Monday, January 16, 2006

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, 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!



Blogger Metroplexual said...


Do you mean me?

1/17/2006 1:43 AM  
Blogger David said...

SOmetimes the media is clueless. B*stards.

1/17/2006 4:40 AM  
Anonymous Anonymous said...

I dont understand the land shortage, are'nt they building up?

1/17/2006 5:19 AM  
Blogger Tom Gullo said...

Blogs, new, reality.

It's scary most people get their news from the main media outlets. Watching the housing bubble and the big media's reaction has been quite an eye opener.
The blogs tend to give more useful and fact filled information then the main media outlets. For example, big media won't talk about rent/own is one way gaging a bubble. And most egregious of all the 'experts' all have a clear agenda of NOT telling the truth.

My hats of to small media and the blogs.

Unfortunately, when the carnage starts and it's no longer news, they will be all over it. It's like they are in the 'obvious' business and not the 'news' business.

1/17/2006 5:44 AM  
Blogger Tom Gullo said...

I live in Arlington Va, thus the name, and inventory in this area is at least 400% higher now than a year ago. Last weekend I saw corners with 4 open houses-it was January and freezing out.

The rules of the game in housing have changed. All the b.s. about not just buying and holding for a long time are out the door. As Jim Cramer says 'Buy and homework'. And if you do your homework, now is not the time to buy.

1/17/2006 5:56 AM  
Blogger ocrenter said...

the problem has more to do with lack of effort. The way the media looks at it, if they cover a field, they'll just get an "expert" in the field. For medical issues, they just find a friend that's a doctor. For legal, where's that lawyer friend that was just on last week? For the housing market... my realtor buddy...

given the lack of financial reward for being bias, you can get away with just randomly picking a doctor or a lawyer for the piece, well, most of the time. But with real estate, how many realtors will actually go on TV and tell people not to buy?

Where else is the reporter going to get "expert" opinion? an academic real estate economist I suppose. how easy is it to find an academic real estate economist vs. just grabbing a Realtor off the street (remember there's 500,000 roaming the streets these days.)

1/17/2006 7:11 AM  
Blogger Scott said...

It's best to just tune out mainstream media, their job is more entertainment then news. This latest news piece was kind of like asking a car salesman if now is a good time to buy an automobile.

What's sad is that even on KPBS, which should have objective news representing both sides of the story, they are still weak. A These Days radio piece I heard had a similar format - two housing experts, both saying how great real estate was. Sad, you'd hope KPBS would do better.

1/17/2006 8:46 AM  
Blogger moonvalley said...

Case in point...
Nevertheless, maintenance worker Nicolas Ortiz, 30, and his wife, Sandra, who cleans homes, were able to purchase their first home last year for $475,000 with no money down.

"It was a good price for us, and this is the house we wanted," said Ortiz, whose monthly mortgage on the 25-year-old house is $3,600. "We wanted four bedrooms, and everywhere else in the county it was too expensive. I don't know how we got this house, but we came in and saw it, and me and my wife said the first moment we saw it, 'Hey, this is our house.' "

for now. This is just one of many FBer stories out there. How any responsible bank can let people do this is beyond me...what happens to this guy when his rate adjusts?

1/17/2006 11:20 AM  
Blogger SoCalMtgGuy said...


THAT is the trillion dollar question that I have been talking about for months.

Some will make it, some won't. The percentages are nothing but educated guesses right now.

Stay tuned!


1/17/2006 11:56 AM  
Blogger Greenspan Screwed US said...

Absolutely stunning! I believe most people that have so far avoided the entire housing craze, (but yet felt left out) are going to be buying WAY too early. That includes even the most ardent R.E. bears!

Most can't fathom the concept that prices could actually take a decade or longer to bottom, and even when they do actually bottom, they won't appreciate right away......

1/17/2006 12:17 PM  
Blogger moonvalley said...

Chances are, if everyone had to put 20% down and pay principal each month, this bubble probably never would have happened.
That makes sense, but maybe someone could answer this question for me. I was there back in '90 when the bubble popped the last time. I was already a property owner however, having paid about 30% down getting a conventional loan. Were these weird financial arrangements available in the late 80's property run up or are they something new this time around, and if so what caused the last property inflation?

1/17/2006 12:38 PM  
Anonymous Anonymous said...

