San Diego Bubble - Canary in the Coalmine
Chuck Ponzi January 18th, 2006
The guys over at San Diego Union Tribune pulled out a great little piece titled “Hot housing prices begin to cool off” about how prices are virtually screaming down from heights reached earlier this year.
While noone wants to be an alarmist about what has happened, a bit of concern must be racing through homeowners’ minds about what is going to happen. Luckily for thier concience and ability to sleep at night, they have the SDUT. Unfortunately for their pocketbook, the SDUT will likely lull them into a sense of complacency while others are running for the door.
In the piece there are a few gems:
San Diego County’s sizzling housing market fizzled last year, when prices climbed only a third as fast as they did in 2004 – the largest year-over-year drop in appreciation on record. The overall median price last year was $494,000, up 7.6 percent from 2004, when prices soared 21.1 percent during one of the hottest local real estate periods ever.
The writer makes it clear that the wave has crested. The next comment is just as telling about comparable situations in the Southland.
The last time DataQuick Information Systems reported a similarly dramatic shift was in 1990, when prices rose 3.7 percent, compared to a 16.6 percent rise the year before. That milestone heralded the beginning of a seven-year real estate recession.
I would agree wholeheartedly that it slows down before it drops. So, does this slowdown point to a drop? To borrow a saying I learned growing up in Iowa: Does a bear poop in the woods? (Note: Disclaimer; I have no ideas where bears poop, there were no bears as I was growing up in the midwest , and I have never personally met a bear other than in the San Diego Zoo)
However, I take a bit of comparison to stock waves and trading curves in liquid markets. Unlike a stock market move, volume DECREASES substantially on the downside of the curve. This causes a some of the stickiness in prices since information is poor and sales volume is insufficient to justify an all-at-once jump down, nor will sellers accept large drops in sales prices seeking to maximize benefit.
How does he comfort fears?
Economic conditions today, however, are far different from the early ’90s when job layoffs, bank failures and a sharp economic downturn soured the local housing market. Jolly said San Diego has experienced up-and-down real estate cycles, but he did not think the area is poised for a bust.
What he is saying is that the economy is fine, not like last time, so don’t worry, your house won’t go down in value.
I thought I would test a hypothesis. They mentioned 1990 as the year the increase dropped dramatically, so I pulled some of the unemployment numbers from that time period from the BLS. Here’s a great little graph that their website offers.
Does it surprise anyone that the increase in unemployment did not begin until after 1990? I tried to find statistics from before 1990, but the BLS does not have them readily available.
In fact, from the graph, the last 2 business fluctuations can be seen. The early 90’s mild recession and the 2001-2003 soft patch.
So, if unemployment rises at the same time that housing prices go down (by their own admission), there is very little to predict about housing prices unless you hold the key to also predicting unemployment statistics. BTW, if you have this ability, I seriously suggest you make a call to the FED board, Bernanke will need you to smooth the upcoming recession.
All of this simply reinforces the point that San Diego has crested and is on its way down (at least according to the SDUT).
Jon Doe,
You wax so eloquent. This is a masterful disection and superbly magnificent analysis of the facts. Keep the cards, letters, observations, and analysis coming.
I did it,
Thanks for the praise, but it is completely unjustified. The facts present themselves.
It’s sad that people say things without really thinking about them. Once you have written down what you have said, it can seem pretty stupid when it comes under the light of rational scrutiny.
Thankyou for your well-written and informative news/essays on the house bubble- much appreciated!
San Diego’s population migration
For those who believe San Diego’s property values are well supported because of the demand to live here, consider the following:
On January 19, 2006 I obtained a one-way quote from Uhaul.com to rent a 10′ truck on 1-26-06 from San Diego, CA to Las Vegas, NV. The cost was $300. The same quote with the direction revered was only $104, about 2/3rds less!
For a large truck the quotes were $600 and $174 respectively.
That alone should tell you that far more people are leaving San Diego than arriving, and that’s based on just one location. So many people are renting trucks one-way out of San Diego, that they have to price them high enough to pay people to go and retreive them.
I found the same pricing disparity for every city I’ve heard San Diegans are moving to, i.e., Phoeniz, AZ, et al and some of the disparities were as high as 10-1 all higher to rent one-way leaving San Diego.
