A Lost Decade-Plus for San Diego Home Prices

Submitted by Rich Toscano on February 5, 2012 - 12:14pm
The latest Case-Shiller data, released last week, provided a not-very-clear picture of home price trends.

The overall index fell by .9 percent between October and November.  There was some serious divergence amongst price tiers, though: the high tier fell by a mild .4 percent, the middle tier was whacked for 1.7 percent, and the low tier was actually up by .4 percent.

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Submitted by CA renter on February 6, 2012 - 12:39am.

Interesting stats, Rich.

Around here, nominal prices are lower today than they were in 2009, just looking at individual houses (not aggregates). How about in your area?

I think the lower-end is above the 2008/2009 trough, but the higher end seems to be struggling more. Again, this is just from looking at individual houses over the years and making educated guesses regarding what one would have spent in 2009 vs. today for the same house.

It's possible that some people in our area might be able to come out slightly ahead if they bought in 2009 and tried to sell today, but I think they'd be in the minority. This is also true of the areas I follow in LA County.

Would like to hear sdr's opinion regarding our area, and also hear what Piggs have to say about other areas as well.

Submitted by Rich Toscano on February 6, 2012 - 4:56pm.

Hi - Agreed on the higher end... bear in mind that the Case Shiller high tier is the top 1/3 of homes sold, and actually isn't "high priced" in San Diego terms (cuts off at $450k). So there could be a slide in the higher end that wouldn't be captured in the index, simply because it's a small number of properties compared to what's being sold.


Submitted by desmond on February 6, 2012 - 6:49pm.

Does anybody just wish they would have sold at the peak and just said "the hell with it?"

Submitted by NotCranky on February 7, 2012 - 1:13pm.

desmond wrote:
Does anybody just wish they would have sold at the peak and just said "the hell with it?"


Submitted by sdrealtor on February 7, 2012 - 10:20pm.

Sorry that you missed but while other bloggers were claiming a boom market around here, about 2 months ago I posted that I was seeing the market in a hasty decline. My posts mentioned that I expected a 5 to 10% decline last year and that it didnt come through the first 9 months of 2011. Then it came suddenly in the last couple months of the year when demand vanished for a bit and closed sales felt 25 to 50K lower almost overnight. I referenced the stats we get are always a few months behind me and that we would see these declines show up starting in February stats and I think we do.

Now demand is waking up but there are homes that have been on the market a few months sitting unsold at prices 25 to 50K below last year. I beleive the uptick in demand will absorb them soon enough and that the declines are essentially done for this downcycle. But folks who listened to my advice to buy until Nov around here seem to have been rewarded.

FWIW, no matter what is happening in the general market there are always people who get great deals relative to the market and those that overpay relative to the market. SOme people still got great deals 6 months ago and some people arfe still overpaying. Thats just the nature of the beast.

Submitted by renterclint on February 10, 2012 - 1:13am.

I agree with sdr that the declines are likely to be done for this overall down cycle. It's true that we have a lot of foreclosure stuff to work through, but San Diego really seems to be hitting an affordable level. As CA Renter pointed out,we are at 2009 price levels in nominal terms. And when you consider 30yr mtg rates were 1-2% higher in '09 than they are now, things are almost starting to look cheap.

I like Rich's recent chart tracking Payment-to-Income. It really brings out the monthly cash-flow aspect of affordability. This same chart shows a pmt dropping well below income circa 1997, which implies that we could have some more room to fall because the '05 peak was so much higher than the others. But I remember the SD defense industry collapse of the early nineties & I'm not sure the current economic issues have maintained the same acute impact on housing.

Submitted by Jazzman on February 12, 2012 - 1:19pm.

So prices are fully corrected ...more or less? So where do they go from here? With 11 million distressed homes, 4 million seriously delinquent, a shadow inventory estimated to be between 3-10 million, interest rates so low they can only go one way, and $700 billion in negative equity I wouldn't want to cement my predictions in anything other cautious pessimism. And no I'm not of the school that anticipates further huge declines, but I still see the housing market panting uphill, dragging the chains of excess behind it ...however bad for business postulating such views are.

Submitted by sdrealtor on February 12, 2012 - 4:33pm.

Thats exactly what I said as well. The problem is that right now it is very hard to find a home you love and buy it. Right now active inventory is about half of what it should be.

A few years back I predicted exactly this and it is now coming to roost. The lower the prices go, the more affordable they are. The more affordable the tougher the competition there will be for the good ones. On the other side, with prices nearing some sort of preceived bottom strong handed sellers have little incentive to sell if its discretionary.

