patrick.net

Professor Piggington (sorry) shows that San Diego has historically maintained high average home prices relative to average incomes.

http://piggington.com/shambling_towards_affordability_yearend_2010_edition

Ratios of over 7 have been the norm...

American in Japan says

Professor Pigginton (sorry) shows that San Diego has historically maintained high average home prices relative to average incomes.
http://piggington.com/shambling_towards_affordability_yearend_2010_edition
Ratios of over 7 have been the norm…

Yes, up to 1990. Than the income dried up, decline in the Aerospace industry, sending prices downwards for the next 7 years. Prices declined even though Mrt. rates also declined. Pigginton does a very good job looking back at historical trends and providing some excellent analysis. His is correct providing you do find a "reasonable" priced home.

I appreciate the responses about San Diego. One metric I often use is sales price pre-2000 and then compounding 3% yearly- what I believe to be normal house appreciation. It still always comes up way off what the sellers are asking. I guess Piggington's point is that monthly price is low but not necessarily sales price. Ugh, stupid sunny San Diego.

Yes, I will definitely buy a house in the San Diego area towards the end of this year. I've been waiting the past 6 years for prices to go down. MANY of the houses we are looking at in the area are down 25% to 30% from peak prices. I think prices can fall a bit more but I also think San Diego will always be a more desirable areas. I've noticed lately more price reductions and a few of the houses we are looking at that are in "pre short sale" the banks (1st and 2nd) have both approved short sales. One we looked at the buyer made a lower offer and either didn't get qualified or backed out.

We're hoping prices continue to fall this year before we buy. I know there are a lot of bears on this board but our situation is a bit different. We definitely know we will stay in the home for the long haul. We have 2 small kids and don't want to move around in rentals. We're in it for the long haul so we are looking at larger 5 bedroom homes in nice areas. Homes are still pricey there even with the price drops. Most of the houses we are looking at are over $1 million still.

With Patrick's buy/no buy formula it's about a 6.5 which is borderline but rentals are around $6,000 - $7,000+ per month for a rental in a high end home that size. Property taxes in that area for that size home is mostly around $13,000 - $18,000 per year and Mello Roos fees in some of those areas is as high as $500 per month. Still even accounting for those high fees, we're going to stay in the home until our kids are finished with high school. So for us it's not an investment but to live in and we won't move around.

I've looked at tons of cities around the USA but for us we really love everything that San Diego has to offer including fabulous weather, great beaches, great schools (we're looking at the La Jolla, Del Mar, Carmel Valley areas) and beautiful homes. About the only negative factor I can think of is the cost of housing. But not too many other negative things about the city besides the higher cost of living that I can see. The job market, like the rest of California pretty much sucks but I'm not sure if I'll go work for a company. So it might be a moot point.

bubblesburst says

I’ve looked at tons of cities around the USA but for us we really love everything that San Diego has to offer including fabulous weather, great beaches, great schools (we’re looking at the La Jolla, Del Mar, Carmel Valley areas) and beautiful homes.

LOL! have fun. Just remember many didnt pay for the Sun and Beach Tax, so be sure to avoid that.

Los Angeles Times - Los Angeles, Calif.
Subjects: Shutdowns, Pacific, Layoffs, Corporate reorganization, Aerospace industry
Author: Vartabedian, Ralph
Date: Jul 01, 1992
Start Page: 1
Text Word Count: 993

Unemployment in county soars to 9-year high | 42,000 jobs lost in last 2 years
[1,2,3,4,5 Edition]

The San Diego Union - Tribune - San Diego, Calif.
Author: TERRY SACKS
Date: Aug 1, 1992
Start Page: A.1
Section: NEWS
Text Word Count: 563

Abstract (Document Summary)
The last time the county rate topped 8 percent was in 1983, in the aftermath of the deep recession of 1981-1982. Though the area's jobless rate hasn't reached the 10 percent level of that earlier slump, the current recession is far worse in terms of job losses.

Since the start of the U.S. recession in June 1990, San Diego County has shed 42,200 jobs, with declines in construction, manufacturing and retail trade accounting for 85 percent of the losses, according to EDD figures.

Max Schetter, general manager and director of the Economic Research Bureau at the Greater San Diego Chamber of Commerce, had expected the recession to bottom out by midyear. But the California and San Diego economies are lagging behind even the snail's pace of the U.S. recovery.

