4 Reasons San Diego RE has gone Up

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Submitted by RightSide on March 23, 2006 - 12:05pm

First of all, I'm not questioning that there is an inflated housing market that is due for an inevitable correction. However, I think there is more to the reason for the housing bubble in San Diego then is being acknolwedged.

Here are some other possible explanations that I could propose and that I'd be curios to know if anyone has data or insights to dispute these things:

1) San Diego is experiencing a demographic change, with an increasingly larger class of people that have high net-worths and are able to comfortabley afford larger, more luxurious homes. A lot of these are retirees with low incomes and thus the median income #'s are very misleading. The affordability is actually not near as skewed as a broad analysis would have you believe.

2) Median income should be replaced with Household median income as most people getting these mortages have two incomes, which is a signficant change over the last 20 years.

3) Homes have gotten much larger in the last five years. Without comparing median price per square foot, you are actually comparing apples to oranges.

4) The weather in San Diego hasn't changed, but the city has. There are better restraunts, hotels, housing, etc. For a dramatic example of this, consider Oceanside, CA. My parents moved there about 15 years ago and it has been totally transformed from a dumpy beach town overun by prositutes and marines, to an up and coming beautiful beach city. There has been a fundamental change in that city and even if prices where flat county wide, no one could dispute that Oceanside has relatively increased its value dramatically over the last 15 years. San Diego, compared to Los Angeles, Orange County, San Francisco, Boston, New York City, etc. hs been relatively inexpensive. As San Diego matures as a city, its base value rate is adjusting upwards.

Certainly if you look nationwide, we see a housing bubble in many places, but why the discrepencies in price increase between the various locales? Boston has shitty weather and they have had a monster house run as well, why is that? Speculation you say. Ok, well if both Boston and San Diego are having a housing buble, why has one gotten higher/lower then the other?

The speculation is one part of the answer, but its not the only thing at work here. I'd like to hear why you disagree with my specific points above.

Submitted by sdduuuude on March 23, 2006 - 9:12pm.

Nice job putting together some thoughts.
Data supporting some of these claims would help your case significantly.

I think all of these are effects of the speculation, not causes for increased prices:

#1 Perhaps more low income people move out cuz they can't afford to live here anymore.

Also, if this is true, wouldn't rents go up as much as home prices?

#2 - If it has changed that much in the last 5 years (again - data?), this is another effect of high prices, not a cause. Plus, I think it is a California culture from way back. I remember when I was litttle (um - lets just say its more than 5 years ago) my parents would talk about how tragic it was that families in California had both parents working just to make ends meet. Data would prove me right or wrong.

#3 - Homes may have gotten larger, but lot sizes certainly haven't. In fact, it seems the lots get smaller and the houses closer together. My 1950's ranch in Clairemont boasts 25 feet between houses. I've been in Poway homes where you feel like you share a bathroom with your neighbor because the windows are 6 feet apart. The land hasn't changed at all, yet it is really the driving cause of home price increases.

Oh - and if houses are getting so much bigger - wouldn't rents go up as much as home prices?

#4 - As Rich said, I think many neighborhoods have turned up due to the speculation and HELOC ATM effect.

Um - if the place is so much nicer, wouldn't rents go up as fast as home prices?

D

Submitted by sdduuuude on March 23, 2006 - 10:17pm.

Regarding item #1:
If people with more cash were really causing prices to go up, we would be seeing more buyers make larger down payments and/or take out higher-quality, conforming loans.

Instead we see zero-down, neg-am, and ARMs. These are not the financial instruments of wealthy retired folk.

Submitted by powayseller on March 24, 2006 - 5:59am.

Someone gave me the argument that lots of rich people are coming here and paying cash, driving up housing prices. I checked last month w/ realtor Gordon Kane of Help-U-Sell in Poway. He told me they have about 1 or 2 cash sales per year.

I like the questions in this post. And they've all been answered to substantiate that this is indeed a bubble.

sdduuuuude - You make a good point. If fundamentals caused SD to be more expensive, rents would be up, too.

I first learned about the rent/buy discrepancy many years ago, in Aspen CO. A $800K condo was rented for $1500 - $2000/month. The person's mortgage was more than double that. I asked the owner why he couldn't just charge more rent, to cover the mortgage and property management fees. He told me that all the rents in that town were low, since that's what the residents who work there can afford to pay.

