Things Beginning to Crack

One thing that's frustrating for me in watching the housing bubble's growth and eventual burst is that with real estate the cycle is almost glacial. Working in the technology field, I'm used to seeing things change rapidly; in the business side, weeks or months can make or break a business. But with the real estate market, it takes months or even years for changes to occur.

There have always been foretelling signs of a real estate bubble: out of whack income to mortgage ratios, alarming number of interest-only and neg-am mortgages, a disparity between home ownership costs and rents, the meteoric rise in home prices, the fact that only one in ten San Diegan residents can afford to buy a median priced home, and on and on. These signs, however, did not point to the end of the bubble, they just highlighted that we were in an unsustainable economic bubble, a party that was destined to come to an end eventually.

Earlier in the year, signs started emerging that the wild ride up was over (at least for the San Diego area). Properties were languishing on the market, taking months to sell. Sellers were listing at one number, but eventually selling at a lower number. Compare this to the environment a couple years back. Back in 2003 a friend of mine sold his condo - he listed his unit on a Friday for a fair price and had a three offers on the following Monday, all over his asking price.

Over the past couple of months the cracks in the bubble have continued to widen. It's clear now that sellers and real estate agents are more desperate. There are now cold calls, sign-flippers, real estate agents going months without a sale, increasing mortgage defaults, and languishing sales. An article in Realty Times by Bob Schwartz, titled San Diego Real Estate - A Trend to Go National?, enumerates the woes in the San Diego market and laments that these effects will likely be seen elsewhere in the nation sooner than later. Bob succinctly notes: "The grand opening long buyer lines, multiple offers, offers above the asking price and homes selling within days of being listed are just fond memories now. However, due to the huge home appreciation all San Diego real estate has seen, with the average home up 100 percent in the past 5 years, combined with the boom in 100 percent adjustable/interest only loans, the stage is set for what is sure to be mind-numbing depreciation."

The meltdown continues, but not at a pace I'd like to see. I guess I just need to be more patient and understand that the depreciation we're seeing now and will continue to see will not be a flash in the pan, but something that stretches over years.