Saturday, January 26th, 2008 at 2:36 PM
Inflection Point/Capitulation
David Streitfeld (reporter from the New York Times) and I have been talking this week, and our 3-4 conversations got me a mention in today’s edition:
What has been needed all along was for the sellers to get their price right - plenty of people want to buy a house, they just can’t/don’t want to pay crazy prices.
People will wonder from David’s article if the buyers are coming around – but it’s really that some sellers are finally getting more realistic about pricing.
Rob Dawg said it here on November 9th, that the market has reached its inflection point (n. A moment of dramatic change, especially in the development of a company, industry, or market). Sellers have been holding out, but are noticing that the buyers are winning the fight. However, when buyers find a deal, they are stepping up and buying.
I mentioned to David that I had just run across a property that had 14 offers on it, and he was shocked, and asked, "How many years has it been since you saw that happened?" My response? "That’s the third time in the last month."
It’s still tough to find them, but sellers are capitulating – finally.
Here are three recent examples – note the different types of sellers:
173 Village Run E., Enc
4 br/2 ba, 1,266 sf
OLP = $589,000
SP = $460,000
COE 1/18/08 DOM 138
This is the first Encinitas house to sell under $500,000 in four years. The owner was elderly (noted in MLS) and it looks like she had been there since it was built in 1971 – the tax assessment was $56,868. Though they started at $589,000 (OLP = original list price), it’s likely that the $460,000 sounded better than not selling. The listing agent was a mortgage company who included one picture – it pays to look a little harder at the ones with few photos or lousy comments.
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944 Jasmine
3 br/2 ba 1,766sf
OLP = $839,000
SP = $620,000
COE 1/16/08 DOM 121
I’ll just flat out say it – when you have a house in original condition, a bank like Countrywide making the decision on a short sale, and a listing agent with a lousy reputation, this is what you get – a giveaway price. Countrywide had two loans totaling $720,000, and it seems like they have the green light to eat $100,000 without a fight on all deals. The buyer was smart – they had to wait alomost 60 days to close, but they lowballed at a price that made it worth it for them to be patient, and they got it.
You’ll hear agents complaining about short sales and not wanting to show them because of the hassle, but that’s why they are a gold mine. If you have the patience, make lowball offers and be willing to sit for 60-90 days. There is no obligation unless the lender accepts your offer as written, which is unlikely – they will at least insist on adding their own fancy terms and disclaimers, which you aren’t obligated to accept unless you like the rest of the deal.
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5778 Mosswood, CV
5 br/3 ba 2,507 sf
OLP = $995,000
SP = $850,000
COE 1/18/08 DOM 69
This Torrey Hills neighborhood is tucked away at the end of Carmel Mountain Road. There were three sales in July and August within a block of Mosswood; $925,000, $1,005,000, and $1,030,000. Yet the original owners didn’t hold out for a million dollars - they didn’t have to, their loan was in the $300,000s.
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The sellers are more willing to deal – but you still have to find the right house, at the right price – keep looking!
Posted on Saturday, January 26th, 2008 at 2:36 PM in Thinking of Buying?, Thinking of Selling? | 23 Comments » | 
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173 Village Run East for 460K is about what it would have sold at in 2003. Factor in inflation and the drastic change in underwriting standards and it probably a fair comp. I would guess this house would rent for 1600-1900/month.
JE | January 26th, 2008 at 6:04 pmJim,
For the two sales that were not short, did the sellers buy another place? Did they rent?
Were these sales basically successful attempts to cash out? If so, do you see that perspective picking up steam among those with significant paper gains in their property?
MS | January 26th, 2008 at 7:07 pmThat Spinnkaer Hill house looked like a deal. It was listed for a few months and the listing agent gradually reduced the price until it sold. Why do you think the listing agent was lousy? It looks like he did what was necessarily to git er done?