Submitted by LukeAJ on March 24, 2006 - 8:26am.

"Demographic Change"

I will not argue your point, that there seems to be more individuals with more money in San Diego. Real Estate has had quite a run over the past 5 years, leverage on the upside is bliss.

But, where are the high paying jobs, that would typically accompany the wealth recently produced in San Diego? Aside from Real Estate, I don't believe San Diego has seen a demographic change in its job composition. I must have missed the headline about SD becoming a hotbed for the best financial and business leaders of the US. This leads us to the point that underscores the Bear story for the San Diego housing market. If RE flattens in San Diego, where will the capital necessary to drive this market come from?

Submitted by RightSide on March 25, 2006 - 12:39pm.

Unfortunately, I do not have data to support my arguments. :(

Honestly, I think one of the challenges with analyzing this market is that the data does not exist.

I do have some counterpoints though:

1) Few all cash purchases - Even those who can afford it are going to get a mortage of up to a million dollars because of the tax breaks and low interest rates. It makes it so cheap to borrow that you can beat the cost of the debt with even conservative investment strategies. Therefore the # of cash sales do not tell us anything.

2) How changed are parts of San Diego over the last five years? I can't speak for San Diego, but I would say that 5 years ago, Oceanside had undergone a prior transformation in the previous 10 years that was not yet priced into the market. Certainly, I think it has overshot a fair price now, but part of the market action in the last five years was also a recognition of the dramatic changes that took place the previous 10 years.

Its also not just caused by the whole real estate appreciaton, but just a fundamental change in who is living there as well and the investments they are making will only continue to drive this demographic change regardless if the bubble bursts.

3) Why have rents not kept pace? I think again this speaks to the demographics. People who buy million dollar houses do not rent (I know, I'm one of them). Rent is not a comparison to owning your own home. Its also speaks to the rationale side people have shown over the last 5 years. Choosing to buy vs. rent has been a much smarter investment. That is a FACT. Now, I know it may be quite the opposite the next five years, but as of right now, that's where we stand.

Again, I'm firmly on the side that plans to profit from what I believe will be a coming decline, but there is a lot of rationality to what has occured in the San Diego real estate market. Some of the comments from people on this forum sound very emotionally invested in the idea of a market meltdown and their expecation of how its going to play out. I've always found that understanding both sides and staying objective is going to give you the best chance to exploit the situation as it unfolds.

The one great thing about this debate, (and markets in general) is that unlike political viewpoints, a real answer to what's going to happen will soon be forthcoming and we can all see where we were right or wrong...

...by the way...I have some additional bearish arguments to add to the fire as well..I've just been holding those off because I don't think anyone here is going to dispute them. :)

Submitted by Bugs on March 25, 2006 - 9:04pm.

I'm one of those people who will be DIRECTLY hurt by a declining market - I still think it's going to happen, though and I can't see any reason why it won't.

In my mind it's as simple as this - people will stretch and pay 50% of their income for housing when they think there's an upside to it. Most people won't continue to do that once it becomes clear there is no short term gains to be had and when their financing crutch gets taken away. There's still an income gap that can't be closed, too.

I agree that Oceanside was undervalued for a long time relative to its attributes, and good for the people who were smart enough to recognize that and benefit from it. But that area is by no means the most stable market in the region - I'm already seeing a couple areas that are taking a beating and a couple more areas that are teetering. Hopefully you were smart enough to stay away from the back gate area near Pendleton - that area's eventually going to end up awash in foreclosures.

Submitted by sdrealtor on March 30, 2006 - 2:57pm.

Rich,
Let me begin by saying I have firmly been bearish on RE prices since late 2003. While there is no hard data this is what I have see anecdotally.

Demographic Change
Lots of high income people moving to the area who work from home and/or renting office suites. This wont show up in any booming new business or local hiring. Older long time retirees with most of their assets in their homes cashing out and moving to cheaper locales. Wealthier retirees with substantial assets replacing them. Net effect is retiree population stays flat while the composition changes.

Changes to SD
Rich, you really need to get out more. I just spent a nite at the Westin Horton Plaza to get away from the kiddies for a night and was astounded at how the city has changed. The very cosmopolitan city I found was a far cry from the ghost town I caroused during pub crawls in the mid-90's before getting hitched. Drive around Carlsbad/Encinitas where I moved in 1997 and It is unrecognizable today. Good Restaurants back then were Taco Shops and a good dinner required a drive south to Del Mar or Downtown. Not any more! I grew up back east and SD might have well been on Mars when i told my friends I was moving out here in 1992. Now every one in the USA know what SD is about!