---------------------------

Hughes to Close 92 Facilities, Lay Off 9,000

Hughes Aircraft will lay off 9,000 workers over the next 18 months, close 92 company facilities and take a $1.2-billion charge against profits as key elements of a restructuring to improve its competitiveness and adapt to lower defense spending, company Chairman C. Michael Armstrong announced Tuesday. About two-thirds of the layoffs will be in Southern California, roughly proportional to the company's employment here. The Los Angeles-based aerospace firm will emerge from the cutbacks with 15% fewer workers than its current 60,300. (excerpt)

---------------------------

Jobless Rate Reaches 8.1% in S.D. County

Los Angeles Times (pre-1997 Fulltext) - Los Angeles, Calif.
Author: CHRIS KRAUL
Date: Aug 1, 1992

Among economists, there was little optimism that the employment decline will reverse itself soon. David G. Hensley, director of the UCLA Business Forecasting Project, said San Diego in particular and the statewide economy as a whole are still "declining" based on key economic indicators such as housing starts, auto sales, construction employment and retail sales.

Raford Boddy, professor of economics and coordinator of San Diego State University's Center for Public Economics Forecasting Project, said San Diego's current economic problems resemble those of the two-year recession beginning in 1973 when local unemployment topped 10%. Then, as now, a downturn in the business cycle coincided with deep military budget cuts, a double whammy for San Diego's defense-reliant economy.

San Diego County has lost 4.5% of its jobs over the past two years. California has lost 600,000 jobs since 1990. Hensley said 175,000 of those lost jobs were in construction, and 90,000 were in aerospace.

Just wanted to update you all- we were preapproved for an insane amount, something we would never saddle ourselves with. I think the industry is up to it's old shenanigans and again, I don't see how this could be indicative of a price correction. But nevertheless, we looked at our first house in 3.5 years and may put an offer on it- for no more than Patrick's calculator though (82% of the asking price) so wish us luck!

Hmmmm...best to buy by this April if you plan to buy at all before next winter?

Will the seasonal effect override other effects? Summer sees price increases all other things considered...

I just put in an offer this week. Apparently there are multiple offers so we'll see how it goes.

Yes, good luck. We put in an offer ABOVE asking price on a foreclosure and were beat out by one of 7 all cash investors so yea...

jessica says

Yes, good luck. We put in an offer ABOVE asking price on a foreclosure and were beat out by one of 7 all cash investors so yea…

Nothing worse than being outbid. by that time you're already mentally moved in and picking out the drapes.
My usual strategy is to not use a buyer's agent. Go directly to the listing agent and present your offer.
We'll see if that works again.

I just went under contract. I've been looking for over a year for a place that's close to my kids. There are not a lot of rentals and prices have remained stubbornly high (local economy is good). I finally found an REO in pretty good shape:

Newtown, CT
3Br/2Ba
2200SF
1 acre
$287500
Taxes = $7300

20% down, 5.125%APR, $3500 back from bank (reverse points) towards closing costs
annual rent/price = $24000/$287500 = 8.4%
Price/income = $287500/$160000 = 1.80
5+ years expected residency

I'm currently renting a 1Br cottage and my PITI will be only $850/month more. I'm satisfied.

Price/income = $287500/$160000 = 1.80

Great ratio! If only banks hadn't lent to people with ratios of 7, 8 or more!

I-man says

$287500
Taxes = $7300

Wow, a 2.53% Property Tax rate?!?!

Well, at least it looks like they're investing some of that money into the schools. Newtown, CT has high-rated (9&10 out of 10) schools. http://www.greatschools.org/search/search.page?search_type=0&q=Newtown&state=CT&c=school

I think rates over 2% are common in the US. California has strangely low property tax rates.

Bring on the Georgist land tax!

jessica says

Yes, good luck. We put in an offer ABOVE asking price on a foreclosure and were beat out by one of 7 all cash investors so yea…

looks like I am going into contract! I guess the strategy worked.

I think It's very hard for regular buyers to compete for the best deals.
My offer was with no contingencies, no agent, all cash, as-is no inspections.
I can pretty much eyeball the inspection myself now on a small property. I looked at the place once and made offer on the spot.

closing in 10 another days, It's in San Jose's Cambrian neighbourhood.

Bought in Tega Cay, SC (lakefront resort community near Charlotte, NC)

Close April 29th. Paid $100/sqft. for Brick front/vinyl side house built in 2003. Has 1200 sqft. walkout basement unfinished. Figure I can finish that for 10K, adding another bath/bedroom if I want. Whill push the price down to the $80 sqft range.

Total PITI is $1500, 14% of net income. About $1320 net of taxes which you cannot touch in this area in rent on a house of similar quality.

May live to regret it but at least I can paint the walls...jk.

I think rates over 2% are common in the US. California has strangely low property tax rates.

Just under 1% in Eastern WA.

My property tax rate is 2.6% of assessed value, with homeowner credit and lottery credit applied. My parents property tax rate is 2.5% of assessed value with homeowner credit and senior citizen credit applied. Latest assessed values 2010 have been adjusted down for market, but market has declined further.

@cloud13

How did the purchase go last month? You said you would close around the 26th...

California real estate is fairly overpriced. Buy there at your peril.

But yeah, we'll be buying this year in Chicago for about 60% off of peak. Figure that's enough to be safe considering historical norms, rents, and incomes.

