We continue with Dark Matter Week, in which I outsource all content writing and then pat myself on the back for having so much intellectual capital (or something like that).
Today's outsourced content comes from an Econo-Almanac reader who is an appraiser here in San Diego. He recently sent me a note indicating how he thought things would play out for San Diego. I thought he made several interesting points so I got his permission to share it:
If it goes down this time like it did last time, I anticipate the outlying areas of the county will get hit first and hardest because of their distance from employment. These areas, like Valley Center, the more remote areas of Fallbrook, Ramona and Alpine are competing with the areas that are closer to freeway access. The condo markets are always the last to show gains and the first to show losses because given a choice buyers always prefer detached homes. The quasi-luxury pretenders to the Rancho Santa Fe crown will also take a bath - last time Fairbanks Ranch got nailed because of churn but the down market barely registered in RSF, which doesn't turn over as often. La Jolla and Del Mar maintained but Pacific Beach and Ocean Beach didn't. So there are some gated McMansion communities in the 92067 periphery whose residents should be more than a little nervous right now.
My point is that what we refer to as "the market" here in San Diego County is comprised of many segments, and even though they're ultimately connected they don't move as a single monolithic entity. This goes back to your observations of "cluster" behaviors. There are still a couple market segments in the county that have registered some nice gains since 08/2004 - it's because those areas were lagging before and have since been catching up in relative parity compared to the other areas that already experienced those gains. Anyway, I think that not every neighborhood and not every price range will suffer equally - some segments are much more at risk for catestrophic price collapses than others, the downtown condo market being one of them and the McMansion poseurs being another.
The price ranges at the very top and bottom ends won't suffer as much as what passes for the middle ranges - the reason being that rich people always have the money and entry level housing will still provide a point of refuge for buyers who are moving down. The market compressed last time, with the spread between entry level and move-up level housing collapsing; i.e., instead of paying 200% of the entry level price for a new/recent tract home it was only 150% or so.
I think we're still working on the 100-monkey theory. The first few monkeys to recognize a trend and pick it up are the smart ones - these are the ones who always come out on top. There will be other monkeys who will see what the first few monkeys are doing and they'll catch on, and also prosper as a result. By the time the 100th monkey picks it up then all the remaining monkeys jump on and it becomes the norm.
Applying the 100 monkey theory to where we are right now, I reckon we're somewhere around 50 or so. There are some people who have already pulled out (some of them have already left town) and there are a number of monkeys who have become nervous enough to make halfhearted attempts to get out, but we haven't reached that critical mass yet where the trend takes on a life of its own. I reckon we'll know when that time comes by the prevalence of listing prices that are lower than the sale prices of the prior year. We'll hear it from the waiters at our restaurants and we'll see it (finally) in the Union-Tribune. That's when the trend will really pick up steam and we'll start seeing recent buyers looking for reasons to sue their developers for selling the last phases of the new subdivisions for less than the first phases.
My thanks to the reader for sharing his insights. Incidentally, this seems like a good time to remind people that anyone can start a User Forum topic. So if you'd like to make your opinion heard, go nuts.