How much further will the SD market go down.

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Submitted by andymajumder on April 6, 2008 - 9:05pm

It seems the first phase of decline in SD maybe over and now probably the next phase of slower decline begins. Fellow pigs have saved me a huge amount of money with all the info on this site and I will continue to wait. I am about to renew my apartment's lease for another year till next May.
I wonder how much further you guys expect prices to fall over the next 2years, perhaps till the end of 2009. I am looking at the following areas, Scripps Ranch, 4S Ranch, Rancho Penasquitos, Carmel Mountain Ranch, Rancho Bernardo, SEH.
I would expect to see another 10-15% decline from now. Would be pleasantly surprised if we saw another 20% decline. It just seems we do have a lot of buyers still waiting on the sidelines, as indicated by the fact that a reasonably good deal gets scooped up very quickly now. I understand the amount of decline depends on a quite few factors such the extent of bail-outs, how badly or how soon the economy recovers, who wins in November...But would like some feedback from you guys as to much further of a decline do we expect for the above mentioned areas by the end of next year or 2010.


Submitted by hipmatt on April 6, 2008 - 10:04pm.

I think you are doing the right thing by waiting. My guess has always been 2010, and I'm gonna stick to it, but well only know after the bottom has been reached for sure.

Submitted by contraman on April 6, 2008 - 10:54pm.

You remember what happened a few Fridays ago when Bear Stearns went from 60 to 30? Do you remember?

Alot of greedy people bought at 30 thinking the sell off was overdone. On Monday, they were eating xanax bars for breakfast.....

Again, study past cycles and realize that an asset that has severely appreciated goes down in steps. We have had the first step and alot of people think the worst is over and are buying because "they don't want to miss out" mentality.

Don't be fooled we are only half way there my friends....the cancer spreads slow into every sector....

Ask all the people that work for Dell Computers in TX.....all 8800 of them that are going to be without a job for awhile how the mortgage payment is coming along....

You think Qualcomm is going to go unscathed from the major pull back in consumer spending???? Wait for the announcement in Q3.


Sincerely, Contraman

Submitted by La Jolla Renter on April 6, 2008 - 11:05pm.

I agree it sure feels like there are a fair amount of buyers on the sideline. My hunch is that those buyers are going to get even more conservative as the market falls and job security becomes an issue.

The mortgage amount I personally am willing to take on has dropped about 25% over the past year. My future income does not look as good as it did one year ago.

Submitted by Deal Hunter on April 6, 2008 - 11:28pm.

One thing to wait for is the outcome of the senate bill called, The Foreclosure Prevention Act of 2008. A component of the bill will allow businesses to carry back NOLs (Net Operating Losses) five years instead of the normal 2 years.

The focus of course would be how new home builders would use this new tax incentive in 2008 and 2009? Builders had made such treamendous profits going back as far as 2004 that it is possible for them to "dump" their inventory in 2008 and 2009 just to shave their tax bills from previous years.

This could result in futher plummeting prices for new homes in SD and other areas. That would lead to a lower floor for the home values and more homeowners more upside down.

Hopefully the other component of the bill that gives a tax incentive to homebuyers of $7K to $15K in tax rebates over 2 years for buying an REO, will balance out the fire saling of inventory by the builders. Banks may stick to their prices on REO's knowing that there are buyers close at hand and the builders won't have to compete as much.


Submitted by skywalker on April 6, 2008 - 11:50pm.

"You think Qualcomm is going to go unscathed from the major pull back in consumer spending????"

Answer: YES

Submitted by SD Realtor on April 7, 2008 - 12:12am.

Personally I really believe that you need to get more regional to start making predictions about the various submarkets including the bottom of the market and the rate at which it will take to hit that bottom. The areas that you have mentioned, in my opinion have far more downside ahead of them then what they have already experienced. Conversely an area such as Eastlake, I believe has already shed alot of weight and while it will shed more, I feel it is much closer to a bottom then the previous areas. Out of the areas you mentioned I feel SEH is in for the biggest fall in the nearest future.

Here is an example... today I was up in Oceanside visiting a nice couple at the Summit. The news was not good. These people had a 3000 sf home and want to sell it. We looked at the active pending ratios and for homes that were 2700 feet and up there were 24 actives and 1 pending for the entire 92056 zip code. 1 PENDING!!! So this year I expect many neighborhoods to continue falling with strong numbers.

So I think that the answer to your question will hold a little more variance with respect to the amount and the timing of what will happen. For places like Scripps and CV well I am more confounded every day. Recently a SPECULATOR purchased home right around the corner from me just went into escrow. Not good... To me that indicates a slow ride down at least for Scripps...As always if we get a serious disruption in employment or interest rates we will get a more chunkier downfall.

