2011 San Diego Housing Market Outlook

San Diego 2011 -Year of the Short Sale

We meet again at the start of a new year and a refreshed outlook on the San Diego real estate market. I am not certain that the phrases I see attributed to the upcoming year in San Diego real estate are all that fresh, though. Don’t these sound familiar:
• With interest rates near all-time lows, buying now is a no-brainer,
• Get in now, before the huge pent-up demand for homes hits,
• Solid signs of a firming market,
• Act fast now, or you may be paying thousands more in a few months,
• What a great time to buy with low interest rates and a good supply of homes for sale.

The phrases are far from new or fresh; we heard them in 2005. The major difference was that in 2005 and 2006 many of the Gurus were adding phrases:
• It’s only a normal pull-back,
• It’s known as a ‘pause to refresh’,
• This is a once in a lifetime buying opportunity before the market resumes it’s double digit yearly appreciation.

Amazingly in San Diego, California, is the local media talking-heads still go back to the same industry spokespeople to get their 60 second optimistic new year outlook for the 6:00PM news.

Naturally, I’d like to join this optimistic, self-promoting crowd, but sorry, I have to tell it like I see it.

The title of this article says it all. After the $8,000, Federal and California home buyer credits expired, the local San Diego real estate market entered into a double-dip continued erosion of home values.

After the homebuyer credits concluded, San Diego home values saw modest price appreciation. Now even this modest appreciation has disappeared. Even more troubling is that the resale home sales volume has been dropping at double digit rates for the last few months. Just from April to May the western states sales dropped a reported 20.9%. Huge double-digit declines in home sales are a major red flag that cannot be ignored.

When will the government learn that you cannot artificially create lasting demand? (Statistics show the vast majority of government housing programs, costing billions, are outright failures and have only prolonged our malaise.) I believe the best thing the government can do is to stay out of the housing market and let the open market clean up the mess.

Think about this: Bernanke initially spent almost $2 trillion to drive long-term interest rates down.

The $600 billion QE2 has no effect to date. Actually, interest rates have moved up substantially. There are a few months left, but I am sure Bernanke will use the "it would have been much worse" argument and declare success. The reality is that there will be no QE3, not with Ron Paul now as the watchdog of the Fed.

Our aging population, combined with a decreased standard of living can't equate to housing starts comparable to prior generations. I think our government’s relentless destruction of the middle class is making this different from prior real estate cycles.

Foreclosure moratoriums are beginning to expire. I believe the banks will push to clean up their portfolios through increased foreclosures.

Except for cash buyers, home pricing is derived from the affordability of the monthly payment. Should interest rates and taxes go up (a good bet), the purchase price will have to come down to establish a market. Construction labor is already about as cheap as you can get it and inflation for materials is already present. This spells very bad news for homebuilders.

As far as pent-up buyer demand goes, the gurus again have it backwards. It’s not buyer pent-up demand, but seller pent-up demand to unload their homes.

The depth and longevity of this San Diego housing value depression has been imbedded into the consciousness of the usual first wave of home buyers in their late 20’s and early 30’s. The high cost of living in San Diego has been further stressed with continued multiple raises in utilities, increased state taxes/fees, higher education costs and $3.00+ per gallon gas prices. This all equates to over-priced homes in the current world of qualifying for a home mortgage.

I just believe there are major problems with our economy at play that we have never seen before and that will have a deciding call on what happens with housing. I see demand based on finance rather than population at this point.

During the mid 2000's, almost the entire mortgage universe had been refinanced. This included many baby boomers that were in the last half of the 30-year mortgage they took out when they purchased their home. Some of this was hopefully to pay down other expenses and not to maintain their fantasy of the luxury lifestyle. The refinancing bubble that resulted from the irresponsible actions of Greenspan reset the 30-year mortgage clock. All borrowers looked at, was how the refinance lowered their house payment by $X per month, without giving a second thought to the fact that they have also extended the term to a new 30-year loan.

Another round of refinancing occurred when Bernanke pushed rates down to the 4% range. The only borrowers left who have not refinanced are those with no equity and/or are facing foreclosure.

In either case, now many Boomers who are reaching the traditional retirement age, find themselves strapped with 20+ years left on their refinanced mortgages. Instead of preparing for the mortgage burning party that their parents had when that generation retired, they are wondering how they can make house payments on a lower income during retirement.

