Wednesday, Sept. 26, 2007 | With a highlighter, Bill Curtis issued the San Diego housing market a grand ultimatum a few months ago, circling January 2009 in bright yellow.
If housing prices don’t crash by then, he’s moving to Wichita, Kan.
Witchita or Bust
“You know how much a house costs in Wichita?” Curtis said. “I could get three houses for what I’d pay for one here.”
Count Curtis in the crowd of housing market watch-and-waiters, a community that is growing here to include onetime homeowners who’ve exited the market in favor of renting.
Averse to the types of risky, fluctuating mortgages that were the only way most homebuyers could enter the market in recent years, Curtis and others stayed out of the market while it was exploding. Despite the six-figure annual income earned by Curtis, an engineer, and his wife, a medical device tester, they rent a two-bedroom apartment in Clairemont. And they wait. Home prices, they say, diverged so far from the incomes of normal people in the county that the whole market is bound for collapse.
But hoping out loud for a housing market collapse won’t win you many friends who own property. So Curtis and his ideological bedfellows populate many of the housing market blogs, finding solace with other renters online. To them, the factors driving down housing prices, including increasing foreclosures and growing numbers of homes on the market, are welcome. They decry the lax lending that kept prices high but have stuck borrowers with ballooning payments and unmanageable terms. Now, as more houses than ever enter foreclosure and some politicians brainstorm bailouts for lenders or homeowners, Curtis cringes.
“Why would they want to support that?” he said. “It’s completely opposite. If the market came down, everybody would be able to afford to buy a house.”
But there are some who aren’t willing to wait. There are still people using the kinds of nontraditional loans that have left so many people struggling with soaring monthly payments in recent months.
In the first six months of 2007, 36 percent of all mortgages originated in San Diego County were exotic loans, according to First American LoanPerformance, a mortgage tracking firm. Those are the loans where borrowers pay just the interest that accrues, or a portion of the interest, each month.
These exotic — interest-only and negatively amortized — loans grew especially popular as this decade’s housing boom priced out more and more of the population from using a traditional loan to enter the housing market. They comprised a 48 percent chunk of the mortgages borrowed in each 2005 and 2006, according to new estimates by LoanPerformance. But they carry a reset clause that shoots the loan payment higher after a few years, increasing the risk of foreclosure among their borrowers, especially those who put no money down. In a declining market, the sell-or-refinance safety net that seemed certain a few years ago is gone. Many market observers view the loan resets in these types of mortgages as their greatest chance to get a foreclosure fire-sale deal.
Andreas Pour is a Del Mar-based corporate attorney with Sheppard, Mullin, Richter & Hampton LLP who moved to San Diego from the Midwest in October 2004. Then, he said, prices seemed high for homes, especially compared to what he was used to. And when he started researching San Diego incomes in relation to housing costs, he found a tenfold ratio between them, he said.
“I thought that level was unsustainable,” he said. “I worried that I’d buy a house for $800K and within in a few years, it would be worth maybe $400 or $500K.”
So he kept researching, finding that interest rates were low, lenders were embracing lax underwriting standards, and people in their “early 20s with unsteady jobs” were borrowing $500,000 mortgages.
“It didn’t make any sense,” he said. “I basically thought it was a house of cards, and now I’m waiting on the sidelines and waiting for things to come back to earth.”
Pour, 42, said he does expect to buy property here one day, but that it “might take four or five years to get where I think it’s sustainable again.”
That’s a longer deadline than Curtis and his wife, the renters in Clairemont, are willing to extend. When Curtis first visited a girlfriend in San Diego from Bakersfield in 1994, he said he made it a goal to move here. That year, the median price for a home was in the mid-$100,000s, according to DataQuick Information Systems.
“Back then it was really affordable,” he said. “I thought, ‘Wow, so nice and so cheap. Someday I’m going to move down here.’”
After returning from service with the U.S. Marines, Curtis worked for Fry’s, the electronics store, in Orange County. When the company expanded its presence to San Diego, Curtis moved here to open the store in 1997. But by 1999, he said he realized he was earning as much as he could hope to with the skills he had, and still wanted to buy a house. So, using his GI Bill money, he entered the engineering program at the University of California, San Diego.
While he was in school, housing prices went crazy. In 2000, the overall median price for a home in San Diego County was $234,000. That price leaped up annually by 15 to 20 percent for years, landing at $494,000 in 2005. The median price soared a total of 210 percent during the five years Curtis was in school, according to DataQuick figures.
“Obviously, I had to worry about studying,” Curtis said. “I didn’t really know that much about the real estate market at the time. I didn’t start following it closely until after I graduated.”
And, with degree in hand and having secured his first job as an engineer, Curtis and his wife began house-hunting.
“And whammo — that’s when it hit me,” he said. “I never wanted anything extravagant, just kind of like the house you’d get in Mira Mesa. A three-bedroom, two-bath, two-car garage. The kind for regular people.”
But, he said, even the fringe communities further away from San Diego proper were priced well over $300,000. And even condos were “crazy priced.”
“I thought people must be selling drugs,” he said.
Curtis, like Pour, began to research the market. He found housing market blogs, online forums where others felt the same way he did — that their financial prudence was leaving them unable to purchase property while others snapped up brand new homes with no money down.
He learned about lending and investment properties and no-documentation mortgages and lucrative commissions for loan and real estate agents and brokers. And he’s grown to detest the news coverage of some of the people who are now facing foreclosure, because he sees himself and others of his ilk as the real victims of the current market.
“The only solution to this whole housing mess is to get prices back down to where an average family can afford to buy an average home to live in,” he said. “Why is that such a terrible goal to work toward?”
There are a lot of aerospace engineering jobs in Wichita, Curtis said. That, in addition to the housing affordability, is why he would consider moving there. And when his co-workers tease him about Wichita as a Plan B, asking him what he’s going to do if a tornado destroys his house, Curtis has a simple answer.
“I’ll just build another house,” he said. “Or two. I’ll be able to afford it.”