Affordable San Diego Townhomes Almost Impossible To Sell

Nearly All Applicants For Affordable San Diego Housing Excluded

SAN DIEGO -- Affordable housing is incredibly scarce in San Diego, so why are brand new affordable townhomes nearly impossible to sell?

A brand new townhome with three bedrooms, 2 & bathrooms and a two-car garage is only $243,000, but the developer can't sell it.

"Unfortunately, we've had a challenge finding home buyers for those homes," said Marcie Little, with The Olson Company.

The Olson Company is building 11 affordable units in a project called Legacy Walk as part of the city's inclusionary housing program. But so far, nearly all 180 applicants, including Dominique Woodson, have been excluded.

"We were a little bit above the income level for here, as we found out, but not enough to live on the outside," said Woodson.

"I still feel a little angry about it," said Betty Cooks.

Cooks, also rejected, had the opposite problem. She just retired, so her income is low enough for the affordable housing guidelines, but not high enough to get a loan.

The issue is a single person can't make more than $44,400. For a couple the limit is $50,700, but they still have to qualify for a $1,875 a month payment, 10News reported.

"We've had over 180 people turn in applications, (but we were) only able to approve two of those people," said Little.

Little blames guidelines that are too narrow. She says they are unrealistic for people like the Woodsons who missed a golden opportunity over a few thousand dollars in income.

"If my husband and I made less, (I) don't see how we could make the payment," said Woodson.

The townhomes in the project offered at market rate, around $400,000, are selling quickly. It's the affordable ones half that price, that are left on the market empty.

The San Diego Housing Commission administers the affordable housing program.

Legacy Walk is located on Newton Avenue in Southcrest.

The Condo Glut Killed the Stadium

By SCOTT LEWIS
Thursday, Jan. 12, 2006

Let's get one thing straight -- the Chargers' stadium proposal was a good one. The football team had adroitly designed a plan that would make everyone happy.

It was a free stadium.

Nobody would have to pay for it. Everyone would gain: football fans would skip together down the sidewalk, the next 50 Super Bowls would be in San Diego (or was it 40?) and the perpetual thorn in the Chargers' side (aka City Attorney Mike Aguirre) was set to eat some humble pie.

Because it was a great deal.

And that's exactly why it died this week.

When everybody's happy with a deal like this, there's something wrong. I'm going to take a stab at what that was.

I'm pretty sure it's something to do with those guys twirling those signs on street corners -- a phenomenon particularly endemic to the congested confines of Mission Valley's sprawl. Seriously.

The Chargers' proposal, as team spokesman Mark Fabiani describes it, was simple in concept if extremely complex in its implementation. In order to avoid the whole issue of asking taxpayers to foot the bill for a massive civic project, Chargers officials came up with a solution: We'll build the stadium, we'll pay off the debt on the old stadium, we'll do everything -- all San Diego has to do is give us a bunch of land.

And here was the magic: They were going to take the land and turn it into 6,000 condos -- yes, a couple of other things too, but mostly condos. They planned to sell the condos and profits from those sales would be high enough to pay off the builder of the stadium. The snafu that finally killed the proposal -- and it's almost certainly dead -- was that the Chargers couldn't get a wealthy partner to pony up the capital to build those magic condos.

And although Fabiani deftly directed blame for the failure to the cloud of crap currently hanging over city government -- oh, and Aguirre as well -- he also acknowledged that there were other factors that negatively influenced potential development partners.

And one stood out specifically:

The San Diego housing market.

Fabiani said the Chargers courted three types of potential development partners. The first group was interested, but then, they weren't. The second group, simply didn't have the means to put up that much cash now.

And the third group … well, I'll let him tell it.

"There was a third group that said, 'This project is interesting but you're assuming that the housing market is going to remain really strong and we don't necessarily share your view of the housing market in San Diego," Fabiani said.

In other words, "we don't think we would be able to sell 6,000 condominiums for how much you think we'd be able to sell them."

And they've got a point. The inventory of condos for sale in San Diego has soared recently, as has the number of homes for sale on the market.

One need only look at the street corners in Mission Valley right now to see what that means: Guys twirling signs trying to get people to buy condominiums.

How about downtown? The inventory of condos there has soared. And thousands more are in the pipeline. It's hard to imagine how the availability of condos for sale won't be great for years to come. When potential condo buyers have many options to choose from, they're less likely to pay out the nose for a place. Especially if that place is in horrid Mission Valley.

The Chargers' proposal for a new stadium was so good because it appeared to protect taxpayers at the same time that it kept the team -- and their fans -- content.

But stadiums are not profitable enterprises for cities. They are part of that group of civic endeavors in architecture that are produced out of a surplus of resources. Along with central libraries, for example, cities are supposed to sacrifice for stadiums. You have to give something up, like time and money, in order to get one.

If stadiums, by themselves, were a profitable thing to do -- rather than just a benefit to the culture of the community -- we wouldn't even need discussions like this. People would just build them using their own capital.

The Chargers thought they could get some land from the city and then the magic of the Southern California housing boom would do the rest. At least some of their potential development partners said that was a faulty assumption.

