Friday, December 26th, 2008 at 10:44 AM
Market Improvement?
Fortune Magazine published their list of the 10 worst real estate markets for 2009, and San Diego was ranked #8.
http://money.cnn.com/galleries/2008/fortune/0812/gallery.worst_markets.fortune/8.html
Their sources were Moody’s Economy.com and N.A.R., so take it with a grain of salt.
In fact, take ALL prognostications with a grain of salt.
Today’s buyers are so discerning that they are buying only if they find a great house at a great price, and you can’t blame them. But if we saw a trend of closed sales that demonstrated ONLY ONE of those two, it could be a sign that the market is heating up.
In other words, if you saw a bunch of inferior homes close escrow, then you can figure that pressure might be building on the buyer side of the equation.
So keep an eye out for those quirky properties selling. If there is ever going to be some market stability, that’s one place where you could see it beginning.
Here’s an example of one that went pending this week, after 191 days on the market. It is 2,091sf listed on the range $718,888 to $748,888 (original list price $768,888):
You could say that selecting this property was cherry-picking, and of course it hasn’t closed yet either. Another house was mentioned in the beginning of the video on Sago in Carlsbad that has already fallen out of escrow, so we won’t belive it until we see ‘em closed.
If you are looking for a sign that the market might be improving, keep an eye on the eventual closed sales prices on those that seem like the ‘lucky pendings’. Later I’ll submit a host of others that went pending in the last 7-10 days that may leave you shaking your head.
How about sales in general?
There were more SD detached closed sales between 12/1 and 12/15 this year compared to 2007, but you can guess that it’s only those properties that are being given away that are closing:
| Year | # of closings | DOM | $$/sf |
| 1999 | 77 | $157 | |
| 2000 | 50 | $186 | |
| 2001 | 50 | $197 | |
| 2002 | 38 | $243 | |
| 2003 | 37 | $287 | |
| 2004 | 50 | $348 | |
| 2005 | 56 | $358 | |
| 2006 | 70 | $352 | |
| 2007 | 70 | $304 | |
| 2008 | 59 | $224/sf (-26% YOY) |
Could the local real estate market heat up in 2009, in spite of the prognosticators? Common sense would say, “Not a chance”, but let’s keep our eyes and ears on the lookout, and see what happens.
Here are other indicators of a market that’s heating up (or not):
1. New listings going pending in the first three days of listing.
2. Properties going pending that have been on the market for a long time (4+ months), and closing.
3. Sales closing at or above list price (but check for possible seller credits).
There are a lot of uncertainties out there, so none of the indicators matters much until it’s a closed escrow.
Posted on Friday, December 26th, 2008 at 10:44 AM in Forecasts | 22 Comments » | 
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“Slight upgrade from cardboard.”
BWAHAHAHA
Tyrone | December 26th, 2008 at 11:39 amJim, I noticed a lot of late year activity in most of the areas I’m tracking. Seems odd. Do you think it has anything to do with the conforming limit changing to 546k after the first of the year? The gap between government backed loans and jumbo non-conforming is huge.
I guess the most likely explanation is the big rate drops.
pemeliza | December 26th, 2008 at 11:40 amWow, that street noise sounds just like the ocean. No wonder they want 7+.
Downturn | December 26th, 2008 at 11:43 amI think that we will take a new downturn next year when the true weight of the economic collapse in spending affects jobs, psyches and everyday life in general.
We also have all these foreclosure “moratorium” programs that have been artificially keeping inventory off the market. This will change next year.
dukes | December 26th, 2008 at 11:55 amMakes no sense…who’s buying that if you can buy brand new, larger, for less:
http://kbhomes.com/Community.aspx?CommID=00400184
I guess we’ll see what it closes at. Of course, the community above is probably laden with HOA/Mello-Roos fees, but still…
lgs | December 26th, 2008 at 11:58 amNow that the Christmas shopping season has been recognized as an unqualified disaster, the fat lady has officially sung. The following trends appear to be near-certain for next year:
1-unemployment is going up, probably a lot.
2-state taxes/fees will increase and services will decrease dramatically. CA makes GM look well-run.
3-”exotic” financing (esp. for jumbo) will be a memory to all but the most qualified buyers (unless loan-shark interest is paid).