Since this is the first year of the boomers reaching 65, it is going to be a negative drag on housing for years to come.

For the San Diego and California real estate market we have to contend with our own Cap & Tax laws going into effect in 2011 that will increase utility costs by 20% over the next five and speeding up the loss of manufacturing jobs. We also have a new, old governor who was against proposition 13 which sets a maximum cap on property taxes and will likely propose new massive state taxes to deal with a $25.4 billion budget deficit.

I will end my prediction with a challenge. I have 30+ years in residential real estate, I accurately foretold the 2005 bubble burst, and despite wanting to be wrong with previous “low” opinions I usually haven’t been. Do you want to bet against me?

My San Diego California real estate site provides full, unrestricted access to search the entire San Diego MLS . Also, if you want to see the actual current San Diego real estate sales activity and actual closed home prices, please visit San Diego home sales. San Diego real estate home market blog

San Diego California real estate agents

brokerforyou Bob Schwartz

*Note - This article is copyrighted, but, may be re-published if no changes are made to the content & links. All links must remain active and open in a new window. Author should be noted as San Diego real estate blog & hyper-linked to: http://www.brokerforyou.com/brokerforyou

Was There A Real Estate Recovery?

San Diego California real estate market:


For a no Bull opinion on the San Diego housing market, get a free subscription to the San Diego real estate market blog at:
http://www.brokerforyou.com/brokerforyou

California real estate recovery still years off

According to the Los Angeles County Economic Development Corp. report released last week, California home prices and sales volumes will also slide into 2009, while some areas of the state experience an even more prolonged downturn.

Jack Kyser, chief economist of the Los Angeles County Economic Development Corp, said:
"The housing pains there will remain, probably until 2010."
The statewide median home price last month was down about 17 percent from a year earlier and 5 percent from December, according to DataQuick Information Systems. The statewide median price peaked last spring.
In San Diego, most insiders will agree that the top of the housing market was the summer of 2005.
Century 21 San Diego Realtor

Stimulus Package ready for President

Stimulus Package on Way To Present

The Senate passed their version of an economic stimulus package today, Thursday, February 07, 2008. The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package. The House just passed the Senate version of the bill and it will now be sent to the White House. The President is expected to sign the legislation by the end of next week, ahead of the Congressional self-appointed deadline of February 15^th. The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform, making these increases permanent.

The U.S. House of Representatives passed a stimulus package last week that raised the FHA and conforming loan limits to as high as $729,750 in high-cost areas. By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales. Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably.

Increasing the FHA loan limits is critical to bolstering California’s housing market. Current law restricts FHA loans to levels well below the median home price in many areas of the country and caps loans in high cost states at $363,790. These limits are preventing many homebuyers from using FHA to purchase or refinance their loan. The proposed provision will increase FHA loan limits nationwide by raising the floor to $271,050 and the limit to 125% of local median home prices.

Additionally, raising Fannie Mae and Freddie Mac’s (GSEs) conforming loan limit will provide immediate relief to borrowers and alleviate downward pressure on current housing markets. For instance, increasing the GSE loan limit could result in more than 300,000 additional home sales and strengthen current home prices by 2-3%.

The critical role that GSEs play in providing liquidity to the mortgage market has never been more evident than it is today. The national subprime meltdown has had a dramatic impact on both the cost and availability of mortgages in many markets. Since August 2007, the interest rates for jumbo borrowers have been more than 1 percentage point higher than conforming loans, which can cost homeowners up to $400 month in higher interest payments. San Diego California real estate

Mortgage Industry Layoffs

IndyMac Bancorp (the second-biggest mortgage company), National City Corp. and Lehman Brothers Holdings Inc. have been cutting staff. At least 100 mortgage companies have sought buyers or halted lending since the start of 2006, and foreclosures in the second quarter rose to a record, according to the Mortgage Bankers Association in Washington.

Adding to this already dire situation is the fact that mortgage defaults have started moving beyond the sub-prime sector: The Mortgage Bankers Assn. noted a rise in foreclosures on supposedly high-quality prime loans that were used by speculators who put little money down on houses in California, Nevada, Arizona and Florida, and now are walking away due to lower home prices.

California foreclosures skyrocket!

Foreclosures hit 17,408 for the three months ended June 30, for an increase of 799 percent from the same period in 2006. These foreclosure numbers well exceed the prior 1996 high.