SD Realtor

Submitted by CA renter on April 7, 2008 - 12:33am.

Like SD Realtor said, the lower end has already shaved off 40-50%+ in many areas, and is very close to breaking even for investment purposes -- if we could be sure that rents won't go down in the near future.

The higher-end areas were pushed up by loose lending in the lower end -- a number of people could sell their starter homes for a $300K++ profit and buy a house in CV with another neg-am liar loan, etc. They have an equity cushion (the down payments from sales of the starter homes) that the starter market didn't have because the starter homes were purchased with 100% LTV loans, for the most part.

IMHO, the huge declines are pretty much over for the lower end (still expecting some drops for awhile, though) and now we will begin to see the drops in the higher end. I think 2008-2010 will bring dramatic drops in the higher-end areas, because fewer people will be able to bring those huge down payments from the starter homes. We have to wait out the resets, "above-water" sales, and refis enabled by the equity cushion they have.

Submitted by jimmyle on April 7, 2008 - 6:47am.

I am very much anxious to buy but I think we still have a major recession to go through before we are near the bottom.

Submitted by 5yearwaiter on April 7, 2008 - 7:23am.

Anyone who believes this site's future vision(astrology) they should also keep in faith that SD prices are falling to 38%(including CV, 4S or whatever you all in concern). The time is also not that much far and it is the matter of that new bill(big mistake of another to happen) and then we experience an ache(don't know which way that errupts) but finally we all going to see a free (not even a controlled manner) fall until 38% reach compare to 2003 prices prices scale.


Submitted by cr on April 7, 2008 - 10:26am.

If you look at past cycles, once prices reverted to the mean they continued downward and over-corrected. There's no reason not to expect that this time.

To that historical trend we can add the fact that we are only now starting to see conditions that can cause a decline in a normal cycle, i.e. recession, job losses, consumer fear.

We're still in the bargaining stage. It's now accepted that prices will fall even as much as 25%, but the general consensus is for a turn-around by the end of '08. We heard the same thing a year ago.

Prices have no chance of bottoming out as long as inventories and foreclosures are on the rise.

Submitted by LV Renter on April 7, 2008 - 10:42am.

The best bet is to look at rents relative to home prices for any area to determine how much prices will fall. If a 2,000 sq ft house is renting for $2,000 in 4S Ranch the price of the home will fall to about $250,000 ($1,600 mortgage, $250 taxes, and $150 HOA). If mortgage rates go up, if today's flipping bargains become tomorrow's defaults, and the rents fall prices could fall even more.

One thing I would really wait for is for Option ARMs (Neg AMs) to reset when the available line of credit is used up. This is likely to happen in large numbers in 2010 and 2011. When this occurs areas that have had large run ups but limited rentals will start to see defaults and price declines.

Submitted by andymajumder on April 7, 2008 - 10:46am.

"If you look at past cycles, once prices reverted to the mean they continued downward and over-corrected. There's no reason not to expect that this time."

Ideally, thats what you expect. But, its moves like this

which has me worried. Congress and Fed seems to be hell bent on throwing as much money on Housing as possible to prevent itself from correcting. Its almost an all out war against renters and tempt them buy at any cost. I won't be surprised if a new bill comes out which will add an additional tax if you are renting.:-)

Submitted by NotCranky on April 7, 2008 - 11:45am.

I agree with SDR an CArenter. But for the life of me I can't understand why the question matters from a prospective buyers standpoint. How much more will the property that I want to buy or in my case sometimes build, go down from here?Or up? How is that property positioned for the long haul from there. Do people want to know when the bottom is printed in the bold headlines in the newspaper or have Rich post it up on a thread so they won't be afraid to buy? Maybe the problem comes from most piggs wanting to buy in fancy areas which haven't outright crashed? I think we might be looking at people who made money flipping houses after the bottom and well into 2003,2004 but that was all a fluke. It isn't likely going to be that easy next time. You have to force it to work to make money or great deals.The best deals especially for lower priced houses are going to be between now and the bottom and around the bottom there will be great deals on expensive homes before the bottom too. Between now and the bottom is where the most fear, distress and capitualtion is.That is why you get a good deal. I am not saying buy yet,not everywhere especially. I am just saying this is a way to look at it. I think some people here are on automatic pilot waiting for air control to say "it's the bottom now you can take over the controls".

Submitted by JWM in SD on April 7, 2008 - 12:07pm.

"Do people want to know when the bottom is printed in the bold headlines in the newspaper or have Rich post it up on a thread so they won't be afraid to buy?"

No, because it will be telegraphed long before that point. Have you not paid attention to Bug's posts??? And please don't respond that the rebound will happen so fast that we can't take advantage of it. I will laugh in your face if I hear that.

