why can't I buy condos for $400k, and sell them for $484k in 2 years? Even the worst case is that things flatten out, and I sell the place for just a bit more than I bought it for? You have to live somewhere right?

I guess they haven't had a chance to read this article from the San Diego Union Tribune titled "House Resales Take a Tumble In December". From the article: "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." Other notable stats, were that the median price of a home from December 2004 to December 2005 was still up, but by only 4.8%. The annual growth was still 7.6% in 2005. I'm not a founding member or Mensa or anything, but I'm pretty sure 7.6 still represents single-digit growth. This next part is VERY telling for me:

The yearly appreciation rate also represented the biggest slowdown from one year to the next in DataQuick's records. From 2003-2004, the median resale price rose by 21.1 percent.

The next biggest slowdown occurred at the start of the last big real estate bust, when the annual appreciation rate went from 16.6 percent in 1989 to only 3.7 percent in 1990.

So basically, the last time appreciation slowed by an amount this large, things took a turn for the worse.

I also need somebody to explain the shortage of property to me as well. By looking at ziprealty.com, it seems that the number of properties in San Diego has increased 10% in since the beginning of the year. On January 1, 2006 there were 13,916 properties on the market. On January 16, 2006, there are 15,318 properties on the market. Yes, I know that lots of properties expired at the end of December. But when you look back to May of 2004, there were approximately 2900 properties on the market. So in the past 20 months or so, the inventory has gone up over 5-fold. Sure looks like a shortage to me!!

I know this wasn't a 'mortgage' related post, but I think there are quite a few FB's that bought into many of these condos and condo conversions looking for the quick buck. They are going to find that flipping the property isn't going to be profitable, and renting at a loss will be their only option. Sorry, but unless you are putting over 100k down on most condos, it is going to be very hard to get any positive cash flow out of these $400-500k condos. Taxes and HOA's really eat into that rental income. It is going to be interesting to see how long the real estate market can defy the fundamentals of Real Estate investing. Renting at a loss has been popular the past few years as owners were content with the skyrocketing appreciation. I wonder how well they will fare when the "rocket man" runs out of gas???

Thanks for stopping by...and stay tuned for regular programming tomorrow!

SoCalMtgGuy