Intermediate Information: September 2006 Archives

I've been telling people that the flat spell on rents we've had locally in San Diego is going to change. Here's the first confirmation I've seen: $1,241 average reflects biggest climb in 4 years

The last few years, landlords have been buying in order to sell to a bigger fool. That has now changed. They've got to make money on their investment, and considering all of the ones that bought for too much, they are jacking rents up hoping to make enough not to lose their investment. Expect to see more of it. The article reports vacancy as being an incredibly low 1.8%. Supply and Demand. High demand, low supply. You can stay hitched to the rent escalator, or you can buy from people who have to sell right now. Yes, it'll cost more money per month, but within a few years, rent will be more than the mortgage, even without the consideration of tax breaks for buying. Your choice.

San Diego is a bleeding edge market. Most of what I predicted over on my other site in Looking Beyond The Bubble: What's Next For Highly Appreciated Markets has now come to pass, on the local scale anyway. Most of the national scale stuff is still pending, but I did say:

Rates have been rising of late, but there is a limit as to how far they are likely to go, if only because Bernanke and company are very shortly going to have irrefutable evidence of all of the above stuff nationwide. A nationwide economy has a lot of something analogous to inertia. Takes a while to move things in the direction you want them to go. More time, and more effort, than most folks, particularly bankers running our money supply, are likely to realize and sit still for without further pushing, which they have done a bit too much of, in my opinion, by about one full percent on the overnight funds rate

Now this was on March 31 (and one of the WSJ sites linked it on April 15th - blowing away the only Instalanche I've ever had as far as traffic is concerned).

What my point? That the next thing that starts to happen is rents rise, and when they do, more buyers move into the purchase market. We've already seen some of this. Also, some sellers have moved out of the market. A few weeks ago, I was seeing active listings total about 23,800 locally, and they're down to 22,500 now. Furthermore, the number of buyers has risen by about ten percent or so in the last couple weeks. Net result: We were at 38 or 40 sellers per buyer most of the summer. Last week it dropped to 34, and this week it's at 33. This is starting to look like it might be a trend, and when the ratio of sellers to buyers drops enough, prices are going to stabilize, the period of best deals will be over, and people are going to rush back into the market. It's got a long way to go, but where I have predicting Spring 2008 as the most likely market recovery point locally, I'm thinking now that it will more likely be some time next year, most likely early summer based upon current trendlines.

Those who are thinking that we're going to see $200,000 detached single family homes in San Diego are most likely going to be disappointed. I've said all along that the economic pricing support was there for $350,000 starter homes, providing rates stay about where I think they will, and rates going higher than I think they will (about 7 A paper 30 fixed par, where we're right at 6 now) means lenders will suffer even more in the short term in order to salvage their bottom line further out. I really don't think they will make that choice.

However long it takes, if you wait for the market to turn, you will now be at maybe 5 to 10 sellers per buyer, which is a more normal ratio, and when you don't have 30 sellers per buyer, you can't get them to work with you nearly so much. Prices will start moving back up, and if you wait for that to happen, you are hosed. It is far better to move now while prices are still moving somewhat downward. Yeah, you might "lose" a little on paper until the market turns. But you have the opportunity to negotiate a better bargain now than you will then.

Caveat Emptor.


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