Saturday, September 16, 2006

Downtown Real Estate Sales People Starting to Feel the Pinch

A two bedroom unit located at Crown Bay in the Gaslamp District has slipped into foreclosure proceedings. Purchased for $750,000 in October 2004 it is not currently listed for sale, however I highly doubt it is worth that much in the current market. shows a default of $26,884. While all this is becoming pretty standard the interesting detail is the owner of this unit is a real estate agent, in fact I believe the realty office is located in the Crown Bay building.

In the interest of privacy I won't copy the name, note the information is public and can be found by logging on to County records also indicate the same person owns 2621 Covington Road in North Park which is currently listed on the MLS (066032831). This indication of cash flow problems is yet another data point that the market has changed. I do believe we are just getting started as the market has a quite a lot of correcting to do before prices and fundamental valuations converge.

350 K Street #405 purchase details: view


Anonymous said...

$25,000 behind sounds about about four months of payments? Based on the purchase price I'd think the unit costs $6,000 a month or so to carry.

Mark in San Diego said...

Real estate agents seem to have been some of the largest speculators. . .

I was told by my agent that people in her office had purchased multiple units here at La Vita. . .also, the rental agent (a different RE agent) that I rented from, owns a few units around town, including one here at LaVita and some at Treo. I am afraid they are like stock brokers in the 1990's who believed their own hype about internet stocks. Actually, I am not gloating over these situations, a lot of very nice people are going to get hurt. It seemed like easy money at the time, and they were just trying to get ahead. I think the December 10th property tax bills will be a real test for a lot of people.

Mr. Brightside said...

I agree that the biggest speculators are real estate agents followed very closely by mortgage sales people. Both groups are taking a double whammy of income reduction and capital loss on their holdings.

I see this as a very clinical item, I don't have anything personal against anyone but I will say that any market, real estate, equity, gold - whatever, that gets itself into a major overvaluation like we have in real estate has a number of people at the front of the line. A big indicator that the market is reaching a healtly equilibrium is the biggest speculators getting stopped out.

I would expect to see more of this as time goes on.

Real estate has incredible leverage in it, you could never borrow 100% in a traditional brokerage margin account. This leverage works both ways.

It would also not surprise me at all if this particular agent has a number of properties in the new buildings coming next year reserved. Of course it will be hard to perform on these contracts which will result in deposit losses.

bob said...

A 4th floor two-bedroom? That won't go for more than $525. Someone lost at least $250,000.

Sven said...

Man 525k for a 2 bdrm even sounds nuts. I remember 6 years ago reading an article about half million dollar and million dollar homes. They were showcasing them for the envious masses ... now everyone condo is a half million dollar condo, and houses are a million.

I think our perceptions are all skewed. I guess if someone told you a gallon of gas costs $30 over and over, you would eventually think that $25 a gallon was a steal.

Mr. Brightside said...

If you look at prices from just 2001 you would be amazed.

Also keep in mind that a lot of condos downtown are owned for 2001/2002 prices, only resales and some of the apartment conversion projects were closed at the high end of the market. This means that if someone bought a place at Horizons when it first came out and they need to sell they can cut the price without any pain and still make good money. This buries people that bought resales deaper.

On a side note I see a 1025 square foot non-view two bedroom at SmartCorner was put on the MLS for $399,000. The developers also have the ability to cut prices as has been documented on a number of cases on this blog.

Mr Vincent said...

Someone turned on the light and all the ROACHES are scattering.

In two years will real estate only be considered financially like cars - a depreciating asset?

Mr. Brightside said...

Hi Mr Vincent,

I think that there is a good chance that in two years real estate has deflated, over-corrected and it's time to buy select properties.

If it's not two years then maybe 3-4.


Sven said...

I think it'll be longer. The drop in the early 80's and the early 90's both took longer than their respective run ups.

In the case of the 80's housing depression in San Diego, prices went up about 40% between 1976 and 1980 (4 years), Then it took 6 years before the price completely deflated back to 1976 levels and began to rise again.

In the case of the 90's housing depression, prices surged from 1989 to 1992 and then deflated till about 1998 when the market turned up again.

So 4 years up and 6 years down in the 80's.

And 3 years up and 6 years down in the 90's.

In both cases, prices retreated to the same levels at the start of the cycle. I know past performance does NOT indicate future results, but, if it did, then prices should drop to about half of 2005 levels.

This last surge was roughly from 1999 till 1005 (6 years). Counting 2006 as a downcycle year, I think we have at least 5 years before we hit bottom and very likely more.

Just wait for a few upward months in a row, and that should be a good indication of a bottom.

Mr Vincent said...

I have been through a few real estate cycles myself and what happened from 2001 to 2005 is unprecedented.

Of course we can't be sure what will happen, but I think it is possible that real estate may be in a depressed state for much longer than past cycles.

1. House prices went extremely high.

2. The credit bubble might turn out to be worse than the idea of high housing prices. When short-order cooks somehow qualify for a 500k home with 100% financing, it's time to worry.

3. Demographics: The "pig" is moving to the backend of the snake. Meaning, the baby-booomers are getting older and future demographics may mean less demand for all the housing that was built.

Anonymous said...

Mr Vincent,

What do you think will happen to rents?

Sven said...

Anonymous 6:11

If it wasn't for the new developments, I'd say that rents should take off, but the addition of so many livable spaces, and then compound that with the fact that the last 2 years has shown a population reduction in San Diego...

It wouldn't suprise me if rents went down. I remember speaking with a couple in Hawaii 2 years ago that were vacationing from London, and they were telling me about a housing run up their that caused rents to drop significantly because of new developments.