Jazzman. I know you are an avowed permabear. Best of luck when you actually decide its time to go buy something whether that is this year or several years down the road. Its not going to be what you hoped for.

Submitted by Jazzman on February 12, 2012 - 7:53pm.

Sdr, actually I have already bought six properties, and ironically a final resting place. Most of them (grave being the exception) achieve around 5% net yield, ie a 10% cap rate. They are in areas where either a price correction has taken place, or where there was no bubble. I think that tells you something about possible distortions. Buying a main home, however, has proven a challenge. A compromise of sorts is currently on the cards, which meets my expectations of preconceived notions of value (not to be confused with affordability). The freedom to move makes that possible. To anyone over fifty years of age, a 'millions dollars' still sounds like a lot of money. But to others I guess its irrelevant if your monthly nut sits comfortably within your earnings. I don't begrudge anyone that. I'd do the same.

If I have a major gripe at the moment it is with inventory. Last year we (wife and I) waited right through till summer, and still didn't see much improvement and anticipate the same this year. It is time to move on, but I believe my views are still relevant to many. Many parts of the world, not just in SD represent poor value. There is no argument there.

I like to use this back to front telescopic example of value distortions. A 5,000 acre beach fronted estate in South Africa, will buy a modest coastal SFH in CA, will buy a one bed leasehold apartment in central London, will buy a broom cupboard in Monaco.

Submitted by sdrealtor on February 12, 2012 - 8:17pm.

Got not I disagree with there Jazz and it sounds like you know firsthand how tough it is to find a place you actually want to live in these days. Best of luck and I hope you find yourself a great one

Submitted by CA renter on February 13, 2012 - 1:20am.

FWIW, I totally agree with your sentiments, Jazzman. There is little reason to believe housing prices will go up from here. Those who are buying a house today with expectations for price increases are deluding themselvs.

Submitted by Jazzman on February 13, 2012 - 3:35pm.

Thanks CA Renter, it's worth a lot. I've watched many fence sitters over the last year or two take the leap, and with such low interest rates who can blame anyone. Unfortunately, it's a bit late in life for my wife and I for a 30 year fixed so we're doing things the old fashioned way, which runs counter to the current culture of home buying and so our perspective on things is going to be different. Yes, I agree price increases are not on the cards.

Submitted by CA renter on February 13, 2012 - 8:13pm.


Unfortunately, we've also taken the leap this past year; not because we think we're at "the bottom" (not by a long shot), but because we've been waiting for almost 8 years, and our kids aren't getting any younger. They were babies when we first started this bubble-sitting adventure, and now the eldest is almost as tall as I am. We've always wanted to buy a "family" house, and one came up around the corner from us that was literally our "dream" house. It's better than anything we've found in over 10 years of VERY active house hunting (we were looking before we sold to rent), so we went for it.

Around here, the amount we've spent on rent over those years is just about equal to the price drops, so we haven't really gained anything but the time and ability to really find what we wanted, in addition to being in an even better place financially. We're a bit older, too, so not getting a 30-yr mortgage, either.

Again, we probably wouldn't have bought if not for the fact that we found the most amazing house for ourselves -- just a few houses away from our rental where we've raised our kids, so we know all the neighbors already.

I think you're going to be happy with your decision to wait. Good luck!

Submitted by Rich Toscano on February 13, 2012 - 11:19pm.

CAR made the leap! Sorry I missed it if you mentioned it in the forums; I haven't had time to stay on top of things lately.

There is certainly more potential downside to home prices, and I don't think that anyone thinks there is much in the way of upside to home prices any time soon. But there's more to life than paper price changes. When you look back, I suspect you will determine that you absolutely made the right call.

To find your dream house (the best you've found in 10 YEARS of looking), with neighbors you like (one usually has to roll the dice on this latter issue!), is an extremely rare and lucky thing. I'm not sure why you would preface the whole paragraph with the word "unfortunately"... it sounds to me like you guys played this situation exactly right, and to your great advantage. Congratulations.

Submitted by CA renter on February 14, 2012 - 1:39am.

Thank you, Rich! :)

I didn't make an announcement; just mentioned it in a couple of threads (usually construction-related).

As scaredy said in another thread...we can talk about gardening now that most of us are no longer bubble-sitting. Seems like a large number of Piggs have bought this past year or two. A sign of bear capitulation? ;)

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