Not that this justifies the price spikes we've seen but they certainly are a major factor in rising prices and shouldnt be discounted. As you know, RE is sold on the margin and while every house on my street couldnt sell for close to a $1M, one or two a year can. For the record, I think prices will return to 2003 levels and then settle there for a few years.

Submitted by sdrealtor on March 30, 2006 - 3:05pm.

Rich,
Let me begin by saying I have firmly been bearish on RE prices since late 2003. While there is no hard data this is what I have see anecdotally.

Demographic Change
Lots of high income people moving to the area who work from home and/or renting office suites. This wont show up in any booming new business or local hiring. Older long time retirees with most of their assets in their homes cashing out and moving to cheaper locales. Wealthier retirees with substantial assets replacing them. Net effect is retiree population stays flat while the composition changes.

Changes to SD
Rich, you really need to get out more. I just spent a nite at the Westin Horton Plaza to get away from the kiddies for a night and was astounded at how the city has changed. The very cosmopolitan city I found was a far cry from the ghost town I caroused during pub crawls in the mid-90's before getting hitched. Drive around Carlsbad/Encinitas where I moved in 1997 and It is unrecognizable today. Good Restaurants back then were Taco Shops and a good dinner required a drive south to Del Mar or Downtown. Not any more! I grew up back east and SD might have well been on Mars when i told my friends I was moving out here in 1992. Now every one in the USA know what SD is about!

Not that this justifies the price spikes we've seen but they certainly are a major factor in rising prices and shouldnt be discounted. As you know, RE is sold on the margin and while every house on my street couldnt sell for close to a $1M, one or two a year can. For the record, I think prices will return to 2003 levels and then settle there for a few years.

Submitted by speaker on March 30, 2006 - 4:56pm.

Ahem....SD realtor:
"For the record, I think prices will return to 2003 levels and then settle there for a few years."

When you take into account that the majority of recent homebuyers (past 2 - 3 years) are ARMed, then prices returning to their 2003 values will wipe a lot of them out. They will most certainly be squeezed even harder if prices stay flat. Even if prices stay flat, inflation will eat away at any equity gains so that is not a good scenario either. The logic of home prices returning to their 2003 prices is somewhat circular. If homes were overpriced in 2003 then they will still be overpriced in 2006 or 2007.

Nope, this thing is coming down hard and fast. Remember, "It's different this time!!"

"End of line."

Submitted by sdrealtor on March 30, 2006 - 5:27pm.

Never said it's different this time. Around the end of 2003 prices still made sense to me re: mortgage payments and incomes for most of the people I knew. At the beginning of 2004, everything seemed to jump $100K to 150K almost overnite. It didnt make sense then (I said so) and it doesnt make sense now.

As for buyer's being ARMed, while there are quite a few in that situation there are alot more that rolled equity in move ups from what I saw personally. Here's what's going on in my area:

I track inventory every Monday in my submarkets when I get back from lunch and have data going back 2 years. Not sure what’s going on anywhere else but in the North County Coastal Area of San Diego where I work detached inventory was 530 homes on Halloween and now stands at 521 homes. Pendings homes sales are down from 173 to 168. Attached Inventory has risen from 294 to 312 and pending attahced sales have risen from 68 to 73. Dettached prices feel like they are around 5% lower versus Fall (10% lower for attached) but we haven’t seen any dramatic Crash here yet. Still lots of homes being bought and sold every day. One thing we are definitely seeing less of are the zero down toxic loan buyers. Nothing controversial here…just reporting the facts.

Does that look like hard and fast you? I think its coming down but disagree on the hard and fast. I think its gonna be more like slow and painful.

Submitted by powayseller on March 30, 2006 - 6:41pm.

So the North Cty Coastal area has not experience the inventory spike and decreased sales, as the rest of SD County. Then to what do you attribute the price decrease - rising interest rates? Have you noticed credit tightening?

