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I’m ticked – for the last hour I’ve been trying to get the talk radio format to work, with no luck. We’ll call it ‘technical difficulties’ on their end.

We’ll schedule again soon!

But I’m here at my post, ready to go, so I’ll take your question right here on the blog – leave a comment or email me at jim@jimklinge.com

The first question:

Q. “Don’t you think that the relative un-affordability of SD homes for the common man is the biggest problem we face, and why prices have to come down?

A. Thanks for lobbing me an easy one to start with!  I’ve said before that the median-income statistic isn’t that applicable, because we don’t need every SD citizen to buy a house this year.  What matters is the income and down payments of the buyers, and if recent history is an example, we only need about 2,000 to 2,500 detached sales per month to survive.

The number of cash buyers, and those with big down payments, is very impressive – and are driving the market.  First-time homebuyers with low down payments need to be very aggressive in beating out the big-money offers, and it’s a cause for high bids.  I inputted a listing on Friday morning for $364,900 and it went into escrow for $400,000 after four offers to someone with 30% down.  After you lose a few bidding wars, people get serious, and this frenzy has broken out in Oceanside in the under-$200,000 SFR market, the market for newer Oceanside tract homes under $180/sf, and in Vista’s Shadowridge area for any newer decent SFR under $400,000.

Q. I’ve been hearing rumors that the 30year fixed will gradually be replaced by 40-year fixed.  The argument is that this will lower monthly payments, making it more attractive to potential buyers even though over the long run they end up paying a lot more interest.  This is seen as a method of “raising” house prices even if income levels don’t go up.

Is there any basis to this rumor?  Have you heard it?  When did 30-year fixed mortgages start anyway?  Whats magic about 30?

A.  You have been able to get a 40-year ARM from Downey Savings (among others) for years, and I do think it will be an option for lenders to consider.  I haven’t heard of any rumors of prime, A-credit fixed rate mortgages being offered over 40 years, and the change would probably come from Fannie and Freddie being willing to buy them.

I don’t know how the 30-year loan came about, but at this point the market will be determined by whatever secondary market the government sets up.  Probably a combination of both Fannie/Freddie and FHA will keep the under-$500,000 market fluid.  The jumbo market is subject to stalls and and mis-fires from now on.

We talked today about the super-conforming limit of $697,500.  Because the conforming limit is tied to the local median sales price, the limit should go DOWN next year, as low as in the $500,000s.  There are already wholesale lenders who are stating that they won’t be taking any super-conforming loans after December 1st.

I think the government will find a way to suspend the required change, they did last year when it came time to lower the $417,000 limit.

Q. Going to the Alt-A reset stats you cited from the CAR study, they show about 44% resets in the 2010+ category.  What are your views on that?  Is that all 44% resetting together in 2010, or does that dribble out over the following years slowly enough that it won’t distort the foreclosure/short-sale market?

A.  It looks like a solid run through 2011, and I think there is a trailing year’s worth of agony while homeowners try to hold on, and hope for a loan modification.  I still haven’t seen or heard of a successful loan mod, and I know of three different cases where the lender foreclosed on the property in the middle of loan-mod negotiations.

The unpredictable part of forecasting is trying to guess how many underwater homeowners will walk, even though they might be able to afford to stay, especially if they could get am easy loan modification.  I don’t think many people will go a long way to get a loan mod, the banks better be pro-active or forget it.

Here is the latest chart I have:

 

 

 

 

 

 

 

 

 

 

 

Q. Do you see any non-REO sellers that are capitulating as a result of Wall St turmoil ? Would you expect them (or advise them) to take any offer they can get right now knowing most people’s net worth took a haircut this month ?

A.  I just saw Davidson the builder agree to sell a new house at less than $175/sf, so they are getting the message.  Remember the guy that Simone mentioned had been on the market for 557 days?  I called the guy, and he told me he decided to take his home off the market that day, because prices were “ridiculously low”.  He paid $650,000 in July, 2004, and had been listed for $629,000.

I have only my second non-REO listing of the last six months coming up next month.  The seller opted to do a thorough remodel before going on the open market, in order to help substantiate our value.  Fixing up an older house increases your chances of getting top dollar, but if it doesn’t sell in the first week or two, I’ll tell sellers to lower early and often.

Q. What’s the biggest hurdle for your buyers?

A.  It is a struggle to find any decent houses for a good price.  The internet has destoyed your ability to find a hot buy that nobody else knows about, thus, any good buy gets plenty of attention. 