This same phenomenon occurred during the last housing crash in 1992, but rates weren’t available on the medium Al Gore created ; ) so you had to continually call Uhaul’s 800# over and over again to discover the pricing disparity and their operators weren’t too fond of me for doing it : )
http://sandiegobanker.blogspot.com/
That’s nothing. I did a quote from Orange County to Salt Lake city Utah just for grins based on that premise, and I was SHOCKED at the price differential.
Going from Utah to California : $168.00 US (yes, that’s right)
Going from Cali to Utah? $3026.00 US. Yes, that’s right too.
That’s insane.
“It’s different this time”. If I hear that one more time I’m going to puke, especially from some idiot who thinks he possesses some superior knowledge.
What’s not different, and will never be different, is the natural human instinct to want to wait if you think prices are coming down.
Carlsbad Jim said…
“It’s different this time”. If I hear that one more time I’m going to puke, especially from some idiot who thinks he possesses some superior knowledge.
What’s not different, and will never be different, is the natural human instinct to want to wait if you think prices are coming down.
Saturday, January 21, 2006 6:56:41 AM
That’s exactly why it’s illegal to yell fire in a theater. People will literally trample others to death desparate to escape potential danger, even if they do not smell smoke or see flames. It’s all about the herd instinct. Right now, homeowners and speculators especially are standing around looking like a lot of spooked cattle. All it takes is one loud shot to get them stampeding. If you have never seen a stampede, it’s almost unimaginable. I have seen 150 year old Oak trees ripped to shreds and cattle trampled to death by a stampede I once saw. We were in my dad’s truck and he was scared out of his wits trying to get out of the area.
It’s easier to be divested of the madness now that I have been out of housing for over a year. Although we stil pang for a place, we’re just not settled enough, or wealthy enough to retain our comfort level and buy something. We may be waiting a long time. I think Buffett said it “Markets can remain irrational longer than you can remain solvent.”
SoCalBanker said…
San Diego’s population migration
For those who believe San Diego’s property values are well supported because of the demand to live here, consider the following:
On January 19, 2006 I obtained a one-way quote from Uhaul.com to rent a 10′ truck on 1-26-06 from San Diego, CA to Las Vegas, NV. The cost was $300. The same quote with the direction revered was only $104, about 2/3rds less!
For a large truck the quotes were $600 and $174 respectively.
That alone should tell you that far more people are leaving San Diego than arriving, and that’s based on just one location. So many people are renting trucks one-way out of San Diego, that they have to price them high enough to pay people to go and retreive them.
I found the same pricing disparity for every city I’ve heard San Diegans are moving to, i.e., Phoeniz, AZ, et al and some of the disparities were as high as 10-1 all higher to rent one-way leaving San Diego.
I discovered the same thing this weekend. Me and my husband have an entire bedroom furniture set that we wanted to give to his grandmother, who needs new furniture and lives in San Diego. We pulled up similar quotes Uhaul. Right now we live in Las Vegas.
Me and my husband thought the quotes to be quite strange. We moved out here about four years ago, and back then when we rented a Uhaul to move our stuff, pricing was the complete opposite. It was like $1000 to move to Las Vegas (we got a big van) and if we wanted to move back to say, someplace like Victorville, which is nowhere near as close to the coast as San Diego, it would have cost about $3000 to move back (and much much more if we wanted to move anywhere near the coast). We were quite shocked to find out that it would now cost us less to move to back to California now than it would have four years ago. Clearly, something has changed, and its the amount of people moving out of San Diego, and California in general.
Me and my husband had lived in So Cal for about 23 years before we moved out to Nevada. We both agreed the only way we would ever move back to California was if housing prices seriously declined so that we could actually afford a home without having to resort to using some voodoo ARM I/O timebomb loan. Hmm, if the housing market really tanks, we might even actually be able to *gasp* afford to live among our own relatives in San Diego. What a concept for an ex-Californian, being able to live affordably in the community you and your family grew up in!
I too left california’s inland empire six months ago now residing in the southeast.My 1350sq ft 3 yr old condo would fetch $2300 a month rent in So Cal I pay $695. It would take a major decline in prices for me to return. It would have to be close to what housing cost before 2001 when all the insanity out there started. I agree that alot more middle income professionals are leaving rather than over pay and hyper commute for hours. The question of quality of life eventually prevails. I miss my family and friends and possibly the weather but little else. The party is over all those who made thier fast bucks will now start feeling the pain. I felt the golden state was coming on harder times a few years ago. It seems the economic indicators will prove that to be true. I got out just in time…