Is NCCSD approaching bubble territory?

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Submitted by profhoff on May 12, 2016 - 2:31pm

I've been following the North County Coastal SD real estate market - single family detached between $1,000,000-$2,000,000 (Leucadia/Encinitas west of I5, Solana Beach, East Solana Beach, Del Mar Heights and East Del Mar). So we are talking the entry level stuff...

Good houses (clean, look nice, don't need gut renovation) are selling pretty quickly and my real estate agent tells me that a number now have multiple offers and bidding wars.

From studying Redfin, I've noticed that houses that closed within 6-8 months have current Redfin estimates that put them maybe 50-65% higher than just SIX MONTHS AGO. That's insane!

Real estate agents are claiming the market is up about 10%/year give or take - so is Case Shiller - but that also things are up quite a few percentage points from just a few months ago in some areas.

WTF!

Is the NCCSD area that much in demand? That much immune from market forces like income, the stock market, and what not?

Or are we seeing the beginnings of the bubble?

There's not that much inventory and not that much closing so it's hard to discern trends.

Thoughts?

Submitted by bewildering on May 12, 2016 - 3:32pm.

It is not only North County. I keep an eye on my local area in Clairemont. There is really low inventory, less than a months worth. Decent places are gone in a week for crazy money IMO.

Is it a bubble at the moment? I'll be curious what Rich thinks in his next update but interest rates are really low, and rents are extortionate. Demand is high, and supply is low.

Amuse yourself with this thread from 2011 complaining about San Diego being expensive
http://piggington.com/why_is_san_diego_r...

Submitted by XBoxBoy on May 12, 2016 - 3:43pm.

I watch La Jolla's market pretty carefully, and I can tell you that prices just keep going up. Inventory isn't that tight, but most of the places that sit on the market are not very good.

Zillow also shows huge (crazy?) jumps in the last 6 months to a year. (Here's a place that in Jan 2015 was 2.5 mil. Today Zillow says over 5 mil)

http://www.zillow.com/homes/6126-Avenida...

I don't know what to make of these huge jumps on Zillow because that's way beyond the increases I've seen, but still...

Is it a bubble? Beats me. I can't see the reason that prices will fall, but on the other hand I don't believe that prices can continue to climb 10% or more a year while salaries and income only climb at a couple percent at best. Where does it stop? What causes it to stop? I'd love to know the answers to those questions, but ya got me on that.

Submitted by Escoguy on May 12, 2016 - 3:46pm.

In the three zip codes where I own/watch prices are up meaningfully in the past two months with the majority of new listings going pending in less than a week: 92027, 92127, 92078

While less costly than coastal areas, the new "affordable" benchmark is about 650K for a 3BR and 700-750K for a 4 BR in inland areas around the 15 in North county.

Luxury is looking at 100-200K higher.
Inventory is very low <1 month.

Most buyers I know are trade up from the area which should make the market more stable.

Submitted by Coronita on May 12, 2016 - 4:00pm.

i dont think this is just ncc. Well there's a lot of people with more than one house that they bought at a pretty good price. My theory is they don't need to sell and either

(1) they arent planning to sell
Or
(2) they are selling not because they need to, but rather putting it out there to see how high a price they can fetch, knowing it is a sellers market. if someone came along and offered them a ridiculous price, they would let it go. Hence why some listings are for an unusually high price and out there for many months.

I see a few townhomes in my favorite crest Delmar now listing a 3/3 for $700k+... At peek, these were around $620k. So I'd say people are just putting a price up there to see what sticks.

I might do the same over the summertime for one my rentals if I can get close to 100% appreciation. Currently, I am not that far off, so I will see how it works out. Cash flow is good and there no loan on the place. So I wouldn't mind just putting it out there and let it sit until someone bites.

So much for that speculation among some that once Qualcomm has a massive layoffs we will see a big price correction. Lol.

Submitted by profhoff on May 12, 2016 - 4:39pm.