I moved here from Phoenix in 1999, and when we were looking at homes in 2000, I noticed that the prices had jumped about 30% between 1999 and 2000. So that's when the unrealistic jumps happened, from a buyer perspective. Why do you think it was still realistic in 2003? Are you using per capita income/median price, or rent ratios, or are you going on the fact that there was lots of momentum, speculation?

Submitted by sdrealtor on March 30, 2006 - 9:15pm.

In 1999, I was still working in High Tech sales/marketing (and getting very tired of life on airplanes). Working in RE has allowed me to watch my young children grow albeit at much lower earnings. Mine was a lifestyle choice and while I am consistently in the 10% of Realtors production wise, I could make more money working in my old career.

In 1999 my new house cost around $450K and was cheap in spite of an 8.5% fixed rate mortgage (I'm a conservative 30 yr guy).

In late 2003, it was about $650K and with interest rates in the mid to low 6's it was affordable too. Just about anyone that had a good job and lived here more than a year or two had $100K to 200K to put down 20% and buy a house like mine.

In Feb 2004, my house went to $825K and stopped making sense from my perspective. Since then its gone up to about $925K.

If prices went up about 5% a year from late 2003 it would be in the mid 700's which would make sense to me. Someone whose been here for several years would be able to move up to buy my home (5Br/3Ba 2800 sq ft in very nice master planned community with great schools which is likely their 2nd or 3rd home like it was for me) with 20 to 30% down. With a loan between 500 and 600K the payment would be around 3000 to 3500 which isnt too much for a household income of 150K to 200K. Homes like mine rent for around that very easily.

I know this back of the envelope type logic...but it makes sense to me intuitively.

To answer your other questions. The real inventory spike happened between July and October last year. I'd venture to guess North county Coastal isnt all that different from other areas with the possible exception of Downtown. As for what I attribute the price decreases to....the insanity has ended and we are headed back to a more normalized level which i beleive we should be at (mid 2003 pricing plus 10 to 15%). As for credit tightening, I dont see many 100% buyers anymore. Sales volume is down but the quality/qualifications of those that are buying is substantially higher on average than b4.

Submitted by speaker on March 30, 2006 - 11:56pm.

"It's different this time"

I wasn't quoting you; I was merely parrotting what I have been hearing over and over from the permabulls for the past few years regarding home prices.

When I mean hard and fast I mean hard and fast like a roller coaster:

just moving right along at a slow pace 'til you reach the top and then.....you hit the top....then there is that giant pause.....and whhhhhhhheeeeeeeeeeee!!!!!!!

While I appreciate your numbers and the facts you bring, it is foolish to think that somehow N. Coast County will be insulated from a crash when the rest of the county goes down. Only 9 detached homes have been sold since Halloween? Hmmm...that doesn't sound like a whole lot to me. Additionally, that means there are 521 homes (same ones I imagine) for sale. That is 1.8 homes sold/month (I estimated at 5 months). Therefore, it will take...break out the abacus....289 months to sell current inventory. That is of course no more detached homes go on the market which will only exacerbate the situation.

While I can imagine the more desirable places (N. County Coast) resisting a downward trend in prices, it is inevitable that even these desirable places will be brought down by the rest of the county. A lot. With lending rules tightening, rates going up, Americans (San Diegans as well) living with greater debt and the savings rate at the lowest point in history, who is going to buy these remaining 529 homes?

Here is the one thing that just puzzles me to no end:
if the real estate market took off so quickly in such a short period of time, why can't it come down just as quickly?

answer from the permabulls: because it's different this time!

"End of line."

Submitted by sdduuuude on March 31, 2006 - 12:52am.

Is there a counter point to the question - why are all these wealthy people taking out stupid loans? I agree, even wealthy people will take out mortgages, but they won't take a zero-down ARM. They will at least put down 20% to avoid PMI and get a fixed rate in times of low interest.

I think the mix of loans we saw in the last two years make it very clear that the buyers are not low-income, cash-wealthy people. They are streeeeeetching to get in to a market they see growing out of control.

Rent is not a comparison to owning a home, but rental rates give some indication of "intrinsic value" and whether or not the intrinsic value of the area is changing.

Also, you can't compare renting a small home with buying a large home. You have to compare the cost of renting a house and the cost of buying the same or identical house.

Has the value of owning a house really gone up that much more than renting a house? Come on! Really? I don't see any logical explanation why the EXACT same house, which rented for 1500 4 years ago and 1900 now should cost twice as much to buy now as it did then.

