"America's finest city."
That's what San Diego calls itself. And with good reason. The wonderful city's bay-side location and perfect climate make it a very attractive place to live.
And the parallels to Vancouver don't end there.
From 2001 through 2008, more than 8,000 condominium units were built in downtown San Diego. That's double the number of downtown units constructed over the same period in Los Angeles, a city three times its size.
San Diego was a construction boom town, drawing on it's scenic beauty and temperate climate.
Flush with easy credit, developers and home buyers were eager to invest.
At the height of the frenzy, hopeful purchasers queued up outside sales offices to plunk down deposits. There were occasional arguments over who was first in line. No one wanted to miss out with condo values riding an elevator to the sky.
Near the peak, in May 2004, median resale prices of downtown condos hit $647,500, a 56% increase in just three years, according to San Diego research firm MDA DataQuick.
The Los Angeles Times even profiled one savvy flipper who made a $91,000 profit in less than two months in 2005 by reselling a 560-square-foot studio for $340,000.
"There was a little bit of a mass hysteria mentality. . . . People thought they would be priced out of the market," said Bradford Willis, 47, who signed a contract in 2004 to purchase a $341,000, one-bedroom condo in a planned luxury development. Willis said he bought on speculation because there was little existing inventory on the market at the time, much of it priced above $500,000.
Sound familiar?
And now? Nowhere, nowhere is the real estate collapse more dramatic than in downtown San Diego.
Irrational exuberance has long since given way to buyer's remorse. Median resale prices for downtown units stood at $370,000 in June. That pricey 560-square-foot studio? It was foreclosed and resold this year for $162,000, down more than half from its 2005 sale price.
Downtown San Diego, a 2.2-square-mile area, is now awash in condos. About 400 new and occupied ones are listed for sale, and more than 450 are in some stage of foreclosure and will eventually be put on the market. An additional 1,000 units that were under construction when the market soured are slated to be completed this year, adding to the glut and putting further downward pressure on prices.
So far this year, 159 new homes have been sold downtown, according to DataQuick. At that pace, it would take several years to sell all the units recently completed or being finished this year. Developers are holding units off the market.
But haven't Vancouver condo builders been smarter?
Nor really. They just have the good fortune that the full effects of the busting bubble have not hit Vancouver yet.
Take Nat Bosa, prominent Vancouver condo builder, for example. He is one of the developers who led the condo charge in downtown San Diego. The LA Times notes that Bosa overestimate San Diego's potential, betting too heavily on the urban revival triggered by the 2004 completion of the Petco Park baseball stadium, home to the San Diego Padres.
San Diego has been a disaster for Bosa.
In Vancouver it is the urban revival of the yaletown/expo lands and the trigger of the Olympic Games hype. Is Bosa several years removed from a similar disaster here?
For some developers in San Diego, rather than dump units at fire-sale prices, developers are converting their projects to rentals, at least until the market improves.
Again, sound familiar?
The bubble started to burst in San Diego in November of 2005. By May of 2006, prices started to rise again. From November of 2006 to May of 2007, prices fell a little more and then plateau'd/rose until November 2007...
That's what San Diego calls itself. And with good reason. The wonderful city's bay-side location and perfect climate make it a very attractive place to live.
And the parallels to Vancouver don't end there.
From 2001 through 2008, more than 8,000 condominium units were built in downtown San Diego. That's double the number of downtown units constructed over the same period in Los Angeles, a city three times its size.
San Diego was a construction boom town, drawing on it's scenic beauty and temperate climate.
Flush with easy credit, developers and home buyers were eager to invest.
At the height of the frenzy, hopeful purchasers queued up outside sales offices to plunk down deposits. There were occasional arguments over who was first in line. No one wanted to miss out with condo values riding an elevator to the sky.
Near the peak, in May 2004, median resale prices of downtown condos hit $647,500, a 56% increase in just three years, according to San Diego research firm MDA DataQuick.
The Los Angeles Times even profiled one savvy flipper who made a $91,000 profit in less than two months in 2005 by reselling a 560-square-foot studio for $340,000.
"There was a little bit of a mass hysteria mentality. . . . People thought they would be priced out of the market," said Bradford Willis, 47, who signed a contract in 2004 to purchase a $341,000, one-bedroom condo in a planned luxury development. Willis said he bought on speculation because there was little existing inventory on the market at the time, much of it priced above $500,000.
