CA Housing Forecast: A Realtor's Analysis of the San Diego Housing Market

While the entry level buyers are still competing over $150K - $250K foreclosures, with the help of FHA and VA financing, in some cases with no money down, the middle class and investors are singing a different tune.

Having lost significant amounts of money in their stock funds and homes (because they did not read this blog, Mish, Karl, Roubini, etc.),  they no longer have the cash and confidence to put down 40% on investment property. 

Unfortunately, many had kept their house downpayment invested in the stock market.  A foolish move.  It is general knowledge, that the stock market is only for money that is not needed for at least 5-7 years;  anything needed before that needs to be in cash or bonds.

(For what it's worth, it would have been better to buy a house and lose 30%, than to lose that same money in the stock market; at least you could live in the house. The best idea is to put the cash into a risk-free investment or gold, and then buy real estate when nobody wants it, when everyone hates the real estate market, circa 2012-2015).

Stock market losses are not the only problem for housing.  The biggest enemy of consumption is unemployment.  The layoffs are now starting in the high tech industries, and some buyers are concerned they could be next.  With worries about their job, they are not going to buy!

So the job losses will do what the falling prices could not:  reduce sales.  It is interesting to me, that buyers do not care about falling prices.  They will buy, even knowing that prices will continue to fall.   So the fellow readers on housing blogs are generally not wealthy market timers, but renters who still cannot afford these prices.   People will buy as long as they can afford it, and they don't give a damn about losing equity.  

 Affording a home means they can make the monthly payment, so of course they must have a job.  As unemployment is spreading to industries outside housing, finance, and retail, these buyers are now worried about making the payments.  Perhaps, they think, we should not buy now.  Maybe we have to relocate?  Maybe we will need our savings to survive an extended unemployment period.  So these job losses have shaken a few buyers out of the market, and this trend will continue as long as people see layoffs.

The readers and buyers who have called me with layoffs fears, are getting encouragement from me.  "If you are worried about your job, rent.  Don't buy."   I also tell folks, "If you are worried about losing equity, rent.  Don't buy."  You will lose equity, guaranteed.  If it doesn't bother you, fine.  If it does, don't buy.

Unfortunately, the next shoe to drop in housing will be big and will hit the middle and upper classes.  It will come from unemployment, which creates forced sellers and forced renters.  Now, watch all those Carmel Valley sellers - instead of taking their home off the market if they can't get that mythical price, they will have to lower it to sell. 

At the same time, the renters will get cold feet, as they worry their job could be next. 

The housing downturn is about to turn ugly.