4-Once we are done with the Obama christening, the Bush tax cuts will die out (and there goes even more disposable income, esp. for high income types).
I could go on with stock market projections, bankruptcies, etc. but there is no need. So I have to ask myself, how in the world can anyone be willing to part with 3-400+ per sq. ft. when there is all this significant potential downside? I can only conclude that money is no object for those current RE buyers.
Dr. Detroit | December 26th, 2008 at 2:16 pmI know you said it but it bears repeating; I’ll believe it when it closes. What bank is going to approve a $/sf number 30% above comps?
Nice middle class move up home for an ambitious family willing to put in some sweat equity. But seven sumptin? NFW.
Rob Dawg | December 26th, 2008 at 2:27 pmMy favorite analogy for the housing market: A ball bouncing down the steps. Sure, it may bounce up now and then, but the next step is lower than the current one.
sdduuuude | December 26th, 2008 at 2:54 pmThere seems to be this undercurrent of “hurry up, you may miss the low prices!!!” This is of course what realtors usually try to get people to believe. One of the things that makes Jim the Realtor one of the most endangered species on the planet is that he is seldom spinning. What evidence do we have that housing prices “bounce back?” As one economist put it, “housing does not bounce, it goes spat … and then stays there.” If there is a market that can be timed, and in which there is no need to rush in, it is housing.
Rational expectations | December 26th, 2008 at 3:00 pmJim,
Do you know what the pending price is? Reason I’m asking is, a seller in our neighborhood just closed last week. He started at 675k four months ago, lowered the price twice ending up at $620k. The place closed at 580k. That’s a pretty good drop from $620k. (nearly 15% from the starting price). It was a nice home, too. Maybe something similar happened with this seller?
This is in Carlsbad – 92011 zip code.
KC | December 26th, 2008 at 5:01 pmCould be, but with hardly a price change and a eating a loan payment of only $1,400 per month, they probably held out on price.
They’ll think – ‘as long as we came this far…might as well’.
But if they had external motivators, who knows?
Jim the Realtor | December 26th, 2008 at 5:44 pm“As one economist put it, housing does not bounce, it goes spat and then stays there.”
I’m imagining something more like what happens when you drop a ball. Instead of splatting in a way that everyone can see is the bottom, it’s going to bounce a bunch of times, but as it continues to lose energy each bounce will be a little smaller than the one before it. We’ll be seeing one prediction of recovery after another fall flat before everyone finally realizes it’s over for good.
GeneK | December 26th, 2008 at 6:19 pmWe’ll be seeing one prediction of recovery after another fall flat before everyone finally realizes it’s over for good.
Yeah, with treasury officials standing around in back alleys of Wall Street trying to give money away to any breathing banker, we will get back to the old nominal prices eventually. But I wonder if we will ever get back to the same point on the graph if you look at, say, median house prices divided by median income.
Wikipedia claims that in 1637, “tulip contracts sold for more than 20 times the annual income of a skilled craftsman.” That was over 350 years ago and prices have not reached that point again. Wonder if it will take SoCal housing as long.
Dwip | December 26th, 2008 at 9:36 pmI think #3 (houses selling higher than list) is one good indicator. Whereas people buying inferior homes may just be an indication that buyers are cautious or unambitious, rather than them caving in. Or really good bargains on must sells (relative to the market).
My friends who recently bought took a fixer upper short sale, because that was all they could safely afford. They could have bought more, but only if they applied bubble logic of “buy as much as you possibly can”. Or, they could have bought a pristine condo rather than a fixer house.
I think if inferior houses are being closed, it says more about the types of buyers and their ambitions than the market. For my friends who bought, this was simply the first chance they had to get a home at all (last year they were priced out).
BDiego | December 26th, 2008 at 10:12 pmPut another way, what I’ve seen recently in top quality homes is they’ll sometimes have a bidding war, but way below list price. For example a $600K listed house (already down $120K from bubble peak), another friend got outbid when they offered $570K. The higher bidder was $574K, and they overpaid. I’m waiting for another similar unit to drop to $540K (about 2002/2003 prices).
BDiego | December 26th, 2008 at 10:15 pmMany good comments here.
I also think we will see **many** bounces as we go down, especially when the PTB are throwing everything they’ve got at the housing market. They’ve literally said that one of their main goals was to maintain bubble prices in the housing market.