Two real problems:

1. There are less-informed buyers that keep buying at prices that are higher then we think make sense.

2. The busy REO agents don’t care about doing you any favors, so they’ll let your offer sit around until others come in to bid it up.

The battlefield is strewn with weary buyers, many with regrets about ones that got away.  Thankfully there will be more, but it’s hard to keep focused and discplined for months and years.

Q.  What did you do today?

A.  I spent a lot of the afternoon with lgs, a guy who has been looking for at least a year for a quality buy for a primary residence. We’ve looked high and low, much of which was done by lgs searching for homes on the internet.

I encourage people to use the internet as a great resource to gain knowledge and expertise about homes in your area of interest.  Knowing your market will pay off when the good buys come up – you recognize them faster. 

I only see lgs every couple of months once the list is long enough – he’s looking in Santee, El Cajon, and La Mesa.  We surveyed about 12-14 homes today, most bank-owned and priced to sit – we even saw a couple of homes that we had offered on months ago, now listed at or below our offered price.

The agents aren’t much help – they avoid human contact at all costs, and offers go unanswered.  Let me say that again – offers go unanswered, meaning we have seen offers in and received no response.  I call, I email, I fax, nothing back.  That’s what it is like trying to buy a house these days.

Here is a photo I took of 4,000sf homes built on top of the hill in Santee, with the full panoramic view as far as you can see - including to Mexico:

 

 

 

 

 

 

 

 

 

 

There is a whole street of these sitting there vacant, but apparently not for sale.

Not sure what the price is of these pure west-facing homes, but the last two sales with easterly views were:

$890,000 for 4,620sf on 8/22, and

$855,000 for 4,177sf on 8/27.

We agreed that if you could get the westerly-view houses for the same price it would be attractive.  The west-view homes aren’t for sale currently, and not sure what Standard Pacific is waiting for, unless it’s the same old “for the market to come back”.

On the easterly-view side they have two of their 4,908sf houses listed for $800,000 and $880,000.  For people who need 4,908sf and want to buy new at $163/sf with a big hilltop view, it’s one of the better buys in the county.  But you have to live in Santee.

Q.  What is happening in Carmel Valley?

A.  Still not much sign of sellers or agents caving on price. 

Because the mortgage market was in complete upheaval a year ago, let’s compare September 2008 to September 2006:

2006 – 47 sales averaged $370/sf and 62 days on market.

2008 – 44 sales averaged $344/sf and 63 days on market.

Only a 7% decline in pricing, which is relatively tame compared to all other zips in SD, but still noteworthy.  I hear some awakening in the agents’ voices now, and that’s where it needs to start. 

If you check the 3rd quarter stats, you see it’s been cooking, but slowing down lately with September being so similar to 2006 stats (see above). 

Third-quarter comparison below:

2006 – 158 sales averaged $384/sf and 61 days on market

2008 – 175 sales averaged $370/sf and 50 days on the market

Same 7% drop in average $/sf but sales were higher this year than back in 2006 when money was free and easy.

Q.  Is there easy-qual financing available?

A.  Yes, you can get a conforming $417,000 first and a $416,000 second for a total of $833,000 in financing, on the papersaver (no income, no asset) with 25% down payment and high FICOs.  May not last much longer though.

Q. How are the different zip codes doing on the Ratio of Rent Price to Rental Costs of similar homes?

A.  That covers a lot of ground.  I’ll give you a specific example because telling stories can make the point better.

We’ve been examining the beachy-vacation-rental potential.  It didn’t take long to notice that over the last few months places like Mission Beach are a virtual ghost town compared to recent years. We decided to use projected rents at half of what we were expecting, to hopefully play it safe.  But we also noted that we’re guessing that it’s low enough.

I think the days of Carlsbad-type tract houses renting for $2+ per square foot are done, due to the slowing economy and people wanting to hunker down.

Q. What do you think the story is behind the non-responsive REO listing agents?

Are they only presenting offers above X dollars and otherwise don’t respond?

Could they be “bogarting” choice properties for themselves or select clients to fraudulently shape lender perception of the offers coming in?

A.  I think, that they think, that they are overwhelmed. 

How about the listing agent who emails me back to say they don’t take offers submitted by email, they have to be faxed. So I fax, but no answer, then the next day they email back saying to upload the offer to a separate website.

They don’t care about me or you, or being good agents.  More and more they are hiding behind the internet and email, just wanting to avoid human contact at all costs.  Bad sign for a people-business.

I do think that there are many offers not being presented. 

 

Thanks everyone!!

Posted on Thursday, October 16th, 2008 at 8:21 PM in Blog Talk Radio | 9 Comments » |  Print You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.