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Reader lgs remarked that recent listings around him have continued to come on the market at ridiculous prices, ignoring the fact that others have failed at lower pricing. 

"But when I look at what sellers and agents are doing in the neighborhood, I just don’t get it. It’s not like anything has sold around here in six months that would give them some hope. So, really, what are these banks and agents thinking?"

1. Some sellers can’t lower their price, their loans are too high.  Can’t blame them, but if they should consider cashing-out a 401k or some other source of funds.  Let’s set this group aside.

2. Some say that the sellers are in denial, but I don’t agree.  Denial would imply that the sellers made a thorough investigation to arrive at the right price, and ignored it and went higher.  I don’t think sellers make a thorough investigation, either on pricing – or hiring a realtor.  Sellers want to make a quick decision, because of their discomfort with the process – and they want to shoot from the hip.  Banks included.

3.  Some realtors don’t know what they are doing.  There are agents who are using bad comps.  Sorry, the comps have very little to do with today’s value.  Especially in tract neighborhoods, where it is so easy to see where the prices have been – buyers go down from there, not up.

4.  Sellers want to wait - WAITING IS BAD FOR SELLERS!  The longer you languish on the market, the more confident the buyers get about their idea of value being right.  Sellers need to get out in front, using aggressive pricing to keep the buyers interest. 

Here’s why – lgs also said,

"The agent was there the other morning putting up some signs and doing something in the garage, but I didn’t even want to enter into a discussion because I figured asking if the sellers would accept a very low offer would just lead to him being insulted and I didn’t think it was worth the bother."

The buyers don’t want to bother inquiring about a sale, let alone making an offer.

What are we doing at Klinge Realty? Here are some examples:

1.  My listing in Carmel Valley that has been featured here is closing today.  It is a job transfer, handled by the employer’s  relocation company.  Lots of layers of management, but the pricing is left to the homeowners, who thought they had done a thorough job of investigating the market, and they did.  But the condition of the home was fairly original, built in 2002 without much upgrading.  It was shown every day, but no bites because the buyers want the upgrades included, or a lower price.  We had started at $1.295 million, and waited patiently for the relo buyout price, which came in low after three appraisals.  What do you do?

A normal agent would p[robably suggest lowering the price $20,000 to $40,000, but I knew we had to get out in front. I told them to lower their price $100,000, to $1.195 million.  They wanted an extra $4,000 so we made it $1.199 million. 

We got three offers in the following four days, two at full price.

2.  A couple who I have as buyers were looking at a home that seemed too high, listed at $1.895 million, but had just sold and fallen out of escrow at $1.8 million.  The homeowner had passed away, leaving a sizable estate to his sisters, and the house was paid off, so we figured the motivation was probably low – plus it had only been on the market for six weeks.  My buyers thought it was worth $1.7 million to them – but do you start at $1.6 and work your way up, risking that it would be seen as too low?  We made a bet that I could get them to accept an offer of $1.7 million straight away.  I lost, they counter-offered over keeping the chandelier in the dining room.  But would a typical agent have had the guts, and the ability, to offer $100,000 lower than the previous deal, and get it accepted?

3.  John and Lynda (who work with me) are currently showing a buyer homes in the La Jolla and PB areas, and finding that they are many over-priced.  They wanted my authorization as broker-of-record to make multiple lowball offers at the same time.  I said absolutely – it is in our client best interest to find the motivated sellers quickly.  They made offers on five properties simutaneously.  Yes, the listing agents may not like it, but too bad, get your price right and we wouldn’t have to do it.

4. The house that I mentioned closed in Encinitas Ranch had a real hurdle at the finish line.  The seller had agreed to allow access to the property upon funding the loan, so my buyers could get a head start on moving.  (They had people moving into their house a day or two later).  When we go to do the final walk-through, even though the sellers had completely vacated the property, Mr. Seller decides that he is going to renege on his promise and withhold the keys until he gets his money – which would normally be a couple of days later.  I’m not going to let my clients be inconvenienced because of somebody else pulling a stunt like this.  Escrow had funded the loan that afternoon, and expected to close the next morning.  The next day I met my locksmith at the house and changed all the locks.  The deal had closed (I think) and it was officially my clients house – what is the seller going to do, have me arrested for tresspassing?

Mrs. Seller came back that afternoon and blew a gasket when see figured out that we had locked her out, so we got the last laugh on that one.

The market is tough, whether you are buying or selling, hire aggressive, experienced agents to help you!

You know you’re a true San Diegan if….

1. Your high school had a surf team

2. You know who Biff and Skippy were

3. You can correctly pronounce Tierrasanta, La Jolla , Rancho Penasquitos, San Ysidro, Otay Mesa, Jamacha, Jamul, Cuyamaca, and El Cajon

4. There are four distinct seasons: Summer, Not Quite Summer, Almost Summer, and Oh Hey Look Its Summer Again

5.  Your house is worth more than some small countries

6. You know what MB, OB, and PB stand for

7. Every street name is either in Spanish or Spanish related, and you’re surprised when other areas don’t have this

8. You see weather forecasts for four different climate zones in the same county, and aren’t remotely surprised. The Micro Climate Weather

