Desirable Yes, Immune No

Submitted by Rich Toscano on March 31, 2008 - 9:51pm

For years, people claimed that because San Diego was such a desirable place to live, local real estate was immune to price declines. We know how that turned out. Yet these days that same argument is often applied to San Diego's more upscale areas.

It seems, at first blush, to hold up. High-end San Diego homes have certainly weathered the housing bust far better than their lower-priced counterparts. This can be seen in last week's Case-Shiller home price graphs, which show that the high end of the housing market has fallen in price less than half as much as the low end. And the Case-Shiller high tier -- which aggregates price movements of the most expensive one-third of San Diego homes -- understates some notable resilience in swankier sub-markets such as Point Loma, Mission Hills, La Jolla, and much of the North County Coastal region.

The relative strength in these areas has led to the widespread conclusion that the high-end markets are desirable enough to be more or less invulnerable to the housing bust.

I am skeptical of this interpretation.


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Submitted by SD Realtor on March 31, 2008 - 10:07pm.

I don't think any neighborhood is invulnerable. I do think that these neighborhoods are going to post thier biggest losses on the back end of the cycle rather then at the head of the cycle.

SD Realtor

Submitted by Ex-SD on April 1, 2008 - 7:04am.

Ditto! They fell, right along with all the other areas when the last R.E. bubble burst and it will be no different this time. When the last bubble busted, even areas like Beverly Hills took a big haircut along with every other area.. People who don't believe it will be as bad in these higher-end areas and choose to purchase before the worst is over will spend $100's of thousands of their hard earned dollars that will evaporate within a three to four year period of time.

Submitted by sdrealtor on April 1, 2008 - 7:56am.

Gotta take you to task on this one. I believe you are as guilty as the uberbears presenting an extreme viewpoint. I dont know any folks claiming "invulnerability" to price declines in the upper tier which quite frankly has already seen them for all to witness already.

The point is not invulnerability but rather relative strength in comparison to the lower tiers. Your data shows we have already seen that and what the future will bring is unknown. But trying to put the word invulnerable into the mouths of more optimistic folks was a bit of a stretch.

Submitted by barnaby33 on April 1, 2008 - 8:34am.

sdrealtor, I've heard many people claim that high end areas will be invulnerable. If you define invulnerable as not returning to the long term trend line. I've read it hear on piggington. If you just search for the word invulnerable, you'll find a quote by Alan Nevin. Lots of people were using that word. Mostly to get fence/bubble sitters to buy. I not only don't think it was a stretch, using the word invulnerable, I feel it was appropriate.


Submitted by Rich Toscano on April 1, 2008 - 8:37am.

sdr, I don't know who you are talking to but I hear this kind of sentiment expressed all the time when people talk about north county coastal et al.


Submitted by PD on April 1, 2008 - 9:19am.

I had a long conversation with an experienced Coronado realtor last weekend. He claimed that Coronado was immune to price decreases because it is so desirable, rich people live here and high-end homes are still selling. I pointed out the same things that Rich discusses in his article (plus information about the state of banking and the potential for a very stiff recession) but he was not swayed. He claimed that prices have only come down 5% in Coronado. I pointed out that I had seen many houses which are selling at a 15% haircut in the Village. Plus, some houses in the Cays are down even more than that. He seems to have convinced himself that the decreases in the Cays will have zero impact on prices in the Village. I argued that while there is a premium on houses here in Coronado, that premium is not infinite.
*** For anyone not familiar with Coronado, the Cays is a neighborhood located on the strand three miles south of the main part of the island and the Village is the main part of the island (which isn’t really an island).

Submitted by 34f3f3f on April 1, 2008 - 9:26am.

Invulnerable is just a euphemism, so we're talking semantics here. I see the strongest argument here being something to do with relative pricing. One area negatively affected by prices is surely going to impact on it's neighboring area. I personally consider many of these high priced areas STILL to be way over-valued, and that's not based on comps or whatever the agent speak is, but just a gut reaction. No way am I going to pay such a huge sum of money for what in some instances amounts to little more than a summer cottage, in a area that is over-hyped to say the least. If prices don't come down in these areas, I will simply move and I suspect many others will too. I would be prepared to pay a high price, but it really has to reflect value for money, and many soCal properties simply don't. This is just a view of an ordinary would-be buyer, with 'normal' expectations. So if you want another reason to add to the list, it is that people like me, armed with the truth are just not going to pay these prices. Show of hands please?

Submitted by zk on April 1, 2008 - 10:50am.

When the downturn started you heard lots of people in Carmel Valley say, "20 years, and CV's never dropped." The only difference between what they were saying then and what they're saying now is, now they're more smug about it. Kind of a "see, everywhere else is getting hammered but CV is still just fine" attitude. I guess we'll see.

Submitted by sdrealtor on April 1, 2008 - 12:59pm.

As you know I've been riding proudly a top the bear since Feb 2004 around here. I guess that I must talk to more grounded folks as I dont hear invlunerable to price drops from any of my piers. I do tend to hang with the oldtimers who've been through a few cycles and know better though.