bd | January 26th, 2008 at 8:17 pmRob Dawg said it here on November 9th, that the market has reached its inflection point…
Blushes, thanks. I’ll be here through the debacle, tip your waiter and try the veal…
Seriously, my concern has been a possible compression of the market. I haven’t seen it yet but I am genuinely concerned that there are 20k SD homeowners out there who have been quietly planning on listing "in the spring." I know "in the spring" doesn’t mean as much as it used to but these people bought in 1985 and 1992 when it did. They’ve got lots of new neighbors they hardly know and lots of their long time friends sent nice holiday cards from Portland and Boulder this Christmas. These same former neighbors sold in 4-10 days 1-2 years ago and the couple in question are thinking the same thing although they know the market is bad and they suspect they won’t be able to get all that much more than their friends got even though their house is nicer and in better shape. For many of the areas I am describing 1990 was the peak native born birth year peak. Dad is vested in the company that bought the company that bought his employer in the defense services industry. Mom teaches 7th grade but her school is closing because of falling attendance but she’s not interested in long inland commute to exert her seniority. And 1990? That was when their last child was born. She’s graduating and going to ASU.
Admit it. You know these people and I am speaking the truth. There is an incredibly low cost basis undercurrent of supply out there that might be looking to exit all at the same time.
Rob Dawg | January 26th, 2008 at 8:49 pmRob,
Keith | January 26th, 2008 at 10:58 pmI agree that the low cost base is out there because my parents are one of those households: two people in a 3000 sq ft house that they bought in 1973. Their house will never come on the market though because they have no reason to leave. The mortgage is dirt cheap (or paid) and the taxes are so low. Why move from southern California to Colorado?
Jim,
Is that Village Park house the same one that was listed for $499K-$5xxK? That was the first listing I saw there under $500K since around 2003, IIRC.
Agree that there is a very large group of people who would actually like to leave California (don’t like the traffic, crime, crowding, high costs, etc.) and use the money from their sale to buy in a cheaper place and add the remainder to their retirement. Many of them came to California for their jobs and would like to return home to their families, now that they’re retired.
Once these people sense that the past 6-7 years were an anomaly, and that their "equity" will probably not return in their lifetime, it’s very likely they’ll consider cashing out sooner than later.
CA renter | January 26th, 2008 at 11:32 pmKeith, two things. First, see I told you that everyone knew who I was talking about. 1/3rd of the houses in the US carry no mortgage. I don’t have the specifics for California handy. Doesn’t matter because there is my second point. We’ve all heard of Prop 13 right? How many know what Props 60 & 90 did to Prop 13? "Senior citizens*" aged 55 can transfer their existing tax basis to another property. [*Jim, can you believe that? Waaay tooo close for comfort.] That’s what may happen. Maybe not your parents but lots like them.
My concern is that old saying; "Don’t panic but if you do be sure you are the first to panic."
And we have to be even more careful. While I am somewhat "rooted" many my age or a little older are able to move. Successful 20 something professionals are hyper mobile. There’s a strong pull to cash out and buy that Bremerton Victorian or Charleston shotgun fixer and pocket a half mil that throws off $30k/yr besides.
Rob Dawg | January 27th, 2008 at 12:31 ambd,
Hang on, I said he has a lousy reputation
Just like many things in life, the perception is more important than the reality. He did do the right thing on lowering the price, but how much of that was due to other agents not wanting to deal with him? It’s a touchy area, but it is worth considering if you are thinking of selling.
If I was the listing agent and saw that the only offer was going to be $620,000, I would have lowered the list price to $659,000 for a few days first, before sending in a $620,000 – if for no other reason than just out of respect for the neighbors. He killed my clients’ chances of selling up the street.
Jim the Realtor | January 27th, 2008 at 12:57 amMoreover, Rob, the cost basis gives those folks a great deal of leeway to negotiate the price.
MS | January 27th, 2008 at 1:03 amMS, Great point, and very true. Tack that onto Rob’s point of many wanting to get out at the same time, and a rush to the exits could see big price drops with no notice.
Not a week goes by that I hear a potential seller tell me, "I wish I would have sold a couple of years ago."
I always have the same response – don’t being saying that again, a couple of years from now.
Joe Kennedy said, "Only the fool waits for top dollar".
Jim the Realtor | January 27th, 2008 at 1:06 am"Senior citizens*" aged 55 can transfer their existing tax basis to another property. [*Jim, can you believe that? Waaay tooo close for comfort.]
How did you know it was my birthday this week?
Jim the Realtor | January 27th, 2008 at 1:28 am"I mentioned to David that I had just run across a property that had 14 offers on it"
You forgot to mention the listing price was $315K for something that sees it’s closest comp at maybe around $400. (Exact same house around the corner, but with nice upgrades, is listed at $449K)
So, what’s your guess as to what will happen next? Will they actually sell to the highest bidder, or re-list the thing at $350K to see how much more they can get?