"Maybe the problem comes from most piggs wanting to buy in fancy areas which haven't outright crashed?" Yet....;0. No really, so what if it is? Again I'm kidding. Actually, it really that anyone who truly understands the Big Picture simply doesn't want to to be burdended with a large debt on an overpriced, illiquid asset that requires significant amount of maintenance in a Deflationary environment for the next several years. Why would I want to put my family in financial jeopordy?

Rustico, it is still about affordability in the long run. The bottom line is that decent housing stock in SoCal is grossly overpriced relative to local income levels.

It's the affordability stupid.....

Submitted by NotCranky on April 7, 2008 - 12:28pm.

I am talking about the capable and willing not the priced out, pie in the sky, and/or supersmart unwilling. This isn't the first real estate cycle I have ever lived through. I am not fixated on the bottom nor do I think it is necessary from a sound investment point of view. That is all I am trying to get across. Market timing aside, that 20k of inventory isn't all unaffordable and some of it is going to sell at nominal prices lower than it will ever be again,this trend starts growing from now on out. I am not saying most buyers will not go upside down. It is a matter of number and degree though.Some will make out like bandits. The full market isn't completely messed up any more unless we have a depression.

Submitted by woodrow on April 7, 2008 - 1:08pm.

Wow. Rustico, I really value your posts, but I think you're way off here. The market is still completely messed up. You are correct in that we are getting closer to affordability in a few areas that have been crushed (Temecula, Chula Vista), but in 95% of SD County, prices are still ridiculous compared to historic indicators.

Submitted by patientlywaiting on April 7, 2008 - 1:40pm.

"It's the affordability stupid....."

Very true. Leverage and financial engineering/innovation are all about borrowing from the future so we can have raise our standard of living, right now.

Submitted by NotCranky on April 7, 2008 - 2:10pm.

Wow. Rustico, I really value your posts, but I think you're way off here.

Thanks woodrow. If I am way off, I think it is because I am not explaining things well. I am also pretty sure a few arguments I throw out are hopelessly wrong and should be round filed. Anyway, I am talking about targeting selective instances where value lies due to all this distress and where it can be created by lowballing sweat or some other form of enterprise. If I had more money I would be making offers but I am building another house and two garages if I can get permits. In some areas it is probably nearly zero houses that will not end up upside down or will cash flow now and in some they are trickling in or will be or could be forced by low ball offers to work. Not stuff everyone wants. But it gets better between here and the bottom. Unless we have have a meltdown.

My frame reference is 1992-1998, instincts and even a little math.
People did flip some houses successfully in this time frame or buy properties that never went upside down. Thousands bought properties that went up side down but never really faced what one would call duress. 1992 was 6 years from the bottom I bought a house that was joke to pay for and sold before the bottom for a profit. People here mostly are thinking anywhere from 2009-2013 or further and depending on the area. To 2013 is almost 6 years. Why can't good deals happen now or soon?I am observing if and so are others on this blog(not just realtors) We already see condos and various mostly "undesirable" single family houses penciling out or getting close. That is what happened last time early on.

I am not convinced this bubble is a catastrophe and that things will be "different" this time. I am talking about making money in real estate not stepping into comfort or luxury. Not that there is anything wrong with that but it is pretty unaffordable right now apparently.I do wonder if that is where the disagreement comes from.

Submitted by ibjames on April 7, 2008 - 2:22pm.

I keep looking at the house price/rent ratio. If it gets close to rental type numbers ever, then I'll buy, if not, I rent.

I don't fully expect them to become even, I do have a buffer that I consider the cost of actually owning your home, that I am willing to pay so I can paint my walls and put in tile if I deem appropriate.

Submitted by alarmclock on April 7, 2008 - 2:43pm.

If you look at rich's graphs you will see that even if you missed the last bottom by 2 whole years, the market only regained 5-8%, compared to the 33% it gave up during the collapse. That's two full years of nearly every indicator telling you the bottom was reached, you pull the trigger, and you are only "overpaying" by 5-8%.

So even if the bearest of piggs takes 6 whole months to finally concede that the bottom has passed, you will not sacrifice more than 5%, and probably a lot less.

I don't understand why everyone thinks that prices are going to run up like they did in 2003-2005 again. NO ONE has anymore money... seriously, it *can't* happen again because none of the players are in a position to repeat their performance. I'm not saying that there won't be another asset bubble--there will be. But you can bet that it won't be housing.

Submitted by jpinpb on April 7, 2008 - 2:46pm.

ibjames - same here. Don't expect it to equal rents, but close. If I want wood floor instead of carpet. That's my thing. Don't want to fix up someone's rental. Want to fix my own place, but I will rent until the numbers make sents.

