Wednesday, June 01, 2005 | On May 20, Alan Greenspan, the Federal Reserve Bank chairman, said that the nation’s housing market may have “local bubbles,” and he cited the use of adjustable-rate and interest-only loans as well as the amount of speculator purchases. Last week, an analysis by for The New York Times pegged San Diego’s rent ratio at 28.9 in the first quarter of 2005, up from 13.5 in the first quarter of 2000. This number, which is calculated by looking at the price of a typical home and dividing it by the cost to rent for a year, makes San Diego the fourth highest among major metropolitan areas with San Francisco, San Jose, and West Palm Beach-Boca Raton, Fla. higher, and could be an indicator of a local bubble.

Jim Johnston remembers San Diego housing history.

My friend Tom moved to San Diego in 1991. Since coming here he’s made a ton of money by buying, remodeling and selling houses.

Ask him what he does for a living and Tom will tell you he “flips houses.” On his last flip he netted nearly a half million, and he hopes to keep on flipping.

Tom doesn’t like it when I tell him his flipping days are over. Asking prices today are beyond irrational exhuberance, they are insane. (“$500,000 for t-h-a-t?”) In this craziness, San Diego leads the nation.

Sure, there will still be fixer houses available for a handy guy to spiff up. But the days of the big, quick payout are soon to be ‘remember when’ stories.

As a San Diego native, I have a few of those.

One Saturday morning in the early ’60s I was riding down Mast Boulevard in Santee in a car driven by my dad. I couldn’t understand why so many of the front doors of the houses we passed were wide open.

“Hey Dad,” I asked, “why don’t those people keep their doors shut?”

“Because they moved out,” he said. “With Convair closing, a lot of people have lost their jobs and they got behind paying their mortgage. So they gave their house back to the bank.”

“Well,” I asked, “why didn’t they sell their house instead of just walking away from it?” Because, he explained, the house was worth less then what they paid for it.

That’s the kind of economic story you don’t forget. And to one degree or another, the foreclosure story has been told over and over again here in San Diego as our housing market cycles up and down.

Luckily for me I didn’t have to sell a house during a down cycle. But I knew people who did. Some sold at a loss and took a bath. Others just walked off, leaving the door open.

In 1978, the market was pretty hot and we paid $86,000 for a neat little house in Scripps Ranch. Within a year it appreciated to $125,000. And five years later? With luck, we might have been able to sell it for $125,000. But luckily, we didn’t have to.

Some neighbors were not so lucky. They bought at the top of the cycle but had to sell as it was dipping down.

In 1991, the market was hot once again. We got $214,000 for the house we’d been in since ’78 and traded up to a bigger house in Scripps Ranch, paying $254,000.

And then the market tanked again.

In 1996, five years later, a similar house around the corner sold for $200,000. Good thing we didn’t have to sell. Today, that house is worth three-quarters-of-a-million dollars.

Will it be worth more next year? The same? Less?

Some people, like Tom, say there won’t be a burst in the real estate bubble. The economy is stable. Our population keeps expanding. Housing builders can’t keep up with the demand. And the weather! It’s so beautiful this town will only grow and grow and grow.

Downtown is sprouting steel to feed the frenzy of interest in owning residential space in the city’s exciting urban center. Thousands of new condos on coming on line from Little Italy to East Village. Anybody ‘remember when’ the Harbor Club, the two condo towers north of the Convention Center, first opened? Anybody remember the years those condos sat empty, unable to be sold?

Last time I saw Tom I asked if he could hear it. Hear what, he said? “If you listen closely,” I answered, “you can hear the ‘Psssssssss’. That’s the air leaking out of the housing bubble”.

The other day my soon-to-be married daughter asked me if I thought it was a good time to start looking for a house to buy.

“Nope. Wait until you hear a bang.”

– copyright 2005, Jim Johnston

Jim Johnston is a freelance writer (when the mood strikes) with an office in Little Italy.

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