Hey San Diego, STOP renting!!!
January 19th, 2009 Categories: Real Estate News, San Diego County Fixer of the Week, San Diego County Triathlon Race Reports, San Diego County run routes, San Diego county Real Estate News, Triathlon Club of San Diego Race Reports
SAN DIEGO– You heard it here first. San Diego’s real estate market should find its bottom this summer and that sound you’ll be hearing is the market hitting the bottom. Now I know, you are reading this with some skepticism but don’t take my word for it.
First, let’s take a look at the big economic picture and see what two Stanford economists had to say on January 12th, 2009 in their piece titled, “The recession will be over sooner than you think”.
“A key source of the today’s economic weakness is uncertainty that led firms to postpone investment and hiring decisions. This column, by the authors whose model forecast the recession as far back as June 2008, report that the key measures of uncertainty have dropped so rapidly that they believe growth will resume by mid-2009.”
Then turning our attention locally, there was an article in the San Diego Union subtitled, “First-time buyers take advantage of foreclosure sales”. The headline of the article,”Home prices tumble 24% from 2007”, captures the attention of the reader better then the essence of the piece in my opinion.
Economist Christopher Thornberg, who predicted the bursting of the housing bubble long before many other analysts, was confident that this is the year housing prices finally hit bottom(emphasis mine). But he cautioned that it could be at least a couple of years before housing values begin rising again.
“It’s pretty clear that from the numbers we’re seeing, price declines are falling at a slower pace than a year ago, and this is good news, because you need to see a slowing decline before prices stop falling,” said Thornberg, of Beacon Economics.
In this article they made a few key points I have been speaking about for 
quite sometime. Mainly, I had always regarded the rent/buy relationship as the precursor to a recovery. Once home prices reached the point where the cost of ownership was near or equal to what it would cost rent, the decision becomes very easy and in many areas we are at that point.
Clairemont and Encinitas rent versus buy
Looking at two areas that seem to fit the first time buyer/triathlete lifestyle I choose Encinitas and Clairemont.
First I looked at 3 bedroom townhomes in Encinitas. Encinitas has the coastal community feel with the Rancho Santa Fe running trails nearby, easy 
access to the coast for riding and surfing and two great pools nearby at the Magdalene Ecke YMCA and the San Dieguito Boys and Girls club.
Next I looked at 3 and 4 bedroom single family homes around the canyons in Clairemont and the northern portion of Bay Park. While some of these homes can have amazing views, you also have access to Rose and Tecolote Canyons as well as Mission Bay for your workouts.
Using craigslist.com for my rental survey, the cost to rent a 3 bedroom condo in the Encinitas area is just under $2200 a month. Looking on the Sandicor MLS at homes for sale the average sales price in the Village Park area was $414,000 starting in the mid 300’s.
I then went to bankrate.com to use their mortgage calculator. I figured 3.5% down as required by FHA and calculated a the cost of a $400,000, 30 year fixed mortgage at 5%. The payment on this mortgage would be $2147.29. Now I would be remiss not to talk about HOA fees and property tax which would add approximately $600 a month, but on the flip side is the positive impact of being able to write of approximately $30,000 off your taxes!! Additionally, you are building equity on $400,000+ that only cost you roughly $14,000 to start with.
Now applying the same to single family homes in Clairemont, we find the 
average rental as described above to be $2415. Taking this figure and applying it towards a mortgage payment would qualify as a $450,000 mortgage. Applying the 3.5% for FHA as a down payment there currently are 16 homes listed on the MLS for sale and a few on some amazing lots.
As you can see we are at that point where buying, even with a small down payment, can be as much, or even less than renting.
Mortgage interest rates are more good news
Now in the above scenarios I used 5% as the interest rate as I am a strong believer in painting a realistic picture. The reality in some cases however are that rates have been as low 4.65%.
According to a CNNMoney.com post titled on 1/15/2009 titled, “MORTGAGES: Benchmark 30-Year Mortgage Falls Below 5% For First Time”, 
the AVERAGE, not the lowest, 30 year mortgage rate fell to 4.96%.
The national average rate on the 30-year loan fell to 4.96% in the week ending Jan. 15, down from 5.01% a week ago. That is the lowest on record. Freddie Mac began its rate survey in 1971. A year ago the loan averaged 5.69%.
If you are waiting for that elusive bottom to make your decision, you may not be waiting to much longer. Realize, the only way to truly know where the bottom lies is to be looking back while on the upswing.
sounds like you are like me. i have chosen my last two homes based on the proximity of great cycle rides!!
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