Noting how quickly they withdrew the listing, my guess is the latter. But I’d be delighted to be wrong – that would truly prove to me that the inflection point has been reached.
Simone | January 27th, 2008 at 3:29 amHow did you know it was my birthday this week?
Internet. Be afraid.
Happy birthday as long as the secret is out.
Anyway, the low cost basis flexibility goes without saying. It is the "rush to the exits could see big price drops with no notice" that honestly worries me. I don’t worry about a declining market but a chaotic market like we had on the way up is every bit as destructive on the way down. I’m giving notice that we are warned. I’ve been looking at and warning of what I’ve called a gap down. In slow markets sales prices are set on the margins just like in tight markets. It is entirely possible that we could see this spring nothing but bank dispositions and jumpers selling. Disorder does no one any good.
Rob Dawg | January 27th, 2008 at 4:37 amJim,
I think $620,000 for a "fixer" in our neighborhood is a lot to pay. I wouldn’t. The larger house a few doors down on Jasmine sold for $740,000 recently, as I am sure you know, and is approximately 2,400 square feet. It is in good shape, versus the less than 1,700 square feet fixer (so $345 fixer per s.f.vs. $308 per s.f. for a larger,nicer property). I don’t get the "be kind to the neighbors" comment (my quotes). People need to realize that things are worth what they are worth. Prices need to decline further, in my opinion. I am rooting for the younger, first time buyer who can make an honest down payment, and will actually work to pay off a fair mortgage over time (just like it used to be). I hope you get to represent a bunch of them in the next years. Who cares about your clients up the street! If they want to sell, let them lower their price to the fair market value:i.e., what someone is willing to pay. Or, let them stop whining, and be thankful for what they have. I am fed up with the "entitled" attitude, and that the house will provide for all our needs,now and forever.
John in Spinnaker Hill, Carlsbad
John | January 27th, 2008 at 5:10 amJim,
I meant to say "the less than 1,800 square feet fixer". Sorry.
John
John | January 27th, 2008 at 6:55 amRob Dawg,
I think you have a really good insight here. My wife and are in the mix of older, long time residents with no mortgage that have lived in the same neighborhood for years. Probably not this "spring", but maybe one "spring" not very far off. And not Boulder…way too "granola" for me. I didn’t even know about Props 60 and 90.
Thanks to you, Keith and Jim (and all) for the comments on this topic.
John in Carlsbad
John | January 27th, 2008 at 3:02 pmJohn, you took the words out of my mouth. I don’t see $620K for an old (mid-70′s from the looks of it!) home as a give-away price either.
Simone | January 27th, 2008 at 6:05 pmIt’s relative, isn’t it?
Seven of the ten sales in Spinnaker in 2007 were between $800,000 and $900,000, and another just closed this week for $1,100,000.
Jim the Realtor | January 27th, 2008 at 6:26 pmThen I guess the lousy agent didnt spoinl it for the guy that got $1.1M. I agree with John. A house is worth what it is worth. The house sold for 620 because that is all someone was willing to pay.
BD | January 27th, 2008 at 6:53 pmJim,
I don’t think the that the $1.1 million house on Daffodil is a fair comparison? My wife went up to visit an open house early on, and said the place was beautiful, with a really nice,true view (no power lines,etc.) at the very top of the hill. I think it is an awful lot to pay, but obviously some people put a large premium on view houses. I also don’t think that people should expect to get close to $800-$900K in 2008 for the average house in our neighborhood. That is just overpriced and unaffordable to most people that are attracted to it. But, who knows?
John | January 28th, 2008 at 2:46 pmJim,
I also meant to say that your Terramar listing on Los Robles for approximately $1.1M looks great from the photos on your website. It will be interesting to see what it sells for compared to the Daffodil house at $1.1M
John
John | January 28th, 2008 at 4:33 pmThanks John, offer is in on that one, we’ll see.
Jim the Realtor | January 28th, 2008 at 5:20 pmJust wanted to say Hello to everyone.
Sensbachtal | February 24th, 2008 at 5:56 pmMuch to read and learn here, I’m sure I will enjoy !