San Diego bubble 2.0 for 2016 (Orange: rentals, houses, buying)

[NYSD1995]

Originally Posted by JohnAlt

Bull****.

Government subsidized low interest rates. BINGO!

Cheap money is fueling it all, but the money is flowing to large investor groups who are buying up homes and renting them out. I have said it many times, we are entering the era of the permanent renter class and the corporate landlord. There are also a new breed of professional flippers who can do multiple homes at the same time, they are backed with cash from investors, that is very different than the mom-n-pop type flipper from ten years ago.

[BizrulesSD]

I love how everyone loves to blame the big bad Wall Street. There is very little to believe that any bank would do such a thing. There is significant cost to holding a property for a bank to let just sit there to keep it off the market.

Also the point about "no more land". Well there is actually a significant amount that isn't built and second is that you are seeing buildings going vertical. More condos/townhomes and less SFH.

Having said all of that, I think the market is on the overpriced side. Prices tend to need a catalyst to drop and I am not sure what that is. Interest rates increasing maybe but rates would need to go significantly higher (more than 6%) to significantly impact the market.

A colleague of mine sent me this article this morning:

Wells Fargo launches 3% down payment mortgage

Very reminiscent of 2008.

The thought of "cashing out" and renting is a possibility as we see if the market turns and we are able to pick up homes at lower price. All it would take is a 15% move and then the 800K home is priced at 680K which feels about right.

[bklynkenny]

It's just capitalism. Do you ever tell your employer not to give you that raise?

[Spartanacus]

A person/business/corporation should not be allowed to own more than 3 homes - primary, vacation, rental/flipper at once.

[RosieSD]

This morning I posted two threads in the "Get Real" thread (sticky at top of the page) with a sample of the hundreds of listings for single family homes in San Diego County still selling for under $400,000. I also posted a second thread with a sample of the hundreds of homes that have sold recently (in the last 3 months) for under $400,000. I am not sure that all of these homes were snapped up by Chinese investors (I wish someone could provide evidence of that).

Yes, there is no doubt that prices are going up. And, yes, you can probably get more for $400,000 in some parts of the country. But it simply isn't true to say that there aren't any affordable homes left in San Diego County. There are.

The problem I see is that often the people complaining about prices want all the bells and whistles for a cheap price: perfect location, perfect size, perfect school district, perfect condition. So, when we say "no affordable homes" what we are really talking about in most cases is "no affordable homes I'd deem to live in." That's a different story than "you can't buy anything in San Diego County."

Buying a home is always about compromises. If you'd be happy to live someplace like the midwest, or Idaho, $400,000 will probably buy you more than you'll get in San Diego, so that's a compromise. If you want to buy something for $400,000 or $500,000 here, you're probably going to have to compromise on location, size, or condition.

If only a certain area and certain condition/size of home will do, then you're probably going to have to compromise and pay more to get what you want.

I guess if I was buying a home today, I wouldn't worry about bubbles so much as I'd worry about deciding which compromises I could live with for the long haul.

Now, if I was a Chinese investor with endless deep pockets, I'd only care about how much profit I could make when I sell, and in that case, I'd be bidding as low as possible to maximize my investment. Which makes me wonder why everyone always says that these mythical Chinese investors are driving up the price of real estate here. Maybe what's really driving up the price is those people who aren't willing to compromise on the "stuff" they want in a house.

Sorry if this doesn't make any sense. I am just thinking out loud.

[Cardiff Kook]

^^^^^great post

[snpdragr]

Originally Posted by RosieSD

This morning I posted two threads in the "Get Real" thread (sticky at top of the page) with a sample of the hundreds of listings for single family homes in San Diego County still selling for under $400,000. I also posted a second thread with a sample of the hundreds of homes that have sold recently (in the last 3 months) for under $400,000. I am not sure that all of these homes were snapped up by Chinese investors (I wish someone could provide evidence of that).

NAR does a survey of foreign real estate buyers and from that it seems very unlikely that chinese nationals are having anything other than a minor effect on San Diego. While chinese do buy lots of residential real estate in CA, it's more in SF and LA.

Furthermore, many of the chinese buyers are actually residents/immigrants in the US (~50%) and I think it's misleading to portray them as foreigners. For example, my friend got a job at google after finishing grad school and bought a home in Sunnyvale. Although he counts in the stats as a "chinese national", he has every intention of staying in the US, getting permanent residence, and his kids are US citizens. It's the traditional immigrant story of success from working hard.