I agree some people are passionate about this decline. I'm not one of them. I just trust the numbers and the analysis of good economists.

D

Submitted by powayseller on March 31, 2006 - 7:35am.

Interesting, sdrealtor... I admire you for putting your family ahead of money. The world needs more men like you!

It sounds like the high-end ($450K in 2000 was high end to me) moved slower. In 2000, we were looking at $320-$330K homes, which had sold for $250K the year before. I asked the realtor for comps, so that's how I know. The low end took a big jump from 1999 - 2000. Although my husband was earning close to $100K at that time, we only had $20K to put down, so that was all we could afford.

I think the people with $100K - $200K to put down must be commended for their success and commitment to saving. They are at the margin, I would think, based on median income data.

Personally, I expect a return to 2000 pricing. But your point is well taken - each area of the county, and each price range, will take a different hit.

Submitted by privatebanker on March 31, 2006 - 8:46am.

While we're talking about real estate's demise, has anyone noticed the 10 yr. TSY yield has really broken through it's resistence levels? It closed at 4.855% yesterday. That is killing long term mortgage rates. My bank's 30 yr fixed with 0 points was around 7% yesterday. There appears to be a major uptrend occuring.

http://www.theprivatebanker.blogspot.com/

Submitted by barnaby33 on March 31, 2006 - 9:39am.

Where do you go to monitor bond yields? I have read a few primers on the bond market but am still in the dark on it, do you have a good link or two? Say bonds for dummies.

Josh

Submitted by sdrealtor on March 31, 2006 - 10:26am.

Speaker,
Your comments are more than a bit smarmy and you seem a bit uniformed as to how to interpret real estate stats so here's a primer. A decrease in inventory by 9 doesn't mean 9 homes have sold since Halloween, it means there are 9 less homes for sale now than before. Hundreds of homes have sold since Halloween. The homes on the market now are not the same that were on in Fall in most cases. With 521 active listings and 168 pending listings, we have a 3 MONTH supply. By definition, a buyer's market is a 6 month supply. In the MLS there are 10,660 active single family home listings and 3769 pending listings as we speak.. Also about 3 months. These are real live numbers! Are we in a soft market? absolutely! But with 3 months inventory a dramatic "hard and fast" crash just doesnt seem likely to me.

As for prices equating to rents, that ignores alot of the benefits of home ownership. I can paint my house any color I want, I can plant what I want in my yard, my children feel safe and secure in their home and it is a large part of their identity and the secure feeling they hold in their hearts. When you rent you own nothing. When you own, you get to experience the pride of ownership. None of this justifies paying double to triple what you could rent something for, but it certainly justifies paying considerably more than rent. There's also the tremendous tax deduction I get each year which makes my $3000 PITI (mortgage payment, taxes and insurance) feel like $1800 in rent. I could go on and on but I think you get the point.

As for why it goes up faster and down slower...the answer is EMOTIONS! Emotional buyer's chasing their dream of homeownership will raise the bid quickly because "it's just a few more bucks each month". Emotional seller's will resist taking less because "I love my home", "my house is worth as much as the one across the street that sold last Fall" and "It's my chance for a big payoff and every $10,000 less I take comes out of my payday in 30 days!"

Emotions working in opposite directions make prices rise much faster

Submitted by seniormoment on March 31, 2006 - 11:03am.

sdrealtor,

I agreed with what you said about owning a house.

How about this? The downtown normally fas 47-55
units available in a monthly inventory for the last few years, well, it perks up a lot since last spring, it has about 570 units now, that is a 1 year supply, your 3 months supply figure must be a different math in a different zip code.

Soft market is a sure thing for now, I see a bigger
discount for sold units than last year, bigger reduction from the same listing, sometime multiple reduction within a month, maybe this is only in downtown?

As they say about the stock market: "Don't fight the Fed, don't fight the trend", and we all know the Fed is going to continue raise rate for at least 2-3 times to 5.5%, we know that 47% buyers in SD last year using
adjustable or interest-only loan, so the trend in SD real estate is flat to down, for how long? your guess is as good as mine.

Submitted by sdrealtor on March 31, 2006 - 11:44am.