Yeah, flu, the Qualcomm price correction everyone waited for...

Yet, in SF, rents are going down and there is definitely talk of a bubble. VC money is tight and the housing blogs suggest price increases in real estate are already starting to slow down...

In LA, rents are going down, too.

And incomes certainly aren't going up fast enough to keep pace.

So there are some definite clouds on the horizon in California!

My own theory is that there are a lot of aging boomers in NCCSD and there is no reason for them to leave. Plus, there are a lot of boomers on the younger end moving in - maybe buying that retirement place ahead of time so they can lock in the tax base now instead of 5-10-15 years from now, not to mention crazy low interest rates where jumbo is less than conventional and pretty close to 3% - and that's putting pressure on inventory and pushing prices up.

But how high can it go? And as prices keep going up, are there really enough people with that much money?

Submitted by Coronita on May 12, 2016 - 5:54pm.

profhoff wrote:
Yeah, flu, the Qualcomm price correction everyone waited for...

Yet, in SF, rents are going down and there is definitely talk of a bubble. VC money is tight and the housing blogs suggest price increases in real estate are already starting to slow down...

In LA, rents are going down, too.

And incomes certainly aren't going up fast enough to keep pace.

So there are some definite clouds on the horizon in California!

My own theory is that there are a lot of aging boomers in NCCSD and there is no reason for them to leave. Plus, there are a lot of boomers on the younger end moving in - maybe buying that retirement place ahead of time so they can lock in the tax base now instead of 5-10-15 years from now, not to mention crazy low interest rates where jumbo is less than conventional and pretty close to 3% - and that's putting pressure on inventory and pushing prices up.

But how high can it go? And as prices keep going up, are there really enough people with that much money?

The way i look at is, where is the money source from and how likely is it to disappaer.

In SF, wealth is significantly tied to stock options, and pretty much everyone gets them.

In SD, companies aren't so generous to everyone, especially less experienced/lower level people. So the question is in SD where is the money from? Probably more to do with "old wealth" and/or other highly compensated professions.

So, assuming we have a stock market correction, I'd say the hit to the bay area will be a lot more than probably here.

Not sure where the money from LA or SD comes from. But apparently many people have it.

Also, the inventory is low in SD simply because builders aren't building.
And probably most homeowners aren't in a hurry to sell, especially if their mortgage payments is ridiculously low.

Submitted by joec on May 12, 2016 - 6:00pm.

I always feel there are lots of people with money and people who are buying million dollar places aren't sweating since they have a lot of cash on the sides or lots of other properties.

Income isn't as much of a concern since their asset base is very large and they aren't trying to really qualify for a home mortgage IMO...

Until rents stop going up, I don't think ANYTHING will stop prices from going up honestly.

As someone else posted, rents are insanely high/feels wrong at times already.

Unlike the previous bubble, rents were much much lower than home prices so it all collapsed. If people are still willing to rent for 4,200/month in my hood, then there is no reason for anyone pressured to sell if their mortgage is around 2k/month.

If no one wants to buy at your price, you can always rent and cash flow positive so easily...

Submitted by moneymaker on May 12, 2016 - 6:13pm.

Zillow says my home went up 1.5% in the last 30 days yet rent zestimate went down 1%, go figure. The quickest moving inventory is in the 600-750K range.

Submitted by utcsox on May 12, 2016 - 7:22pm.

profhoff wrote:
Yeah, flu, the Qualcomm price correction everyone waited for...

Yet, in SF, rents are going down and there is definitely talk of a bubble. VC money is tight and the housing blogs suggest price increases in real estate are already starting to slow down...

In LA, rents are going down, too.

And incomes certainly aren't going up fast enough to keep pace.

So there are some definite clouds on the horizon in California!

My own theory is that there are a lot of aging boomers in NCCSD and there is no reason for them to leave. Plus, there are a lot of boomers on the younger end moving in - maybe buying that retirement place ahead of time so they can lock in the tax base now instead of 5-10-15 years from now, not to mention crazy low interest rates where jumbo is less than conventional and pretty close to 3% - and that's putting pressure on inventory and pushing prices up.