The NAR survey lists Mexico as one of the countries whose buyers are in interested in San Diego. They don't have relative numbers, but it wouldn't surprise me if more Mexican citizens own real estate in San Diego than Chinese.

http://www.realtor.org/sites/default...2015-06-18.pdf

The problem I see is that often the people complaining about prices want all the bells and whistles for a cheap price: perfect location, perfect size, perfect school district, perfect condition. So, when we say "no affordable homes" what we are really talking about in most cases is "no affordable homes I'd deem to live in." That's a different story than "you can't buy anything in San Diego County."

I think this is right on the money. Housing has always been expensive in CA and unless your net worth is in the tens of millions, you're going to have to compromise. When you think about the increasing gap in income equality coupled with the lack of new housing being built, I don't think there's any need to blame foreign investors.

[NYSD1995]

400k you're making a lot of compromises. The problem is there are a lot of 800k houses that need new bathrooms or are on ****ty streets, it's the majority of homes, really.

[RosieSD]

Originally Posted by Sassberto

400k you're making a lot of compromises. The problem is there are a lot of 800k houses that need new bathrooms or are on ****ty streets, it's the majority of homes, really.

Yes, I agree. I have since added to my posts in the Get Real thread, and included samples of homes in the $400,000-$500,000 range, the $500,000 - $600,000 range, the $600,000-$700,000 range, and the $1 million to $1.5 million range.

What struck me immediately were how few differences there really were between a lot of the homes in the $500,000 - $700,000 range and the $1 million plus homes. I mean, sure, some of the $1 million homes were in "Bragging rights" neighborhoods, but a fair number of them are just basically tract homes with tiny lots, just like the less expensive homes. (There are many exceptions, of course -- I don't mean to suggest that all $1 million homes are tract homes!).

The under $400,000 homes had obvious compromises. But to me there's a certain point where the main differences between middle end homes and higher end homes is perceptual more than actual. In other words, buyers say, "oh, a $1 million tract home in La Jolla is worth it because it's La Jolla!" But meanwhile, they could get a heck of a lot more house for their $1 million if they didn't care about saying they lived in La Jolla and looked at what $1 million buys a little inland. Heck, with $1 million, you can buy several acres of land in parts of East County and build yourself a nice custom home (of course then you'd have to say you lived somewhere like...Jamul. )

Again, you make compromises whenever you buy a home. What really matters to you, and how much are you willing to pay to get it? There's no right or wrong answer, of course. What matters to one person may not be as important to someone else. And, some people may just decide that they'd be just as happy in a $600,000 house in Poway as they would a $1 million house in Encinitas. Or, for that matter, a $400,000 house in Chula Vista over a $600,000 house in Poway.

More importantly, I also noticed was that many of the current listings for the $1 million plus homes have had recent price reductions - sometimes sizable price downgrades. I could be wrong but to me that indicates where the softness in the market possibly currently is. Maybe people have decided that if they're going to pay $1 million for a tract home, they might as well bump down a few notches in price. Meanwhile, it seems that the homes in middle price ranges are being snapped up like pancakes at a church breakfast -- and really there is still no shortage of those homes in the middle range (let's say $500,000 - $700,000 range).

That doesn't indicate there's an endemic bubble though; maybe more of the potential of a bubble in the higher end market. So maybe if you're buying a home towards the higher end (say $800,000 and above), you have to worry more about a bubble then if you're sticking to the middle or lower end. Assuming, of course, that your main reason for buying a home is investment purposes, and not just a place to live.

Not sure. Again, just thinking out loud more than anything.

[RosieSD]

Originally Posted by snpdragr

NAR does a survey of foreign real estate buyers and from that it seems very unlikely that chinese nationals are having anything other than a minor effect on San Diego. While chinese do buy lots of residential real estate in CA, it's more in SF and LA.

Furthermore, many of the chinese buyers are actually residents/immigrants in the US (~50%) and I think it's misleading to portray them as foreigners. For example, my friend got a job at google after finishing grad school and bought a home in Sunnyvale. Although he counts in the stats as a "chinese national", he has every intention of staying in the US, getting permanent residence, and his kids are US citizens. It's the traditional immigrant story of success from working hard.

The NAR survey lists Mexico as one of the countries whose buyers are in interested in San Diego. They don't have relative numbers, but it wouldn't surprise me if more Mexican citizens own real estate in San Diego than Chinese.

http://www.realtor.org/sites/default...2015-06-18.pdf




I think this is right on the money. Housing has always been expensive in CA and unless your net worth is in the tens of millions, you're going to have to compromise. When you think about the increasing gap in income equality coupled with the lack of new housing being built, I don't think there's any need to blame foreign investors.

Great reading! Thanks for posting the link and sharing your thoughts.