Poway Seller,
I just went back to 2000 to check what was selling for 300 to 330 in a good area like Encinitas/South Carlsbad/RB/Scripps Ranch etc. Around March that year you could get a 3BR/2BA 1500 sq ft single story home built in the 70's. That is what we refer to as entry level detached housing in SD. Those same homes are selling for roughly double today which doesnt make sense to me. In mid 2003, they were selling for 450 to 500 which does make sense to me. A young couple moving up from a condo with a little equity and good jobs (lets say combined income of $125 to $150)would be able to put 10% down (I think thats doable for most people like that) and could get a 30 yr fixed rate mortgage of about 2500/month. Add 600 for taxes and insurance and their paying $3100 PITI which after tax in their bracket is like $2000 in rent. They would have a nice home in a nice area to live in for the next 5 to 10 years. As for $450K being high end in 2000, I'd disagree. It's what I would equate to Upper Middle class. High end homes today start around $1.2M and were around $600K in 2000.

Submitted by sdrealtor on March 31, 2006 - 11:51am.

Senior Moment,
My 3 month supply stats are for the entire MLS which encompasses SD County. As for Downtown, ITS A MESS! Inventory is now over 600. Unlike tract builders who can build in phases (10 homes at a time), high rise builders have the whole enchillada to release at essentially the same time. All bets are off downtown particularly with all the speculation there which is extraordinarily higher than anywhere else in SD County. The one thing I will say about downtown is that I was very pleasantly suprised when I spent a night down there two weeks ago. Hadn't been there for more than a few hours (ballgame with my 6 year old or Stones Concert with the wife) in many years. In the early/mid 90's before kids I wanted to live at the beach. If I was a young professional today, there is nowhere I would rather live than downtown. It has gotten very hip!

Submitted by speaker on March 31, 2006 - 12:13pm.

I apologize for sounding smarmy. I can assure you that it is not my intention; I'm just guilty of laying on too much sarcasm.

"As for why it goes up faster and down slower...the answer is EMOTIONS!"

This logic is confuses me because emotions is what caused the recent price run-up in home prices to unnatural heights. Emotions were influenced, as we have come to find out, by speculative buyers snatching up multiple properties with sketchy, short term loans (ARMs, I/Os, etc.). People were emotionally driven to buy a home no matter what the cost because they feared being priced out of the market forever. Their emotions drove them to make some pretty bad financial decisions as prices went up. So again, how will emotions not play into all of this as prices go down? Especially when ARMs are going to reset in the next 2 years (trillions$) and those people that are stuck in homes that haven't appreciated enough (or depreciated in some places) to where they can refinance? Can you imagine the emotions that would influence someone's financial decision making process as they watch their mortgage payments go up, a lot, when the ARMs reset and they can't refinance? How then, can emotions not influence people into repeating an equally bad financial decision as prices go down? If more and more people start placing their homes on the market it will add to the inventory thus driving prices down. Emotions can't be charted and recorded. Therefore, to claim that the market won't crash in a short period of time because of their emotions influencing them to hold on to their properties doesn't hold a lot water.

"my children feel safe and secure in their home"
Now that sounds like you are being condescending. Are you implying that children growing up in a rental home are not as secure or safe? I'll take that statement as payment for my smarmy remarks.

"End of line."

Submitted by sdrealtor on March 31, 2006 - 12:22pm.

The "safe and secure comment" was anything but condescending. If you can rent the same home for 20 years and have your children grow up on the same street with same neighbors you've accomplished the same thing. It's just a little harder to do when you dont own the house.

Emotions and pride prevent people from making good decisions. When buying a good decision is not to over pay or get yourself in over your head. When selling in a declining market a good decision is to take your lumps now and get out before it gets worse. Most will hold on as long as they can whne they shouldnt. A good percentage will find a way to maintain the outward appearance of their diginity and will survive the bumpy ride. Of course, some will fail also.

Have you never fallen in love with a stock and not sold when you knew you should have?

Submitted by powayseller on March 31, 2006 - 4:12pm.

RE prices are sticky on the way down. Check out Rich's charts in the Bubble Primer. The ride up takes 5 - 7 years, the ride down takes 6 - 8 years. While someone who is excited about a new house and the prospect for future appreciation will pay more than they should, that same person, when faced with morgage lates, doesn't put up a For Sale sign, doesn't reduce his sales price, and holds on as long as he can.