So, either the Chargers will have to suck it up and simply pay for everything having to do with construction of a stadium, or taxpayers will. And with talk of bankruptcy still in the air around the city, it's hard to imagine any politician being able to sell the idea of directing taxes to a costly stadium project.

After all, politicians are always being told to treat governments more like businesses. In this case, the businessmen wanted nothing to do with it.

Housing prices had strong run; now what?

Experts divided over San Diego's outlook
By Roger M. Showley, Lori Weisberg and Emmet Pierce
UNION-TRIBUNE STAFF WRITERS

January 1, 2006

As San Diego County bids farewell to a five-year housing-price boom, the one question that lingers is whether the local real estate market is speeding toward a crash or gliding to a soft landing.

Some national real estate experts have placed San Diego on their list of cities that can expect price drops, which hasn't happened in the local market since 1995. But those based in California are more sanguine. They acknowledge some warning signs such as expected mortgage rate increases but foresee no collapse, pointing to a healthy local economy.

Across the country, economists are closely watching the county's real estate market, which defied some predictions more than a year ago by maintaining a price surge that went far beyond what many thought was possible.

Now, concerns are being raised that lenders have gone too far in making mortgages easily available through a host of new products. Analysts are alert for any signs of trouble, such as an increase in mortgage defaults.

Among the doomsayers is Fiserv CSW, a market research firm in Cambridge, Mass., that last month predicted San Diego's housing prices will drop 3.4 percent this year and 5.7 percent in 2007. The firm concluded, in a survey completed for Fortune magazine, that San Diego is second to Las Vegas as the most vulnerable metropolitan area out of 100 analyzed.

The company's experts include Yale University economist Robert Shiller, who has for a few years predicted a major housing-market downturn, especially in "frothy" places such as San Diego, where median home prices have more than doubled in five years.

In another analysis last month, Cleveland-based National City Corp. concluded that San Diego prices are 46 percent higher than local incomes can support. The company said the median home price here should be nearly $150,000 less than the actual price reported in the third quarter of 2005.

Closer to home, however, market watchers see a rosier picture. They believe that prices are likely to continue rising, just at a much slower pace, because of continued demand for homes fueled by job growth.

"I'd say housing is overpriced, but whether or not that implies that prices are going to crash is a different question," said University of San Diego economist Alan Gin.

He and other analysts predict prices will increase this year between zero and 5 percent, which could raise November's median home price of $518,000 to about $544,000.

Last year's overall rate of appreciation slowed to 7.5 percent, according to data being analyzed by locally based DataQuick Information Systems. That was the first year since 1999 that the county had a single-digit percentage gain – a far cry from a year earlier, when the median price jumped a record 21.1 percent.

"The boom part of the cycle is over," said DataQuick analyst John Karevoll. "Most of the gains this time around are behind us. Now the question is how much of those gains do we get to keep."

A 5 percent appreciation rate this year would be the lowest since the late 1990s, when San Diego was recovering from a long real estate recession and median home prices were under $200,000. Karevoll pegs the chances for a "soft landing" at 80 percent.

If an economic downturn does come, those most at risk are middle-wage borrowers who in recent years have relied heavily on highly leveraged loans to attain homeownership.

Often called "creative" or "non-traditional," these loans have allowed buyers to purchase homes in high-cost markets such as San Diego with less money down and little documentation to support their creditworthiness.

The trade-off is that the buyers with unconventional loans take on a higher risk of default if mortgage rates climb. Some analysts warn that such loans haven't been tested during a sharp downturn.

Watching the trend with mounting concern, federal banking regulators stepped in on Dec. 20. Five institutions, including the Federal Reserve, issued a "guidance" to lenders. In part, it says tighter regulations are needed for interest-only loans, payment-option adjustable rate mortgages (ARMs) and simultaneous second mortgages that reduce down payments.

"We have seen the mass marketing of these loans and the growth of these loans and determined it was appropriate for us to take a closer look," said Barbara Grunkemeyer, deputy comptroller for credit risk at the Office of the Comptroller of the Currency, who led a multi-agency task force that studied the issue.

Regulators are seeking comments from lenders before making the notice final, but substantial changes in the document aren't expected, said David Barr, spokesman for the Federal Deposit Insurance Corp. Once finalized, it "applies to all banks and savings and loans and their subsidiaries, so ... it does have pretty broad reach," he said.

The regulators have "joined a chorus of critics on the impact of some of the new (lending) products," said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies. "This ranges from credit-rating agencies to consumer-advocacy groups, all with a common message. These products, particularly adjustables ... all add substantially to the risk to the home buyer."

Sensing a market slowdown, Shannon Bodnar and her husband, Alan, decided in April to put their Scripps Ranch home on the market and cash in on nearly four years of equity gains. They went ahead with a planned room addition and upgraded their 1,775-square-foot home with hardwood floors, new carpet and window coverings. New landscaping was put in the front yard and a hot tub was installed in the back.

"My husband is in grad school and due to finish next December, and we felt there was a good chance we wouldn't be in San Diego after that, and we didn't want to wind up not getting the most for our house," said Shannon, 33.

