Experts agree housing slowdown will hit San Diego, but differ on depth
Local experts who watch the housing market agree that a price slowdown in California and San Diego will occur, but disagree over the cause and the market that will result.
In San Diego, housing price appreciation has slowed to 6.3 percent, according to Alexis McGee, president of ForecloseS.com, an investment advisory firm, who said she expects a slowdown in San Diego by the end of the year.
Randy Nixon, a loan officer at American Mortgage Express, said there already has been a slowdown in home prices. "They're just not appreciating," he said, adding that the previous double-digit appreciation is unsustainable over time.
Caryl Iseman, owner and broker at Action Mortgage Group, agreed, and said downtown San Diego is one area that might suffer. "In areas where there's a lot of inventory it'll be slower," he said. "We don't have the same number of buyers in the market."
McGee said the softness in the San Diego housing market could be a sign that similar slowdowns will occur in other California cities. " San Diego seems to be the bellwether for the rest of the state in this housing cycle. It led us on the way up, and may do the same as markets cool down," he said.
Though Nixon agrees with McGee that a slowdown will happen, he disagrees that San Diego can be used as an indicator for the rest of the state.
While San Diego housing appreciation may be on the decline, buyers in more eastern parts of the state such as El Centro could see higher appreciation because cities are expanding.
Whether San Diego is a state indicator or not, there are two differing views on why this slowdown will occur. McGee said the slowdown will result not from general economic conditions, but from the type of loans homebuyers have been choosing. Interest only loans and the option ARMS, which can have initial rates at 1 percent, encouraged homebuyers throughout 2004 and into 2005 to buy more home than they could actually afford as housing prices kept rising.
Nixon thinks otherwise. "To me it's more economics. The prices of homes have gotten so high people that can't afford them. (The risk is) not in the loan itself, it's when they refinance."
While McGee views interest only loans and the ARMS option as risky to homebuyers, Iseman looks at it another way.
"Interest only loans aren't risky," Iseman said, adding that if a person took out a $300,000 interest only loan and had an amortization period of 30 years, the minimum payment in the first five years would be $6,000, or $100 a month, and the person's principal would not change over the years.
"Where's the real risk?"
All three agreed that since principal can increase under the ARMS option, it can be a dangerous choice.
"Those do have more risks, especially if people didn't put down a big down payment," Nixon said.
"The risk could be on the (ARMS) option because they have negative amortization, you're walking backwards on your principal," Iseman said. She recommends this option only to people she knows have equity in their property. "If there's a decrease in the value of your property, then you could have a risk."
The result of a slowdown -- either from economic conditions or loans -- could mean foreclosures or forced sales in the future market, according to McGee.
Nixon said that's a possibility, but that it wouldn't happen until housing prices remain level over time. "If prices don't move at all it gets hard to refinance," he said.
Iseman said the possibility of foreclosures or forced sales are unlikely. "They'd rent it out before foreclosure and take the loss. The only people that may suffer are the ones who thought they were going to make a killing. These people will be precluded from entering the market again," he said.
"If there is (a spike in foreclosures or sales) it will be investor oriented. People are savvier now."
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