An analogy is this:
A kid, on a hot summer day, gets to the pool. Excited, he jumps in. An hour later, dad calls him in to dinner. The kid takes a few minutes to slowly swim over, and then gradually pulls himself out of the water. Maybe someone else has a better analogy :)

We all need to be patient. I expect the ride down to take 5 - 7 years.

Submitted by sdrealtor on March 31, 2006 - 5:50pm.

Good analogy! If you try to apply pure economic and financial concepts to understand home prices....you never will. This is a good site with one major fundamental flaw. Rich says "In God We Trust. Everyone Else Bring Data". The data sucks! There is no such thing as good data in home sales because there is no consistency in reporting or data collection. We are also comparing a constantly changing asset. One of the major reasons the median has been rising the last two years is that larger/newer homes are now in the mix of resales. There was very little building between 1985 and 1997. Since 1997 there has been a building boom of newer larger homes. What we are seeing in the stats is different (i.e. more newer and larger)homes selling not increasing prices. make no mistake about. Home prices peaked in April/May of 2004. The data also includes top producing high volume agents refreshing their listings every 45 to 60 days. Average market times if you add the previous failed listings are probably closer to 80 days not the 55 to 60 days you see quoted. These are just a few of the many problems with the data.

Submitted by powayseller on March 31, 2006 - 5:58pm.

Doesn't the OFHEO data show the price of the SAME house? Of course, that results in dated data. Another problem: the data doesn't tell the whole story. Median price is going up, but like you said, it's because the mix of houses is changing. Also, it happens because fewer lower-end homes are sold as first-time buyers are squeezed out by rising interest rates. The distribution of homes sold is changing, making the median go up.

The MLS is not concerned with giving the public accurate data. A realtor can check the history of a property, and find out the total DOM prior to the buyer's offer. But those of us trying to follow the market only get the most current DOM.

Another problem: what happens to the pendings which disappear? Is a reason ever given?

Submitted by sdrealtor on March 31, 2006 - 6:27pm.

I wouldnt say the MLS isnt concerned with giving accurate data. A more accurate statement would be that the MLS is incapable of giving accurate data because it would be extraordinarily difficult to compile accurate summary statistics.

Submitted by sdrealtor on March 31, 2006 - 9:07pm.

Have to disagree on that one Rich as I have my feet on the street as well as my hands on a keyboard unlike you. I'm watching homes that sold in Spring 2004 come back on the market now after 2 years and the same exact house is selling for less in many cases. When I think of homes that I listed and sold in Spring/Summer 2004, I cant think of one that would sell for more today. I know there are always exceptions, but most homes that sold in the peak of the frenzy (Feb 2004 through June 2004) would have a hard time selling for the same price today.

Submitted by sdrealtor on March 31, 2006 - 9:18pm.

The data isnt perfect is a huge understatement! It is inherently flawed to a significant degree.

Saws and straps to hold patients down were "the best tools available" to surgeons in the 18th Century. Try as you might to crunch numbers, the best information on what is going on will always come from an honest, ethical, well-educated Realtor who understands the local market. Beleive it or not there are a few of us out here.

I can speak the truth without fear of bringing the market down because I have no stake in it. My mortgage is affordable and will always be. I don't care whether prices go up or down because I'm not going anywhere for at least 20 years. I represent my clients best interests to the best of my abilities every time as if I were representing my mother. If I can't earn a living doing so, I'll suck it up and go back to the corporate world to make at least 50% more than I make now.

Submitted by powayseller on March 31, 2006 - 10:34pm.

I thought prices rose slower in 2005, peaked in Aug 2005, and have gone down slowly since then. I'd say about 5-10% down from August 2005. That would explain why prices are back to 2004 levels - 2005 was not a year of big gains.

I had 2 offers on my house in Nov and Dec 2005, and both offers were 5% below an Aug 2005 comp. There were 2 houses for sale at that time, that were my competition: one was just withdrawn (2 expired listing, this 3rd is withdrawn), and the other is still listed after 6 months without reductions. So I experienced the 5% drop firsthand. If the market in my area of Poway dropped 5% between Aug 2005 and Nov/Dec 2005, I can only guess it dropped another 5% in the following 4 months.

Also, each area is unique. Some areas of SD are still going up, some are going down faster.

I'm glad we have a realtor on this site now, since the Dataquick and NAR data is 2 months lagging, and doesn't tell us the story behind the numbers.

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