Are prices declining in coastal North County?

To date, home prices in coastal North County (i.e. West of I5… Carlsbad, Encinitas, Cardiff, Solana Beach, and Del Mar) have held firm and stayed steady. To many, we do not appear to either be rising or falling. And I agree… so far.

The bulk of the ARM loans have not re-set yet. They will. A substantial percentage of North County homeowners have ARM loans. It is true that the upper scale neighborhoods (i.e. $750k – $1.9m) are inhabited by folks who are a little more insulated than other neighborhoods… but only while their insulation lasts. I mean mortgages as an investment vehicle were safe… until they weren’t, right? Fannie/Freddie were AA rated… until they weren’t right?

Some marginal folks in the areas that haven’t gotten hit yet will need to sell. And when they do, we will see the beginning of the same downward moving spiral we just saw play out in sub-prime. It is not a socio-demographic thing, but rather a math thing. I see a big pricing correction coming our way.

I am not attached to being right about this… and rather really hope I am wrong. But I was not wrong about the first wave of re-sets. And anyone now claiming how obvious this “sub-prime debacle” was should also see this next wave coming in neon lights. From a 10 year outlook perspective, I bet my career we’ll see higher prices than peak. In the next 2-3 years… we’re going to get hammered.

My take: if you own and can hold out, then do so. If you are not sure about your staying power, sell now. If you are looking for a place to shelter or reallocate paper based assets… then consider the smart money quietly flowing into lower-end rental properties.

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