Wagamama who just bought in Cambrian Park, California has a good story:

http://patrick.net/?p=657918

Is anyone planning to buy in May (before the “summer rise” comes)?

robertoaribas says

I can kill potatoes with my bear hands already!

lol that was awesome.

We're looking but only low balling right now because I know all of the sellers out here are hoping for Spring fever. Plus all the REO hawkers around here are pricing by the neighborhoods, which have a way to go to be fair. I'm thinking wait til next Jan honestly, unless I can grab a short sale on one of these offers.

@ America in Japan:
Everything went well and I'm moving today.....My last post from this rental ...Wooo Hoooo.

I'm actually considering moving back to California in a couple months. I moved out of SF in 2005 and bought a house (yes, I was a regular here back then, and definitely knew better, but I intended to stay for a long time... I got out of the house for the same price that I got in (and paid cash for it, so all I missed out on was the stock market run-up.. :), but let's just say that there are good reasons why the bubble didn't hit certain areas...).

Anyway, goin' back to Cali...and looking at RE again. I considered Pacifica and Fairfax and Berkeley before leaving. Those places have come down probably 25%, but there sure are still a lot of overpriced little hovels.

I'm willing to buy and take a modest hit over X years (again, intentions to stay for a long time), but also weighing renting instead. Collective wisdom here seems to suggest renting, but it's harder to find my current-life needs (school age kids, wife who needs home office, a well-mannered dog, and a place to park a couple cars) as a rental. Paying $3-4k/mo or so is $72-96k in 2 years, so the price drop from here would have to be substantial to alter the rent/buy equation...I think.

So put me down as a 65% likely buyer in 2011...but I'd love to hear thoughts from folks who have been following CA more closely..!

I will be buying close to the end of the year or early 2012. I live in FL and with the current trends here and the writing on the wall projections are that prices are far from the bottom... I will be buying cash, multi-family if I can get it in my range. The rent should pay the taxes in a month or two and I can make an income and save on rent myself. I am killing myself now to save up the total sum I will need and making better progress than my initial projections. I'm not in a rush so I will wait until I get my perfect deal.

I believe any kind of debt leads to wage slavery, and in these times you cannot guarantee a regular income for 10,20 or 30yrs so mortgages are just not acceptable to me. My goals are to have as much free time as I want so it's all about passive income and low expenses. I have never agreed with paying three times the cost of something just to 'act like' I own it sooner than I actually do. I'd rather rent cheap and save to buy it cash... come out soooo much cheaper in the long run. And I avoid having this weird uneven relationship with a large financial institution.

American in Japan - we're currently in contract to purchase an REO. Their list price was extremely low for the area. We went in with an all cash offer a little over their asking price. They made us submit 2 "highest & best offers." I didn't expect to get accepted with so much competition as claimed. But after the first "highest & best," I truly believed that I bidding against myself and possibly because the listing agent/seller ignored all other offers and worked directly with me since our agent wrote a nice cover letter asking the seller to consider our offer.

it was listed at $425k. I really believed it could have gotten offers over $500k if they had waited for others to offer. In 1999, the property sold for $340k. In 2001, it sold for $540k. Our offer is right in between. I can't see it falling much more, and even if so, I wouldn't worry because I think we're getting a great price on it (at the moment at least). Perhaps this is the second dip everyone was talking about. Will there be a triple dip?

I'll keep you updated as the purchase progresses. We wanted a 10 days escrow, but the bank countered with 30 days (or sooner) for some reason.

@Vain

Thanks for the info. Even I may be looking to buy in the US...but likely in Arizona or Hawaii.

Bought a house in the San Gabriel Valley and closed in 12/2010. Price 390K Standard. The price was dropped 20K by the time I made an offer and the appraisal dropped it another 13K. Good interest rate. Very comfortable payment and according to Patrick just above borderline at 7% with a low estimate on rent.

Since I closed, I haven't been on this site but noticed purchases are picking up. Good to know. Hopefully we can see some modest gains in the next few years!

JPB says

The price was dropped 20K by the time I made an offer and the appraisal dropped it another 13K. Good interest rate.

If I tried to sell you my p.o.s. car for $100k, marked down at $20k and at a great interest rate, would you buy it?

JPB says

Since I closed, I haven’t been on this site but noticed purchases are picking up. Good to know. Hopefully we can see some modest gains in the next few years!

Hopefully reality will match your delusions.

uffthefluff says

But yeah, we’ll be buying this year in Chicago for about 60% off of peak. Figure that’s enough to be safe considering historical norms, rents, and incomes.

The person that bought that house before you might have had an Option ARM no-doc loan and bought it from a relative at 50% more than market value at the time.

