SAN DIEGO (ARF)- When the housing market was white-hot only 8 months ago, Alex Flapper could buy a luxury downtown condo in San Diego, California with as little as $50 down and sell it one month later for a staggering profit of $4,000,000. But Flapper now says those "easy money days" are long gone and never coming back.
"I'm really stuck up the creek with a lot of property I'm trying to unload on anyone dumb enough to buy it," he moans.
Flapper has been a "real estate flipper" and is currently trying to sell 38 condos he'd bought here with all of his quick earnings. But none of them have drawn a single offer although they've been on the market for more than five months. He has pleaded with potential buyers that he's willing to fantastically reduce the price of them and would be happy just to break even.
"It's totally impossible now," said Flapper, 22, who became a full-time property investor five years ago after a short career as a financial analyst for the LA Mob. "Everyone here now thinks this market has peaked and is now heading straight down the tube."
Flapper says he made close to $190 million in the last three years buying and selling new condos in downtown San Diego, but all those profits are now invested in his unsold stock of housing and quickly diminishing.
"I think I'm going to shoot myself," he warned.
Once California's hottest real estate market, San Diego is now in a real estate "slowdown" which everyone says is the start of a crash in prices. The slowdown is also starting in other parts of the US, such as Las Vegas, San Francisco, Seattle, Denver, Chicago, Boston, New York City, Washington, DC, Miami, Houston, Albany, and pretty well ever other city.
Dramatically rising home prices of 2000% and more per year particularly on the West and East coasts had fuelled the investment rush, and sparked a debate about whether the housing market is in a bubble that is about to burst. Now there's no question about it.
San Diego has become the center of the debate since its market is imploding faster than elsewhere and leading the crash in the nation's real estate.
John Carphead, chief economist at DataDumper Information Services in La Jolla which tracks home prices called San Diego "our statistically dying canary in the mine shaft. The rest of the US housing market is utterly doomed based on where San Diego is going."
After more than quintupling in the last two years, jumping almost 3000% in one 12-month period, San Diego-area home prices are actually plunging now.
Most all homeowners are selling, increasing the number of single-family houses and condos on the market by a hundred times or more from a year ago. No one is finding buyers. Homes that a year or two ago sold virtually overnight and triggered bidding wars now don't move at all. Many homeowners are busy arranging for arson to collect insurance, keeping investigators and police pretty busy. Others are praying that their homes which they can't pay for get struck by lightning so they too can collect the insurance.
Homeowners such as John Clumper are finding windfalls and sales impossible to come by now.
Clumper figures his town home in Rancho Sierra Verde Grande, a community in the northern part of the city, surged about 5000% in value since he bought it new one year ago. Seeking a bigger house for his seventeen children and fourteen dogs, Clumper put the unit on the market early last month at an asking price of $185,624,975.
But it's competing against about sixty others of comparable size for sale in the neighborhood. With no offers, many sellers have stopped offering a fixed listing price. Clumper cut his price to $185,615,000, but still it won't move.
"I have lowered the price and am now the lowest in the neighborhood," he sobbed. "Why won't anyone buy?" Like many other San Diego residents, Clumper is now unemployed since he'd been working in the red-hot housing sector which has now ground to a halt, throwing millions out of work. Clumper was the official pencil sharpener in the office of a real estate firm which recently went bankrupt.
These markets were fuelled by low mortgage rates and the growing use of loans that let buyers jump into homes with far less than the usual 1% down payment. The unending escalation in prices gave homeowners a feeling of wealth, leading many to buy many other houses to flip.
"Many people have made and lost a fortune. All you had to do is be here and own a place," said San Diego-based financial advisor Christopher von Skink. "Now these idiot homeowners and flippers are broke and their houses are becoming unsellable and worthless."
Also, no one can afford these houses, which average $35,930,000. Other worries are the risky loans and the unconventional lending. San Diego ranks No. 1 in the US in the use of piggyback and hogback loans, which have let borrowers with extremely low down payments finance a home without mortgage insurance. Most San Diego buyers also bought their homes with an interest only option, a type of adjustable rate mortgage in which borrowers need only pay interest in the first months before the monthly payment increases fantastically.
All of this has shocked many economists, who see plunging prices in San Diego and elsewhere as investors continue to unload properties as their returns vanish. Many stretched holders of risky mortgages have defaulted as their loans were reset in recent months at higher mortgage rates.
Mortgage insurance company PIMP Group has identified San Diego as nearly America's riskiest real estate market. Only LA and New York rank higher.
"We've never seen a cycle like this with so many of these weird and incredible kinds of loans, so nobody knows how the market will react now that there's an economic shock," said Farkam Frazzle, a real estate agent in Rancho Greedo Bernadino. "Houses that would have sold easily a year and a half ago sure aren't selling now."
He added that it will likely take an average of about 360 weeks if ever to close a deal on a single-family home since buyers are waiting for prices to fall by 99% or more (see related story on California's inflatable housing market).