But how high can it go? And as prices keep going up, are there really enough people with that much money?

I am not aware of rents are going down in Los Angeles or San Francisco. According to Zillow, monthly changes in rent is 0.7% in LA and 0.3% in SF. Annual Changes are 3.8% in LA and 9.9% in SF. The pace of increase might has slowed, but I have not seen any evidence that rents are actually decreasing.

http://files.zillowstatic.com/research/p...
http://files.zillowstatic.com/research/p...

Submitted by The-Shoveler on May 13, 2016 - 6:12am.

The biggest issue (at least in North County and most of CA) is that there is a housing shortage and there are no big projects being put up right now (that I know of anyway).

You have to have over supply before you can have a crash IMO anyway.

Submitted by livinincali on May 13, 2016 - 7:23am.

utcsox wrote:

I am not aware of rents are going down in Los Angeles or San Francisco. According to Zillow, monthly changes in rent is 0.7% in LA and 0.3% in SF. Annual Changes are 3.8% in LA and 9.9% in SF. The pace of increase might has slowed, but I have not seen any evidence that rents are actually decreasing.

http://files.zillowstatic.com/research/p...
http://files.zillowstatic.com/research/public/rental/ZRI.Los%20Angeles-Long%20Beach-Anaheim.753899.pdf

Asking rent declined slightly Q4 2015 to Q1 2016 in San Diego, but the annual spring pop is back at the highest ever Q2 2016 > Q4 2015. This years spring pop isn't as high as in previous years and the huge ramp that started at the beginning on 2014 seems to have slowed down in the past 4 quarters. We'll see what happens, but I wouldn't envision any major shifts downward in the next year or so. These kind of markets move pretty slowly. It's not really worth paying too much attention to them more than a couple times a year.

Submitted by bearishgurl on May 13, 2016 - 10:19am.

Again, I don't agree with shoveler on this issue. SD County has no housing shortage. There are plenty of current available rental units and for-sale listings all over the county. In the case of NCC, it's always been the same (esp west of I-5). There are too many deep-pocketed all-cash and huge-downpayment purchasers from all over the country and world who are making offers along the coast. This makes it impossible for Joe and Jane 6p worker-bee (who need large mortgages) to compete with them and this will never change. This is true along the entire coast of the state (within 5 miles). Too many 1st and 2nd time homebuyers who need large mortgages in order to consummate a deal are attempting to gravitate their search towards the coast when, in reality, it isn't "their turn," yet. That's the way it's always been, except in decades past, there weren't all the subdivisions there are now within 5 miles of the coast (ex: NCC). The vast majority of boomers didn't buy their 1st (or 2nd or even 3rd) homes along the coast (west of I-5 in SD).

Again, I feel that today's 1st and 2nd time homebuyers in SD have wildly unrealistic expectations. If they would shop in areas they can actually afford, they would much more easily find homes which suit their families' needs in which they can realistically get their offer accepted. Many (most) of them find that distasteful, hence they are still renters as sold prices (slowly or more rapidly, depending on zip code/micro area) inch up into the stratosphere.

I find this phenomenon kind of strange because Gen Y's "brethren" shopping for a home in LA, Ventura, OC, SF, and other bay area counties are willing to be more realistic and make offers on what is available in their price range. Not so in SD. SD 1st and 2nd time homebuyers want it all right now! I feel the only way this collective mindset will ever correct itself is if SD County becomes more like those other CA urban coastal counties .... that is, the dearth of inventory is so pronounced everywhere that they have no choice but to face reality and shop where they can afford, rent indefinitely or leave.

Not sure how long this is all going to take because SD city and county officials have sold its longtime constituencies' lifestyles down the river for well over 20 years now by approving wa-a-a-ay too many subdivisions all over the county. This didn't happen in the above counties (except Alameda, but to a much lesser degree than SD County).

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