Poll: By the end of 2023 will San Diego home values

Submitted by Pbranding on June 18, 2022 - 3:09pm
Increase in value
5% (1 vote)
Stay flat
15% (3 votes)
Decrease 5-10%
35% (7 votes)
Decrease 10-20%
30% (6 votes)
Decrease 20-30%
10% (2 votes)
Decrease more than 30%
5% (1 vote)
Total votes: 20
Submitted by The-Shoveler on June 19, 2022 - 8:40am.

I voted flat but it could possibly get bumpy between now and then IMO.

But my theory is if we start to go into a steep recession TPTB will stomp on the accelerator again.

I guess we may see if my theory is correct LOL.

Submitted by sdrealtor on June 19, 2022 - 8:48am.

I think about 10% down or so because i never believed the big Spring bump this year was real but rather a brief distortion of supply v demand. I don’t consider that a downturn just getting back to where we should’ve settled

Submitted by davelj on June 19, 2022 - 8:54pm.

I don't have a strong opinion on the timing because declines can take quite a while but I think most if not all of the pandemic gains will be reversed.

A few numbers to contemplate. In Dec '19 the median priced SD home was ~$600K. So, if you had a $120K down payment you could finance the remainder at 3.1% fixed for 30 years and after property taxes, etc you'd have a monthly payment of ~$2,700. So, you needed a household income of about $115K to qualify for that loan. The median HH income in SD at that time was about $96K. So, things were out of whack but not remarkably so.

Fast-forward to today. Median priced SD home is $915K. So, if you have that $183K down payment you can finance the remainder at 5.9% fixed for 30 years and after property taxes, etc you have a monthly payment of ~$5,300. So, you need a HH income of ~$230K to qualify for that loan. The estimate for the median HH income in SD for April is $106K. See the problem?

If you have stable employment and a fixed-rate mortgage, hey, no issues. You can ride just about anything out. (~92% of residential mortgages are fixed rate currently.)

But if you've supported the monthly-payment-is-all-that-matters-for-housing-prices mantra - and it's been a pretty good mantra for about a decade now - then you've gotta be prepared to live that in the opposite direction as well. I can't believe I'm typing this but... at last I think the Fed is serious about inflation. I never thought I'd see the day. But I think they're finally professionally embarrassed about the predicament they've fomented. And they're gonna kill it off along with anything that gets in the way. I suspect mortgage rates are headed north of 7% and that's gonna leave a mark.

The good news is that the banking system is much better capitalized than prior to the Financial Crisis. And while there's been plenty of craziness at the margins of house financing, a lot of that has been private equity driven (and under the radar), although the PE firms are using leverage from the big banks. So, that'll cause a hiccup. But, generally, things aren't nearly as crazy as the last time around. Anyhow, we'll see.

Submitted by utcsox on June 19, 2022 - 10:25pm.

davelj wrote:

A few numbers to contemplate. In Dec '19 the median priced SD home was ~$600K. So, if you had a $120K down payment you could finance the remainder at 3.1% fixed for 30 years and after property taxes, etc you'd have a monthly payment of ~$2,700. So, you needed a household income of about $115K to qualify for that loan. The median HH income in SD at that time was about $96K. So, things were out of whack but not remarkably so.

Fast-forward to today. Median priced SD home is $915K. So, if you have that $183K down payment you can finance the remainder at 5.9% fixed for 30 years and after property taxes, etc you have a monthly payment of ~$5,300. So, you need a HH income of ~$230K to qualify for that loan. The estimate for the median HH income in SD for April is $106K. See the problem?

Median HH incomes don't buy median price homes.

Submitted by davelj on June 19, 2022 - 11:53pm.

utcsox wrote:

Median HH incomes don't buy median price homes.

Indeed. I mean, they can't. I imagine you'd agree with the notion that there's a pretty strong relationship between home prices and the ability to afford such homes... over the long term. I suspect that homes in SD (and many other areas) are in the bottom 5% of affordability historically when taking into account prices and monthly payments (on new mortgages at current rates). Rates are going up, so the only way for monthly payments to decline is... lower prices.

Anyhow... it'll all come out in the wash eventually.