9. You’ve gone to Mt. Helix in July and known you still need a jacket

10. You’ve tailgated at Qualcomm Stadium, and for bonus points, also tailgated when it was Jack Murphy Stadium

11.  You have a favorite- the WAP or the Zoo

12. You been on a MB/PB pub crawl on St. Patrick’s Day (you think)

13. You’ve been on a field trip to see an Imax movie at the Reuben H. Fleet Science Center

14. You still call it the Del Mar Fair

15.  You say "I’m going to the track" and people know what you mean

16.  You understand what May-Gray and June-Gloom are

17.  A famous skateboarder/surfer lives in your town

18.  There’s a North County, a South County, and an East County but no Central County

19.  You know what it means when a girl in a short skirt is walking on El Cajon Blvd

20.  You’ve gotten stuck in the Horton Plaza parking structure traffic after a Padres game

21.  You know what "The Merge" is, and will plan your entire day around not being on it during rush hour

22.  You’ve been to Belmont Park

23.  You remember when the roller coaster was a dilapidated piece of junk that didn’t run for years

24.  You’ve taken the Coaster and laughed at people sitting in traffic on the I-5

25.  You know the difference between Clairemont Mesa, Kearny Mesa, and Mira Mesa and maybe you remember Serra Mesa, too!

26.  You’ve gone to Sea World on a warm day and sat in the first few rows at the Shamu Show to get cooled off

27.  You’ve been delayed at the Border Checkpoints on the 5 & 15

28.  Your house doesn’t have air conditioning, and doesn’t need it

29.  You know it’s San Diegan, not San Diegoan, or San Diegoite

30.  Everyone has their favorite beach

31.  No matter what the weather is, there is always someone walking around in a t-shirt, shorts, and flip flops

32.  You have family and or friends that have moved to Arizona

33.  You used to, and sometimes still do ride the carousel at Seaport Village

34.  You know someone who doesn’t own pants, and have a neighbor who doesn’t seem to own a shirt

35.  You know what Santa Ana’s are, and that they have literally nothing to do with the city of Santa Ana

36.  If the menu doesn’t have California burritos on it, forget it, its not real Mexican food

37.  You remember when the admission to the fair included the headlining band!

The Financial Executives Networking Group had a panel discussion last night with an esteemed group of experts, plus me.  Alan Nevin, Gary London, and Rich Toscano provided some great insight to the real estate market, from their unique perspectives.  Some of the highlights:

Gary pointed out that historically San Diego has enjoyed consistent population growth, with 50,000 people per year coming to the county.  The suburban sprawl has maxed out – there isn’t much land left to be developed on the outskirts.  As a result, future growth would have to be upward, he called it "Manhattan-ization".  The downtown condo scene was evidence of that, and even though the explosion of condo developments has saturated the area, the demand has been steady.  Alan mentioned that almost all of the buildings have had enough sales to cover their construction loans, and there won’t be a bunch of forced sales of new condos by builders.

There are a few sites on the drawing board for future condo projects, buy Gary surmissed that they won’t get built until lenders are very comfortable with the environment.  The costs of construction have already gone up $150-$200 per square foot, and future buyers of new condos will have to absorb that to make the project viable.  It also means that current owners can look forward to higher comps as a result, once those projects get built someday.

Condo conversions were discussed too – Gary said that even though the City of San Diego is now trying to pass a limitation of 1,000 units per year, there aren’t any Class A condos left to convert.  In the last couple of years only 2% of the tenants purchased their apartment, while in the early-1980s it was as high as 75%.  The difference this time is that the gap between rents and mortgage payments are substantial, and those buying are owner-occupants from outside the property. 

The most interesting stat of the night was that two-thirds of the households in San Diego County don’t have any occupants under 18 years old.  The resulting discretionary income was noteworthy - people have more money to put towards house payments or retirement. 

The Generation X crowd is smaller than the baby boomers, but the Gen-Y group is big – there are 82 million kids in America that need a place to live.  It was expected that satisfying their housing needs will be a struggle, especially if affordability doesn’t improve.  But it would seem that it would help create steady housing demand of some sort.  The immigrants are a force too, Gary called it the "International-ization" of San Diego.  Alan mentioned that in his neighborhood buyers have come to escape Mexico City, afraid of kidnapping. They have bought houses around him at whatever price it took to get one.  Plus, with the currency exchange rate being very favorable, the trend of immigrants coming here and buying homes seems to be one that will continue to fuel demand.

I had dinner with Rich and his wife afterwards, and we went on for another two hours.   Rich’s analyses are spot-on, especially regarding the likelihood of the exotic financing come home to roost over the next year or two.  Could it be possible that there will be enough demand to keep it all afloat?

Here’s how we’re doing so far – this chart is measuring the last sixty days, the hottest time of year for sales, with the percentage of change between 2004 and 2007:

Closed Sales, April 15 – June 15          2004       2006      2007    % chg

Carmel Valley                                              120             91           96        -20%

Encinitas                                                        104             70          72        -31%

Carlsbad                                                         224           187        224         0

Oceanside                                                     366             279        190      -48%

I triple-checked the Carlsbad number, and it was identical for both years.  At least with the Carmel Valley and Encinitas sales higher than last year indicates that buyers are willing to buy – if the sellers can get their price right.  Oceanside and other low-end areas are suffering.

Median Sales Price/Average SF       2004       2006       2007    %chg

Carmel Valley                                           $315        $348       $332     +5%

Encinitas                                                     $314       $318        $338     +7%

Carlsbad                                                      $300       $311        $295      -2%

Oceanside (92057)                                 $259       $285        $261     +1%

I made a point about how critical the buyer’s psychology is to the future – as long as buyers believe it’s  a tough market, they will either stay on the sidelines or expect a deal.  The cascade of foreclosures is likely to convince buyers that better deals are coming – as long as the banks are willing to give them away.  Will the foreclosures trickle up into the superior properties?  Rich and I agreed that was a great indicator to watch.

Kelly Bennett from the www.voiceofsandiego.org was there, here’s a link to her article:

http://www.voiceofsandiego.org/articles/2007/06/20/survival/748econ061907.txt