Sound familiar?
And now? Nowhere, nowhere is the real estate collapse more dramatic than in downtown San Diego.
Irrational exuberance has long since given way to buyer's remorse. Median resale prices for downtown units stood at $370,000 in June. That pricey 560-square-foot studio? It was foreclosed and resold this year for $162,000, down more than half from its 2005 sale price.
Downtown San Diego, a 2.2-square-mile area, is now awash in condos. About 400 new and occupied ones are listed for sale, and more than 450 are in some stage of foreclosure and will eventually be put on the market. An additional 1,000 units that were under construction when the market soured are slated to be completed this year, adding to the glut and putting further downward pressure on prices.
So far this year, 159 new homes have been sold downtown, according to DataQuick. At that pace, it would take several years to sell all the units recently completed or being finished this year. Developers are holding units off the market.
But haven't Vancouver condo builders been smarter?
Nor really. They just have the good fortune that the full effects of the busting bubble have not hit Vancouver yet.
Take Nat Bosa, prominent Vancouver condo builder, for example. He is one of the developers who led the condo charge in downtown San Diego. The LA Times notes that Bosa overestimate San Diego's potential, betting too heavily on the urban revival triggered by the 2004 completion of the Petco Park baseball stadium, home to the San Diego Padres.
San Diego has been a disaster for Bosa.
In Vancouver it is the urban revival of the yaletown/expo lands and the trigger of the Olympic Games hype. Is Bosa several years removed from a similar disaster here?
For some developers in San Diego, rather than dump units at fire-sale prices, developers are converting their projects to rentals, at least until the market improves.
Again, sound familiar?
The bubble started to burst in San Diego in November of 2005. By May of 2006, prices started to rise again. From November of 2006 to May of 2007, prices fell a little more and then plateau'd/rose until November 2007...
It was only at this point, in November of 2007 - two years after the bubble started to break - that the market truly plunged downward.
Vancouver is only a year into the start of it's break.
The only thing that will prevent Vancouver from suffering a similar fate is a dramatic recovery in the economy and buyers becoming flush with cash and easy credit.
Do you think that's going to happen?
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In answer to your question, no. The most optimistic view of Vancouver real estate is that it is highly precarious and risky. But Vancouver's hubris is outstanding. I can think of no easier way to offend people in social conversation than to make a negative remark about real estate. It has a much firmer grip on the average mind than organized religion. But that is another story! Thank you for your excellent blog.
ReplyDelete"I can think of no easier way to offend people in social conversation than to make a negative remark about real estate."
ReplyDeleteToo true. But the emperor has no clothes and I suspect that during the Olympics we are going to see a number of critques on our fair city that will greatly offend our overweening pride as the warts we ignore are strongly emphasized.
I guess I'll be anonymous 2...but should get a name at some point...
ReplyDeleteRelated to the first comment, I am continually puzzled that most friends and colleagues (many highly educated) are so sure that real estate will just continue to go higher and that we have already experienced and now experienced the worst of the recession. When I make comments about interest rates, disconnect between income and housing costs, debt loads etc, people look genuinely confused...and the conversation typically ends right there.
At this point I've chosen to keep quiet as much as possible.
The part that I find embarrassing for the city is that we continually refer to it being the, "Best place on earth." My god, people, have you ever travelled to any major city in the world...we're a nice city, but, this is crazy. I recently chatted with a person that has lived in multiple major cities, and has settled in Vancouver for a couple of years (and will likely move in the next few months) about his perception of Vancouver. He described it as a beautiful, but young city. He compared it to a beautiful teenager that gets lots of attention for being attractive, has an overinflated sense of self and specialness, and doesn't even realize that aside from their superficial beauty there isn't all that much going on.
I know that this sounds really negative. The truth is that I really enjoy living in Vancouver, but it in no way even comes close to being what it thinks it is...and that is both embarrassing and annoying.
Another point from anonymous 2...
ReplyDeleteYet more news today about the high unemployment rate, and Stephen Harper stating that he may allow (ha!!!) the deficit persist if necessary.
Someone, this is all abstract and not related to us...it doesn't seem to register to most that this is happening in our city/province and the Olympics haven't even arrived yet. Gotta go...better buy some real estate or I'll be priced out forever.