Submitted by CA renter on April 7, 2008 - 2:47pm.


I think what Rustico is trying to say (and it is what I'm saying), is that you can buy a house TODAY that will break-even as a rental.

We sold a house in Oceanside in Q2, 2004 for $400K, and did it in a hour. Right now, you can get a comparable house for under $200K. You could probably rent it out for $1,200-$1,600, depending on how much work you want to put into it and exactly where it is and what you want to deal with for tennants (multiple families can pay more, but do you want that in your rental?). If you put 20% down and have excellent credit, you could break even if you can find something that just needs a little cosmetic work.

Even I (a long-time uber-bear) am being tempted by a few things in O'side and Escondido (for rentals). After waiting for so many years, it's very difficult to sit on one's hands and wait when we see stuff that just might make sense -- even though it will very likely get worse.

If you aren't picky about where you live, you can buy today with fairly mild downside potential. This is why you're seeing the sales volume pick up. I think the downside for **sales volume** is pretty limited from here on out. What's left is the price drops. :)

Submitted by LAAFTERHOURS on April 7, 2008 - 2:55pm.

4s Renter

Is it just me or does anyone else have a lot of difficulty understanding what 5Year is saying?

Submitted by NotCranky on April 7, 2008 - 3:03pm.

Your point is correct too alarmclock.However. Data does not a real estate market make. Why is that O.K.for us to claim that in 2005 but not 2008,9,10? Yeah the market stinks but it is starting to have potential. I bought a property in 2004 and my neigbor just bought the one next to me for nearly 3 times that. No no no, the data says that can't happen.

Submitted by jimmyle on April 7, 2008 - 3:15pm.

Even with the home price went down around 30% I think it is more difficult for me to buy right now compared to 2006 (5-10% down era) mainly because I don't have enough for a 20% down. Most of my friends who don't already own homes are in the same boat. We can make the monthly payment but we don't have the 20% down payment.
For example, if I buy a $500K home, I would need to have $120-$130K in cash. We are trying to save but probably still 3-4 years away.
So I think bottom or not, most young couples can't afford a decent house right now.

Submitted by alarmclock on April 7, 2008 - 3:28pm.

Also- another collective misunderstand is the market vs a house. It just needs to be explicitly stated that you really can't make any generalizations about a particular house from the market data... it's racist, or house-ist, or something like that. The *market* is down N% -- this information may have no significace to a particular house. You can't live in a housing market, you live in a house. Or you rent. Or you squat. Tra la la la la.

Submitted by contraman on April 7, 2008 - 3:48pm.

Bottom Line.

If you want to go buy a house, then buy a house.

If you want to wait until the FUNDAMENTALS are back to reasonable, then wait until that happens.


If you want to have 79% of your net income every month pay the mortgage then go ahead and live that ball and chain life.

As for me, I will wait and take my chances. I rent in La Jolla for $1760.00 a month. My monthly nut to buy the place with 20% down (90,000)would be around $3500.00.

Has anybody realized this yet here? It is half the price to rent? Why buy? I will take the $90,000 and put it in precious metals and feel a lot better when I wake up one morning and my next door neighbor just foreclosed on his house because Qualcomm cut his job because people are not buying new cell phones for their spoiled kids this Xmas.....

Sincerely, Contraman

Submitted by EconProf on April 7, 2008 - 5:57pm.

Contraman has it right. The cost to rent a typical San Diego house or condo is now about one-half the true cost of owning it. By true cost, I mean ALL the costs, which are typically not included by optimistic prospective landlords. They often conveniently forget the full maintenance costs, the down-time while seeking a tenant, the advertising cost, the value of their own time in maintaining it and finding a tenant, and the all-important opportunity cost of their now higher down payment which could be earning interest somewhere safe.
Add to this the still downward trajectory of the value of the place, perhaps by 1% a month, and buying to rent it out makes no sense.

Submitted by jpinpb on April 7, 2008 - 6:02pm.

contraman - I agree. Little motivation to buy when you can rent something for significantly less. If it were close, then it makes sense. But now the 20% is a wrench in the wheel.

Submitted by hipmatt on April 7, 2008 - 7:33pm.

I also agree and have a similar situation like contraman..

I rent in Harveston up in Temecula. My rent is $1800 per month, but I don't pay the HOA($130 month). At the peak, the home I rent was worth about $575-600k. Now its worth maybe 350k, the residents on the street would think higher. With 20% down, (70k) the payment on the mortgage (280k) would still be about $2480 with principle, interest, taxes (a solid 2% or more), ins, and HOA. I'm still saving about $600 per month by renting, not counting the current depreciation. Of coarse, there would be some tax savings by owning though.

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