I really don't get why people still think like this. People who measure the "deal" they get from a bullshit price level rather than actual fundamentals.

klarek says

uffthefluff says

But yeah, we’ll be buying this year in Chicago for about 60% off of peak. Figure that’s enough to be safe considering historical norms, rents, and incomes.

The person that bought that house before you might have had an Option ARM no-doc loan and bought it from a relative at 50% more than market value at the time.
I really don’t get why people still think like this. People who measure the “deal” they get from a bullshit price level rather than actual fundamentals.

So, are you purposely ignoring his statement that the price is right considering historical rents and incomes? Or are you just being an asshole no matter what?

tatupu70 says

So, are you purposely ignoring his statement that the price is right considering historical rents and incomes? Or are you just being an asshole no matter what?

Pay attention to his language. He said it's safe enough "considering" those other factors. I'm not being an asshole, I'm trying to understand the logic in a statement which seeks to validate a purchase based on bubble sales figures. Are you so insecure about the logic of buying today that you'll run to defend every buyer's inane rationale?

klarek says

Are you so insecure about the logic of buying today that you’ll run to defend every buyer’s inane rationale?

No, but I'm tired of you assuming everyone who buys hasn't done their homework. And that you know better than they do. Because you don't.

He looked at rents and incomes. What other "fundamentals" would you have him consider??

tatupu70 says

No, but I’m tired of you assuming everyone who buys hasn’t done their homework. And that you know better than they do. Because you don’t.

I know that using bubble prices as a yardstick is stupid. That was my point, and you're ignoring it completely.

tatupu70 says

He looked at rents and incomes. What other “fundamentals” would you have him consider??

First I would look at historical income levels for the region, town, zip, and city block. Doing a time study and correlation of prices and incomes can reveal a lot more than looking at current income/prices and assuming it's cool without any other context.

He said he looked at rents and incomes, but from his language, it was unclear if they were corroborating the decision to buy or that he used the percentage of peak price to offset it. His words:

"figure that’s enough to be safe considering historical norms, rents, and incomes"

He's using percentage off of a bubble sale as his yardstick. My point is valid.

klarek says

He’s using percentage off of a bubble sale as his yardstick. My point is valid.

OK--we're beating a dead horse. He did say that one factor was that it was down 60% from peak. Which is useful data. If you look at how much the price rose during the bubble and then see that it's since come down the same amount or more, then that's one way to surmise that it's close to fair value. He goes on to say that he also considered historical incomes and rents. More useful data to consider. Which you completely ignored in your usual critical, condescending post. So, your point is not valid.

tatupu70 says

OK–we’re beating a dead horse. He did say that one factor was that it was down 60% from peak. Which is useful data. If you look at how much the price rose during the bubble and then see that it’s since come down the same amount or more, then that’s one way to surmise that it’s close to fair value.

I disagree. I saw countless anecdotal sales from the peak that were so out of whack not just with historical prices (that's a given) but with other comps at the time. I'm talking completely fraudulent sales and appraisals. One guy buying a house for $200k in 2000 and selling for $700k in 2006 to somebody that was probably a friend, relative, or business partner with no intention of repaying his loan. Banks had no idea and didn't care because the appraisal came in okay and they could issue their shitty no-doc loan.

I've seen so many of these "outliers" that it's become obvious to me that in a completely fraudulent environment, no anecdotal sale price is indicative of the house's value today, whether 10, 50, or 80 percent off.

He goes on to say that he also considered historical incomes and rents.

He said he considered them but not whether they supported or took away from the justification. In the case that it's the former rather than the latter, we don't know if there was any real methodology or temporal analysis on those numbers, or if they "looked right". I'm not saying he didn't do a full diligence, but you're throwing your faith behind what was written as a skimpy justification.

More useful data to consider. Which you completely ignored in your usual critical, condescending post. So, your point is not valid.

My point was that an anecdotal peak sales price is a very bad way to evaluate a house's correct price today. YOU completely ignored my point that based on the way he phrased it, it might actually be contrary to those other factors he mentioned. I ignored it in my first post, but you're ignoring this despite three time that I've pointed it out.

klarek says

My point was that an anecdotal peak sales price is a very bad way to evaluate a house’s correct price today. YOU completely ignored my point that based on the way he phrased it, it might actually be contrary to those other factors he mentioned. I ignored it in my first post, but you’re ignoring this despite three time that I’ve pointed it out.

Let me see if I get this right. You're saying he may have looked at the rents and incomes, found that they didn't support the home price, but then bought it anyway? That's really straining reality.

klarek says

I’ve seen so many of these “outliers” that it’s become obvious to me that in a completely fraudulent environment, no anecdotal sale price is indicative of the house’s value today, whether 10, 50, or 80 percent off.

Yes, but if the 80% off gets the house back to pre-bubble, rational levels, then it is an appropriate data point. I would also check rent ratios and price/income ratios as he did--all are useful data and when taken together give you a good idea if the price is reasonable.