The "carry trade" (borrowing short and loaning long) which was being done by hundreds of hedge funds headed by Masters of the Universe young, prestige U theory -dumb, mostly big income but no dough Wall St. types, playing the mortgage backed markets and selling their mortgage portfolios off to Fannie or Freddie were the real lenders not for the most part traditional gets worse, in order to get the empty suit...quasi government workers at fannie and freddie to take the paper they ALSO sold them derivatives to "protect" against upturns in interest rates, the reality is since they are unregulated and often leveraged 20 or even 100 to 1, I highly doubt these derivatives will be worth the paper their printed on.

1/17/2006 12:59 PM  
Blogger Metroplexual said...


Check this article out. nnjbubble posted it and wiped out his adds because of it. BTW they listed(with links!)the bulk of the bubble blog sites but seemed to have left yours off and I believe it is from a paper near you. I wonder why they did not include you? LOL

1/17/2006 3:48 PM  
Blogger Rob Dawg said...

I don't think it will take 15 years like Japan or even 10 to sort things out. Surely the short sale is a difficult trick to pull off but just like on the way up it will be those house that do sell that set the price on the way down. We don't need short sales to find the market clearing price as long as those people that bought in the 80's can comfortably cash out at 5x their costs instead of 8x like it was at the top. Indeed then we see the margin narrow and those that bought higher getting older and discovering they still need to compete with this (what's the opposite of overhang?) bedrock of properties. It will only take about 3 years to kill the entire new home industry so 5 years to clear out all the non-performing investment class properties and investors. That's also enough time to put in place lending rules; you know: owner occupied, 20% down, stuff like that.

1/17/2006 4:35 PM  
Blogger SoCalMtgGuy said...


Thanks for the link!

I can only assume I wasn't included because I don't have "bubble" in my name or url.

Hopefully every site he lists will get more traffic.

The media is funny. They have been feeding this thing for years. Maybe if they took the time to read some of the blogs and see what is going on out there instead of talking to just the real estate industry, maybe things might be different.

The major media seems to be like a lagging indicator to me.


1/17/2006 4:48 PM  
Anonymous Anonymous said...

Fannie and Freddie are supposed to invest in only "conforming" mortagages which have comparatively conventional underwriting standards.

There is demand for subprime mortgages as well, of course.

I wouldn't blame hedge funds etc for all the trouble. They're not as dumb as commonly made out. Look at the stocks of the mortgage REITs, which have been plummeting.

From words of people in the business, the original source of the money comes from Asia. Blame the central banks of Japan and China.

Japan for a zero interest rate policy which makes even questionable 4.0% mortgage securities look good in yen, and a soft peg to devalue the yen versus dollar.

Blame China for a hard peg and a rampaging mercantilist (not capitalist) trade policy, which they can maintain indefinitely because of complete political oppression of their own people (their proletariat, and US middle class being the victims).

1/17/2006 6:24 PM  
Blogger 42 said...

shorting TOL again.

in a simulator, I mean. but maybe for real, real soon now. muahahahh. them and WLS. good riddance, esp. WLS, that old reactionary f*ck.

1/17/2006 7:25 PM  
Blogger Roadtripboy said...


I found your site from Grim's Northern NJ Housing bubble blog. I've been following the housing market very closely since I'm one of those who are currently "priced out" and need to wait for a market correction before I can get in. I enjoy the good information on mortagages that you provide and reading about others' mistakes. You're performing a great service---keep it up!

1/17/2006 8:56 PM  
Blogger SoCalMtgGuy said...


Thanks for the kind words!

I'll do my best to keep up as this thing starts unfolding!

It is going to be one heck of a ride!


1/17/2006 11:31 PM  
Anonymous Anonymous said...

Dr Chaos I agree, we both however are talking about what was...what is unfolding now is the consequences. ps: I don't mean to demonize Wall Street types, since I am a former founder/owner of a small investment banking firm in Manhattan, the fact is after 20 plus years of full time interaction with these types...they do not think and truthfully 90 + % are not bright. Rather they have benefited greatly from Gramm, Leach, Bliley (aka Glass Steagel repeal) and the tremendous flow of funds that has created.

1/17/2006 11:50 PM  
Anonymous Anonymous said...

I think they should print stocks and mortgages on tortillas so that when things go bad they would provide a valuable source of nutrition to help you get back on your feet.

1/20/2006 8:00 AM  

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