Listeners of my weekly radio program, readers of this column, and attendees at my monthly workshops know that there has been no more forceful voice ridiculing the bubble theory than mine. And I stand by what I have said for most of Southern California and San Diego County…with one caveat; beware the bubble downtown.
Imagine the impact of 30 percent of the region's new housing stock being built within one relatively small zip code of only a few square blocks. Then factor into this scenario the housing stock being built in this zip code is remarkably different from anything the region has seen. There are no manicured lawns, no swing-sets, and no three-car garages. In fact, no yards at all, just endless blocks of concrete and asphalt where ownership consists of nothing more than air. And, much of that is simply stacked in the sky like little people-pods. One cannot escape the irony that bubbles, like these condos, are mostly comprised of air.
To the typical new home buyer combing the hills and valleys of San Diego's last housing tracts, the goal is to find a single-family detached home with a yard for the kids, good schools nearby, and a price ranging from $250-350 per square foot. If our population increase is primarily due to family formation, demographics will continue to create demand for additional family-type housing.
Downtown is hip and trendy with late night parties, the smell of one hundred different restaurants mingled with the honking of horns, and the screams of drunken revelers. It is diesel engines and box cars grinding and slamming together in the dead of night.
Make no mistake. San Diego is a jewel of a city and her grand old buildings are being renewed and reused while thousands of new units are coming to market with the philosophy that "if we build it, they will come."
And come they have, and come they will. The only question is will general fears of a real estate bubble prevent them from coming in time to absorb the burgeoning inventory?
All the signs of a bubble are in place: Price reductions, increasing market times, increasing inventory, increasing vacancy rate, and a flood of new stock on the way.
A year and a half ago, there were fewer than one hundred resale condominiums downtown. In late March of this year, that number had swollen to 285 and now stands at over 400. In all of 2004, only 485 resale units closed in 92101. That means that we are rapidly approach a year's supply of inventory.
In addition, developers have recently released hundreds of smaller (450 square feet), less well-appointed units. Statistically, this tends to create the impression that the price of new construction has fallen dramatically when, in fact, 2004 saw the closing of numerous large luxury penthouses.
The Mills, Portico, and Palermo all have builder-owned available inventory, as do conversions, such as 350 West Ash, a former office building, and Atria, which were previously apartments.
Consequently, builders have been giving dramatic price reductions, offering incentives, and trying to lure the clients of resale agents by promising commissions as high as 4 percent. At the same time, "Flippers", who expected to make $100,000 to $150,000 in profit without ever making a payment, are sitting on vacant property they never really intended to own, don't need, and can't keep. These people may be the first to panic and possibly default on their loans to limit their losses.
Which begs the questions, who are the long-term users, where are they now, and are their numbers sufficient to absorb the inventory?
According to Peter F. Dennehy, "Builders of urban housing are attracting boomer seniors."
He describes them as more "accepting of urban housing options for retirement, second home and investment."
But a recent study conducted for the National Association of Home Builders says that the leading edge of the baby boom isn't ready to move yet and that, "Attached housing is problematic for this group because they started out their adult lives in apartments and townhouses and have since moved on to real houses."
As for me, I'll buy there anyway because I'm a long-term player and decades from now, when I've had my fun with it, it will be worth substantially more than I paid. But anyone looking for a quick sale and a fast buck could be disappointed.
George W. Mantor is The Real Estate Professor and the host of "Keepin' It Real, real talk about the real thing, real estate" on AM 1000 KCEO Radio, www.kceoradio.com, Tuesdays at 7 am. He is also the Founder and President of the Associates Financial Group Inc, a full service real estate and mortgage brokerage headquartered in Carlsbad serving the tri-county area. Visit their website at www.myafg.com. Attend their free monthly real estate workshops, Saturdays, 9, 11 am, next date July 23rd. Call 760-804-3727 for reservations.
Imagine the impact of 30 percent of the region's new housing stock being built within one relatively small zip code of only a few square blocks. Then factor into this scenario the housing stock being built in this zip code is remarkably different from anything the region has seen. There are no manicured lawns, no swing-sets, and no three-car garages. In fact, no yards at all, just endless blocks of concrete and asphalt where ownership consists of nothing more than air. And, much of that is simply stacked in the sky like little people-pods. One cannot escape the irony that bubbles, like these condos, are mostly comprised of air.
To the typical new home buyer combing the hills and valleys of San Diego's last housing tracts, the goal is to find a single-family detached home with a yard for the kids, good schools nearby, and a price ranging from $250-350 per square foot. If our population increase is primarily due to family formation, demographics will continue to create demand for additional family-type housing.
Downtown is hip and trendy with late night parties, the smell of one hundred different restaurants mingled with the honking of horns, and the screams of drunken revelers. It is diesel engines and box cars grinding and slamming together in the dead of night.
Make no mistake. San Diego is a jewel of a city and her grand old buildings are being renewed and reused while thousands of new units are coming to market with the philosophy that "if we build it, they will come."
And come they have, and come they will. The only question is will general fears of a real estate bubble prevent them from coming in time to absorb the burgeoning inventory?
All the signs of a bubble are in place: Price reductions, increasing market times, increasing inventory, increasing vacancy rate, and a flood of new stock on the way.
A year and a half ago, there were fewer than one hundred resale condominiums downtown. In late March of this year, that number had swollen to 285 and now stands at over 400. In all of 2004, only 485 resale units closed in 92101. That means that we are rapidly approach a year's supply of inventory.
In addition, developers have recently released hundreds of smaller (450 square feet), less well-appointed units. Statistically, this tends to create the impression that the price of new construction has fallen dramatically when, in fact, 2004 saw the closing of numerous large luxury penthouses.
The Mills, Portico, and Palermo all have builder-owned available inventory, as do conversions, such as 350 West Ash, a former office building, and Atria, which were previously apartments.
Consequently, builders have been giving dramatic price reductions, offering incentives, and trying to lure the clients of resale agents by promising commissions as high as 4 percent. At the same time, "Flippers", who expected to make $100,000 to $150,000 in profit without ever making a payment, are sitting on vacant property they never really intended to own, don't need, and can't keep. These people may be the first to panic and possibly default on their loans to limit their losses.
Which begs the questions, who are the long-term users, where are they now, and are their numbers sufficient to absorb the inventory?
According to Peter F. Dennehy, "Builders of urban housing are attracting boomer seniors."
He describes them as more "accepting of urban housing options for retirement, second home and investment."
But a recent study conducted for the National Association of Home Builders says that the leading edge of the baby boom isn't ready to move yet and that, "Attached housing is problematic for this group because they started out their adult lives in apartments and townhouses and have since moved on to real houses."
As for me, I'll buy there anyway because I'm a long-term player and decades from now, when I've had my fun with it, it will be worth substantially more than I paid. But anyone looking for a quick sale and a fast buck could be disappointed.
George W. Mantor is The Real Estate Professor and the host of "Keepin' It Real, real talk about the real thing, real estate" on AM 1000 KCEO Radio, www.kceoradio.com, Tuesdays at 7 am. He is also the Founder and President of the Associates Financial Group Inc, a full service real estate and mortgage brokerage headquartered in Carlsbad serving the tri-county area. Visit their website at www.myafg.com. Attend their free monthly real estate workshops, Saturdays, 9, 11 am, next date July 23rd. Call 760-804-3727 for reservations.