The couple's house went on the market in late June at an asking price of $699,000 to $735,000. By September, it had not sold and the couple brought in a new agent. Twice, the price was reduced, and by November the house sold for $660,000.

"We were hoping to be ahead of the curve, and I don't know if we were," she said.

The buyers were Suzy and John Marshall, both retired, who decided to return to San Diego after living abroad while John worked as a loss-prevention manager for the Army and Air Force exchange service.

"We realized we were buying at a higher price, but right now it doesn't matter because this is the home we'll be in for the rest of our lives," said Suzy, 54. "People always want to sell their homes for more than they paid, and I think the market now is not allowing them to make that windfall profit."

San Diego's real estate market, which has long favored sellers, is beginning to lurch toward buyers like the Marshalls. Today, the number of homes for sale hovers at 14,000, 55 percent above year-ago levels. For buyers, that means more choices.

It's also taking about two months to get a home into escrow, compared with three weeks at the peak of the 2004 selling frenzy. That gives buyers more room to negotiate and removes the pressure to make hasty decisions.

"Buyers no longer have fire in their belly. They're still worrying they're buying in a peak market and will end up losing equity they might have," said North County real estate broker Kris Berg. "There's just an uncertainty about where we're headed, which is causing buyers to sit back and think about it more."

Los Angeles economist Raphael Bostic says buyers now clearly have the edge.

"I think what we've seen is a transition of the market from a pure seller's market to one where the buyer has more leverage than they've had in recent years, so that's a sign we're returning to a saner market," said Bostic, of the University of Southern California's Lusk Center for Real Estate.

"The frenzy was unlikely to go on forever. For 2006, I think we'll see a slower, more measured-performing market."

Reflecting the changed market, sellers are including incentives unheard of months ago, such as higher commissions to agents, decorating and landscaping allowances and an offer to buyers of a "free" car.

The incentive of a $20,000 Nissan by condo-conversion developer Del Mar Heritage helped persuade Omar Faraj, 30, to buy a 1,164-square-foot town house in Escondido for $399,000, his first home.

"I just heard 'buy a condo, get a car' when I looked into it more," the Palomar Hospital pharmacist said. "I do need a car – I have a 1997 Altima – and I'd been thinking about upgrading."

Faraj said he is not worried that prices might dip or stay flat.

"I'm in it for the long term," he said. "I'm not in it for a quick flip."

With the promise of quick profits virtually gone, today's buyers may well have to follow Faraj's lead and stay put longer to earn enough equity to buy a bigger house.

Potentially worrisome is the impact of rising mortgage rates. Rates for benchmark 30-year, fixed-rate loans have remained above 6 percent for three months.

The outlook from economists is for a slight increase in 2006. David Seiders, chief economist for the National Association of Home Builders, expects the average for 30-year, fixed-rate mortgages will rise to about 6.75 percent by the third quarter, while the Mortgage Bankers Association predicts 6.8 percent by the fourth quarter.

Despite the pessimism of some housing analysts, one major forecaster has tempered its earlier opinion that California's real estate market was headed for a downturn. The University of California Los Angeles' Anderson Forecast, which has had a reputation for issuing doomsday predictions, eased its view in its latest report, which foresees a slowdown but no crash.

"Local housing markets will cool off, leading to a slowdown in spending and some job losses in construction and other real estate-related industries," said economist Ryan Ratcliff, who wrote the outlook. "With this in mind, we are currently forecasting a plateau in home prices, a moderate decrease in sales and new building and two years of weak growth. However, this forecast represents the middle of the road."

But Erik Bruvold, a vice president at the San Diego Regional Economic Development Corp., takes a more positive view. He said any hiccup in housing price appreciation may be brief because of a bright job picture, especially for the high-paying high-tech sector.

Looking to 2007, he can conceive of a sizable upturn in prices.

For entry-level buyers, the bright spot in San Diego County's pricey market has been the conversion of apartments into condominiums, a politically charged trend that has helped buoy the new-home market.

More recently, though, a glut of converted condos has slowed sales and has forced converters to offer incentives, while in the city of San Diego, the conversion process may be hung up by legal challenges over environmental issues.

"It's clearly a buyer's market," said Paul Kerr, president of Davlyn Investments, a local condo converter. "What's happened is that the investor buyer is no longer really active in San Diego County. The opportunity to buy a conversion and hold on to it for six months to a year and flip it and make $50,000 to $100,000 – those days are over."

With thousands of high-rise condominium units in development, downtown San Diego is regarded as a housing barometer by many industry watchers.

Real estate analyst Gary London said 2006 will see a "cycle of correction" after an infusion of 5,217 units downtown in the past five years. He says that while prices are flattening and sales are slowing, the long-term demand for downtown housing is secure.

Downtown real estate agent Eric Jones added, "Our speculator buyer is gone, which is good. We're glad to see the market settle down."

As the year begins, many say that a cooler housing market comes as a relief and that they are hopeful the market will find equilibrium. It is actually a good thing that the frenzy driven by price speculation has been removed, many analysts say.

"You should buy a house if you want to live in that house," said Bostic of USC. "If you're buying it for investment purposes, this is a relatively poor time to do that."