Submitted by sdrealtor on June 20, 2022 - 8:02am.

davelj wrote:
I don't have a strong opinion on the timing because declines can take quite a while but I think most if not all of the pandemic gains will be reversed.

A few numbers to contemplate. In Dec '19 the median priced SD home was ~$600K. So, if you had a $120K down payment you could finance the remainder at 3.1% fixed for 30 years and after property taxes, etc you'd have a monthly payment of ~$2,700. So, you needed a household income of about $115K to qualify for that loan. The median HH income in SD at that time was about $96K. So, things were out of whack but not remarkably so.

Fast-forward to today. Median priced SD home is $915K. So, if you have that $183K down payment you can finance the remainder at 5.9% fixed for 30 years and after property taxes, etc you have a monthly payment of ~$5,300. So, you need a HH income of ~$230K to qualify for that loan. The estimate for the median HH income in SD for April is $106K. See the problem?

Yes I see the problem! This logic completely ignores reality and how the local housing market functions . The person with a median household income around here is a renter not a buyer in most cases. It has been that way for a very very long time. If you want to use metrics like this you are far better served using the 75th percentile of household income for homebuyers

You also can’t start with the premise that prices will go back three years in home prices and talk about inflation the next paragraph while ignoring three years of wage inflation with more coming. The analysis got worse the further I read into it

Just saw utcsox comment after posting this. There’s someone else who does get this

Submitted by davelj on June 20, 2022 - 11:42am.

sdrealtor wrote:

Yes I see the problem! This logic completely ignores reality and how the local housing market functions . The person with a median household income around here is a renter not a buyer in most cases. It has been that way for a very very long time. If you want to use metrics like this you are far better served using the 75th percentile of household income for homebuyers

Yes, as I addressed in the following reply to utcsox. I guess you didn't see it:

davelj wrote:
utcsox wrote:

Median HH incomes don't buy median price homes.

Indeed. I mean, they can't. I imagine you'd agree with the notion that there's a pretty strong relationship between home prices and the ability to afford such homes... over the long term. I suspect that homes in SD (and many other areas) are in the bottom 5% of affordability historically when taking into account prices and monthly payments (on new mortgages at current rates). Rates are going up, so the only way for monthly payments to decline is... lower prices.

Anyhow... it'll all come out in the wash eventually.

The use of medians was simply because... they're readily available. I agree that using the 75th percentile would be better. Can you share that data for YE19 and currently? Enquiring minds and all.

My point was... affordability as reflected by monthly payments has been cut in half over 2 1/2 years when taking into account rising prices and interest rates. Rich has the data but, again, I suspect SD is now in the bottom 5% of historical affordability by this metric. Maybe that's sustainable.

Hey, maybe affordability doesn't matter any more. I guess we'll find out.

Submitted by gzz on June 20, 2022 - 12:11pm.

Another way to look at it is how many homes are for sale now compared to the population that it makes sense to net buy: high income renters primarily. I say “net buy” to exclude people who both buy and sell within county who will roughly net out).

Out of SD’s roughly 3 million people, how many are renters with HH income above 100k? Maybe 1 in 30 or 100k. How many homes on the market for them? About 3k. Yet another way is to compare high income jobs and high income in-migrant retirees versus net housing construction. Bullish any way you look at it to me.

Rates obviously matter, but prices will keep increasing as long as we have this massive supply and demand inbalance.

Furthermore, real mortgage rates are lower than 2019, dropping from about 1% to -2%. Moreover, the rate increase isn’t coming in a vacuum. It is largely from an increase in expected inflation, which includes rents.

Thus, while payments on a mortgage for a median SD home have increased, so too have both the current rent it replaces and expected future rents.

Submitted by sdrealtor on June 20, 2022 - 12:18pm.

Yes wrote my post before seeing utcsox who astutely pointed out Median HH income does not buy median house. I dont know that the 75th percentile is the right one but its a lot closer than the 50th percentile. I did some quick searching and couldnt find it but what I did find historically put it at close to double the median so for arguments sake lets say close to $200K HH income buying median house. That also ignores that a fair amnount of those coming here are not entirely income dependent.

IMO this is more in the hands of supply v demand that affordability/income could measure

Submitted by gzz on June 20, 2022 - 12:14pm.