My real point is that I prefer your writing (and everyone else's) when you stick to the facts which you do so brilliantly. The post was a bit more sensationalistic than your typically ramblings and thats what struck me. My problem, not yours.

Keep up the great work


Submitted by JWM in SD on April 1, 2008 - 1:07pm.

"As you know I've been riding proudly a top the bear since Feb 2004 around here."

Sorry, but that sounds more like a stretch than anything Rich wrote. I don't who know who you think you are fooling sdr, but it isn't me or anyone else here.

Submitted by Rich Toscano on April 1, 2008 - 2:38pm.

Thanks sdr. I know what I meant to get across, and what I meant was definitely not sensationalist or exaggerated, but I could see how you might interpret the words to be more dramatic than I intended. I try to be concise and not leave room for misinterpretation but I don't always pull it off given the limited time I have to spend polishing this stuff.

To set the record straight, I have heard many, many people say that Del Mar, Carmel Valley, and similar places etc. simply will not experience any significant price declines because they are so desirable (and further that the lack of serious decline so far is proof of this). I disagree with the logic and the purported proof and that's what the article was meant to address -- no sensationalism intended. :-)


Submitted by NotCranky on April 1, 2008 - 6:06pm.

You just crack me up. For you to remain credible 50% of the U.S. population is going to have to be eating drywall to survive the aftermath of the housing bubble...starting about a year ago.

Submitted by ltokuda on April 1, 2008 - 6:32pm.

I've also heard a lot of comments from people I work/associate/interact with about how the high end homes are "invulnerable". I'm not in the RE business so I think the comments I hear could be taken as "common knowledge".

Years ago, the common knowledge was that prices would go up forever. Then I'd hear people say that other states would go down, but California was immune. Then I heard that San Diego/Riverside could go down but LA/OC was different. Then I heard that parts of LA and OC could go down but the richer areas won't. Lately, I've been hearing that the high end homes are invulnerable.

I've basically interacted with the same set of people over the past few years so its interesting to see how "common knowledge" changes. I don't see Rich's article as sensationalist at all. I think it does a good job of addressing the "common knowledge" of today.

Submitted by ltokuda on April 1, 2008 - 6:53pm.

Now that house prices are going down everywhere in CA, the latest "common knowledge" I've heard is that the very high end homes (e.g. $5 million plus) are immune. Here's some of the reasons I've been hearing:

* These houses are so desirable that there's always going to be a market for them.

* It's a completely different market.

* Rich people don't have to finance buying homes like these so they aren't affected by the subprime mess.

* Rich people can hold on to these properties forever so they never have to sell it for a loss.

* There are rich people all over the world who are willing to buy these high end homes.

* The weak dollar is attracting rich foreigners who think these high end homes are cheap.

I'm posting these for posterity. We'll see what happens over the next few years.

Submitted by skywalker on April 1, 2008 - 7:57pm.

Seems like you guys would quit visiting this forum the moment Rich's graphs take a U turn :-)

Submitted by pfflyer on April 1, 2008 - 10:56pm.

OK....for those of us not currently living in the area; I am looking for a consensus on future declines in this market. Between 1 and 3 Mil; are knowledgeable folks expecting 15% from today's prices? To date very little movement and denial is huge I would imagine. But compared to the volume of 2+ Mil homes on the market, how many real buyers are out there now and have an actual down payment? Are builders (LEN and other nationals) with 10 empty unsold homes ready to unload soon? Its difficult to gauge from afar.

Submitted by sdrealtor on April 1, 2008 - 10:56pm.

good one Russ

Submitted by Mr. Drysdale on April 2, 2008 - 6:37am.

Carmel Valley HAS gone down. I know builders who in the last 18 months rebated 25% of the purchase price post closing subject to a confidentiality agreement. There are lots of homes here in pre-foreclosure and I personally know quite a few people here whose jobs in the financial services/real estate industry will cause them to soon lose their home. This area LAGS the decline, but IS NOT immune to it. Maybe it's because people here "seem" to have the resources to hang on longer before they decide to throw in the towel and walk away.

Submitted by Ex-SD on April 2, 2008 - 10:37am.

sandiegobanker: Ah ha! I suspected that these types of shenanigans were going on in CV, Rancho Santa Fe, etc in an attempt to keep the comps up in higher end areas. Very interesting! These types of payments back to the buyer should be recorded as part of the documented sales information that is available to the public. This kind of crap distorts the true picture of selling prices.

Submitted by JWM in SD on April 2, 2008 - 1:03pm.

Sounds like some posters here are afraid their prospective clients will read Richs article(s) and decide not to buy after all....I can smell the fear.

Submitted by Dukehorn on April 2, 2008 - 2:38pm.

remember that immune = invulnerable, in this context. Right?

I hear immune and invulnerable a lot.

Submitted by equalizer on April 2, 2008 - 6:37pm.

The bears and Piggs need to remember that there is no life east of 5 and certainly not south of 52 and definitely not south of 8.

