California 2011 Housing
Copyright © 2011
All rights reserved.
again the New Year comes in with a song, a list of resolutions and a
prediction for the coming year. In the San Diego real estate
market, a rather worn out list of headlines dominate:
Solid signs of a firming market,
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,
What a great time to buy with low interest rates and a good supply
of homes for sale,
Act fast now, or you may be paying thousands more in a few months.
heard these same phrases since 2005. The major difference was that
in 2005 and 2006 many of the Gurus were adding phrases:
Itís only a normal pull-back,
Itís known as a Ďpause to refreshí,
This is a once in a lifetime buying opportunity before the market
resumes itís double digit yearly appreciation.
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, Iíd like to join this optimistic, self-promoting crowd,
but sorry, I have to tell it like I see it.
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
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
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.
population, combined with a decreased standard of living can't
equate to housing starts comparable to prior generations. I think
our governmentís 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
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. Itís
not buyer pent-up demand, but seller pent-up demand to unload their
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 20ís and early 30ís. 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
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.
Let me finish this up by saying while I donít see any strong base
building in the San Diego real estate market until 2012 at the
earliest, I hope I am wrong. My 30+ years of residential real
estate experience and my astute 2005 article that predicted this
mess in the national housing market, might suggest you agree with
me, at least for now.
Bob Schwartz, is a Certified Residential Specialist,
San Diego real estate broker with
w/over 27 years exp. He has a popular
San Diego real estate blog
Bob's other sites are: Downtown
San Diego real estate &
San Diego real estate agents. For legal assistance, visit
Los Angeles defense lawyers
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