I enjoy this guy’s writing. I agree with his extreme bullishness on energy, and we are also both sitting on illiquid Russian equities.

https://adventuresincapitalism.com/2022/...

I took his advice to invest in home building supply chains, so purchased a little BLDR. That’s been a loser so far. They own the local Dixieline chain.

Submitted by sdrealtor on June 20, 2022 - 12:23pm.

gzz wrote:
Another way to look at it is how many homes are for sale now compared to the population that it makes sense to net buy: high income renters primarily. I say “net buy” to exclude people who both buy and sell within county who will roughly net out).

Out of SD’s roughly 3 million people, how many are renters with HH income above 100k? Maybe 1 in 30 or 100k. How many homes on the market for them? About 3k. Yet another way is to compare high income jobs and high income in-migrant retirees versus net housing construction. Bullish any way you look at it to me.

Rates obviously matter, but prices will keep increasing as long as we have this massive supply and demand inbalance.

Furthermore, real mortgage rates are lower than 2019, dropping from about 1% to -2%. Moreover, the rate increase isn’t coming in a vacuum. It is largely from an increase in expected inflation, which includes rents.

Thus, while payments on a mortgage for a median SD home have increased, so too have both the current rent it replaces and expected future rents.

Agree this is more supply vs demand than looking at incomes. I also think you underestimate incomes. I have a 25 yr old niece moving out here in the fall fresh out of grad school as a Physicians Assistant. She's being heavily recruited with starting salaries in the $150K range. Her plan is to live her 2 years and likely go back east but if she falls in love with it or someone she may stay longer. Thats a renter

Submitted by XBoxBoy on June 21, 2022 - 10:14am.

I really wanted the option: Stays flat to increases slightly in high demand coastal neighborhoods, but decreases 5-10% (maybe even a bit more) in neighborhoods that are less desirable.

Submitted by The-Shoveler on June 22, 2022 - 4:11pm.

Just a quick rant,

Ok i get the fed wants to lower demand by raising rates, but how does that fix the housing crisis?
I mean we have a severe lack of inventory (We need more homes!!), IMO all this will do is cause more people to not want to sell if they keep raising rates.
And the Builders to slow down or just mothball new projects.

They are not fixing or solving anything IMO.

Submitted by DaCounselor on June 22, 2022 - 5:57pm.

The-Shoveler wrote:
Just a quick rant,

Ok i get the fed wants to lower demand by raising rates, but how does that fix the housing crisis?
I mean we have a severe lack of inventory (We need more homes!!), IMO all this will do is cause more people to not want to sell if they keep raising rates.
And the Builders to slow down or just mothball new projects.

They are not fixing or solving anything IMO.

I would say generally that the removal of seemingly endless easy, cheap credit from the system, and replacing it with expensive credit with more limited access, can hammer down markets. Directly and indirectly. Tight consumer credit = less consumption.

It's not just consumer credit that is affected. Credit is the lifeblood of business. Businesses suffer = employment suffers = wages suffer.

Also QE is over and now it will be QT. So it's not just rates with the Fed. Get ready for QT.

Submitted by XBoxBoy on June 23, 2022 - 7:30am.

The-Shoveler wrote:
Ok i get the fed wants to lower demand by raising rates, but how does that fix the housing crisis?

The fed isn't trying to fix the housing crisis. Housing is not part of their mandate. They are trying to reel in inflation and they try to do this by raising rates and if housing only gets worse, that's not their primary concern.

Submitted by The-Shoveler on June 23, 2022 - 10:16am.

Powell openly said he is trying to reset housing market

https://www.yahoo.com/video/fed-plans-re...

IMO it probably won't work the way Powell envisions it.

As prices fall sellers who can will just pull their listings and builders will just stop or slow down.

Anyway Just My Opinion

Submitted by flyer on June 24, 2022 - 1:49pm.

I agree. Imo, whether the Fed purposely or inadvertently orchestrates a housing decline, in tandem with high interest rates, cash buyers will be out in droves, as we were the last time around, thus negating most "reset" efforts that would help the average buyer.
Edit: As I mentioned in another thread, due to many factors, I don't think we're going to see the phenomenal opportunities we saw during the last downturn--but being cash ready is still a good plan--just in case those opportunities present themselves.

Submitted by Coronita on June 27, 2022 - 8:12am.

.