Rich Toscano, with Pacific Capital Associates in San Diego said: "There will be individual pain for people who made the wrong decisions. We all may end up in a recession."

Downtown San Diego condos

San Diego Home Sales Figures – Not All That They Seem

San Diego Home Sales Figures – Not
All That They Seem

By Bob Schwartz
brokerforyou.com ©2007 all rights reserved.

This material is subject to copyright and any unauthorized use,
copying or mirroring is prohibited

Reviewing the recently released real estate
sales data for San Diego, the lay person might conclude that the June home
appreciation figures were down approximately 1% as compared to June 2005. The
reality is the decline is probably much closer to three or five times the
published figures!

The reasons for this are really quite apparent when one considers the following
facts:

1. The appreciation figures cited are the MEDIAN sales prices. The upper-end,
luxury home market has been extremely strong in Southern California and is
relatively immune to increasing interest rates. It operates totally apart from
the rest of the real estate market. The sales of these upper-end luxury estates
skew the MEDIAN appreciation sales data.

A far more accurate figure would be the AVERAGE sales price. Alternatively, data
should exclude, or make million dollar plus sales a separate category.

2. The reported sales data does NOT take into consideration incentives used by
not only major builders, but, in today’s market, by the majority of San Diego
home sellers, to entice scarce buyers to purchase their properties.

Just open up the Sunday real estate section of your local paper and the
magnitude of these incentives becomes quite apparent. Just a few incentives I
noted in my July 23, 2006 paper: $15,000 closing cost credit and $25,000 towards
an interest rate buy down or upgrades; $50K to help pay your mortgage; seller
pays interest portion of your new loan payment for first 6 months, all
non-recurring closing costs, plus 12 months of HOA fees. I could go on, but, you
must understand that the builders are not being altruistic. No, they just want
to move standing inventory, and move it now before any further declines!

While on the subject of builder incentives, it was just a little over a year ago
that the majority of builders were not even co-operating with real estate
agents. Now, the builder/agent cooperation has gone 180 degrees plus! Typically,
builders offer two or 2.5% co-op commissions. Now,

San Diego agents are being invited to catered
brunches and offered co-op commissions up to 5%, as advertised in the July 23,
2006, Union-Tribune!

The purchase incentive phenomenon is not by any means the exclusive domain of
new

San Diego homes. Actually, I would say the
majority of individual homeowners are also being forced into the incentive game.
Though not many are offering incentives from the start of their marketing, after
six to eight weeks on the market the idea becomes more appealing. Even without
offering any incentives, the majority of offers are now being presented with
buyer incentives built-in as a condition of sale!

A year ago one would be hard pressed to find any individual San Diego home
sellers or major new home builder offering incentives. Now, it is just these
incentives that also skew the appreciation data. A $500,000 home sale with a
$25,000 interest rate buy-down/closing costs package incentive will be recorded
as a $500,000 sale. Yet, the $500,000 sale, in reality was only $475,000 or 5%
BELOW the reported sales data!

So if the $500,000 sale was just 1% below the June 2005 median appreciation, you
can see that the ‘real’ difference was 6% below last year!

Other factors not being mentioned in the press that are important to our market
direction are:

Typically the period from late March through September is the strongest for
San Diego real estate sales. What does both a
huge and continuing month over month sales decline and now a home appreciation
drop, during this ‘hot’ time, portend for the market as it enters the weaker
Fall/Winter period? Lastly, the bulk of the interest only, 100% loans used to
prop up our market for the last few years, has two or three year time periods
until the re-amortization (at the current prevailing interest rates) of the loan
balances. The majority of these interest rate adjustments will occur in 2007 and
2008.

In my opinion, this is no ‘return to normal’ or ‘slight correction’ to the San
Diego real estate market. By year’s end there will be no denying we will
experience a double digit appreciation decline. A decline that will take years,
not months, to work itself out.

*Note -This material is subject to copyright and any unauthorized use, copying
or mirroring is prohibited

About the Author:
Bob Schwartz is a Certified Residential Specialist, San Diego real estate broker
with http://www.Brokerforyou.com in
San Diego Ca. & co-owner of
www.websitetrafficbuilders.com specializing in domain name registration &
Internet domain website hosting. Bob’s San Diego real estate blog is:
http://www.brokerforyou.com/brokerforyou