So when the price of sub 2000SF home in decent part of East Lake or Chula Vista is 1/3 the price of a home in Carmel Valley, there may be a few who will forget the Carmel Valley dream and head for the dumps. So I can forsee a cheap engineer (redundant error from MS word) here spending the housing difference to pay for his French maid, his Chinese tutor, his British butler, his Guatamalan gardner...
But he will always be that second class ...

Which one of you poor blokes will be first to sing the Dream is over?

Submitted by jpinpb on April 2, 2008 - 10:13pm.

Excellent story. If I might add, the tightening of credit standards is nationwide. That means even La Jolla. You will still need to come up w/at least 20% down and actually prove you can make the payments to qualify for the loan. That might affect sales in the desired areas. Also, The Cromers and Copes of the world are losing their mutliple 6 digits incomes and no longer buying the "desireable" coastal properties. There were still investors purchasing along the coast intending to use them as rentals or second homes. Some of those will be lost to banks from job/income losses.

I have repeatedly heard from coastal homeowners and realtors that the coast will not be affected, and if so, very minimally. And their proof is, for example, that La Jolla is still selling at high prices. Rich people have the money and they won't be affected, European people are buying, etc. etc.

Itokuda- agree.

Thanks for the story, Rich.

Submitted by SD Realtor on April 2, 2008 - 11:06pm.

I don't believe sdrealtor, jim, rustico or any of the real estate professionals here ever post that any of the more desireable areas are immune from the downturn.

JWM you are more then welcome to find a post by me where I said it. Please do post it.


CV has indeed gone down as well as other higher end places. Not as much as other areas but then again they have gone down.

sandiegobanker... um... I don't want to call you on anything but you did previously post about REO's selling at very substantial discounts and I am still waiting for some of those closed deals so I can look them up.

Also I have never ever heard of a developer giving a 25% rebate of the purchase price out of escrow. As you would know subject to confidentiality or not, this constitutes fraud in a big way. Not only is it fraud against the buyers lender, it is also more then likely fraud against the underwriter of the project. Now I am not saying it doesn't happen, I am just very curious that a developer would take on such a risk.

I do 100% agree that in the long run places like CV should come down due to distress, (as long as massive bailout or rewrites don't happen).
SD Realtor

Submitted by jpinpb on April 3, 2008 - 7:50am.

SD Realtor - My comment regarding realtors was definitely NOT including you. You have been one of the most honest realtor I've encountered in my life and an exception to my comments.

Submitted by JWM in SD on April 3, 2008 - 1:41pm.

SD Realtor, I never said they said it would be immune. What I'm questioning is the degree of sensitivity to Rich's latest article and the parsing of the word Immune and Invulnerable. Reactions from sdr qnd Rustico seem overblown IMNSHO.

Rustico, find any post from me predicting depression in 2008. It doesn't exist. What I have been arguing is thst the macro econ picture is pointing towards some disturbing times ahead. I dare you to argue where I have been substantially wrong about that w/ the exception of Bernanke slashing rates so badly.

Submitted by NotCranky on April 3, 2008 - 5:31pm.


You are right about these being disturbing times .
If the "high end" getting shellacked were the worst of the effects of our, to a large degree, money for nothing system(or money for something worse than nothing), I would be ecstatic. I don't talk much about the "high end" anyway because it's not my market.

As for my clients and prospective clients reading Piggington's, I would love for them to read Rich's posts.

Submitted by SD Realtor on April 3, 2008 - 10:58pm.

JWM and JP gotcha. I also do recommend Piggington to my clients as well.

sandiegobanker if you can please provide some of home addresses for the foreclosures you spoke about a few weeks back when they close escrow so I can check on the prices. Also I still am kind of... well not really sure about the statements about developers mailing 25% rebate checks to buyers of homes out of escrow. Sorry for being skeptical.

SD Realtor

Submitted by Mr. Drysdale on April 4, 2008 - 5:38am.

SD Realtor, I can't disclose that info even though the transaction has now closed. I have a great job I'm not about to jeopardize by doing so. Despite the sales now being public, my disclosure of the specific properties involved, and thus the participants, would represent a breach of my fiduciary obligations and more. Bloggers have been sued or threatened with litigation for similar disclosures.

Convincing others that the statements I made are true is not worth those risks.

Respectfully speaking, I accept your skepticism.

Submitted by FormerSanDiegan on April 4, 2008 - 8:48am.

Respectfully speaking, I accept your skepticism.

Translation: You are right, I am probably full of $hit.

If one is really afraid of being sued, simply start a new thread with the following information.

The following property sold on xx/xx/2008, with the MLS number or APN.

No commentary, no additional details, just plain vanilla, publicly available facts.

These are printed in the San Diego Daily Transcript every day. In fact the SDDT even discloses the names of the buyer and seller in print and on-line.

For example, published on March 27, 2008 ...

"08-0149751 -- The house at 2704 Grandview St , San Diego, CA 92110, was sold on 03/21/08 at a tax value of $495,000.
Sold by Michael Pisanich, Jr. and Britt Normann, trustees, to James D. Kunzman, MD. 430-921-04."

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