At some point, someone with a few more brain cells is going to come to power in the Fed and/or Treasury, and they will understand that you cannot have a **healthy, sustainable** housing boom without a very strong job market.
Also, since the Christmas/end-of-year shopping season is coming to a close, I believe we will begin to see some serious lay-offs coming in all sectors…and this includes govt jobs. Pay cuts, reduced benefits and job losses are in the future, and I don’t think that will bode well for the housing market.
It’s also likely we’ll see another stock market correction as Obama-mania runs out of steam.
OTOH, the one thing going for the housing market is the frail dollar. Even I am looking at housing as a possible hedge against a dollar collapse. Couple this with artificially suppressed, ultra-low interest rates, and there is a compelling reason for the inflationistas to buy.
Just MHO.
CA renter | December 26th, 2008 at 10:48 pmFundamentals.
Does the buyer have a down payment?
Is it the right payment ratio?
Can they get a loan?
Bear in mind, the last thirty years has seen the pool of buyers with the legitimate ability to finance a home grow smaller and smaller. Now that money isn’t free any longer and you have to fall back on that pool, who is going to jump in? And don’t forget, the vast majority of that income group already own a home or two. After taking a bath in the stock market this fall and with a home whose value likely at least 20% lower than it was two years, how enthusiastic do you think these people to go out and buy something else?
So are you bringing back free money again?
Something has to change before we’re even close to the bottom. A few knife catchers doing their thing over the holidays means very, very little.
ice weasel | December 27th, 2008 at 5:46 amMy favorite analogy for the housing market: A ball bouncing down the steps. Sure, it may bounce up now and then, but the next step is lower than the current one.
Who walks the stair without a care
It shoots so high in the sky.
Bounce up and down just like a clown.
Everyone knows its Slinky.
The best present yet to give or get
The kids will all want to try.
The hit of the day when you’re ready to play
Everyone knows it’s Slinky.
It’s Slinky, It’s Slinky
Rob Dawg | December 27th, 2008 at 7:18 amfor fun it’s the best of the toys
It’s Slinky, It’s Slinky
the favorite of girls and boys.
A lot of us have been sitting on the sidelines, waiting to buy again. Rental houses aren’t all they are cracked up to be, let me tell you.
We pulled the trigger, closing on January 28th. We got the sellers to come down almost $250K below their original asking price – was it low enough? I don’t know. But we can afford the payments (we’re putting 30% down and we got a 5.5% fixed super-jumbo loan) and we’re going to enjoy living there way more than we like living in this crappy rental.
I can’t imagine we’re the only ones making that decision right now. You can go into this with the idea that you’ll wait for years, but it gets old quickly.
Hibiscus | December 27th, 2008 at 8:51 amAs CA renter pointed out, what the incoming administration will do with monetary policy is a key point. Let’s face it, the dems have been in the forefront of the fight to maintain bubble pricing. Since most people in this country have little grasp of economics, one viable way you could maintain housing prices is simply to let inflation heat up. Housing prices would rebound more quickly, and it would help all those people who bought houses over their means. It would help the federal debt payments as well. Inflation is good for debtors, and we are a debt-addicted nation.
Interestingly, this “inflate your way out of debt” idea would have worked better back when the U.S. was the lone economic superpower. Now with China holding so much of our debt, options along those lines are limited. How many people think the possibility of China going ballistic if Freddie/Fannie defaulted on their debt had nothing to do with the US gov’t decision to bail out those entities? It would be an ironic commentary on the state of our society if pressure from China and other foreign debtholders ended up encouraging us to take the bitter economic medicine that we really should.
Dwip | December 27th, 2008 at 10:55 am“Wikipedia claims that in 1637, “tulip contracts sold for more than 20 times the annual income of a skilled craftsman.” That was over 350 years ago and prices have not reached that point again. Wonder if it will take SoCal housing as long.”
Peak prices for tulips in the 1600′s were as much as 100X what they finally ended up at. The housing bubble would have had to balloon the average SoCal home to $20,000,000 to match that, and if it had it would require a lot more than 350 years to reach that point again, if ever
GeneK | December 27th, 2008 at 11:05 amSold, 710K.
Glasses | February 17th, 2009 at 4:26 pm