Saturday, March 28th, 2009 at 10:33 AM
Where Are Prices?
Are prices finding some traction?
We’ll examine it further, but first, here is the lightweight, vague answer - from sddt.com:
There might be a price bottom forming as first-time buyers and investors vie for homes on the lower end of the market, but it was up to debate whether it could last.
Seven local real estate experts met at The Daily Transcript offices Friday to discuss current issues in the housing market and talk about where home prices are headed.
San Diego County home resales have been up nearly 50 percent this year compared to 2008. The median price of both detached and attached homes have hovered around $340,000 and $200,000, respectively, for the past four months.
Participants said there is heavy competition for lower-end homes.
“It’s a great opportunity for first time buyers,” said Mark Goldman, professor of real estate at San Diego State University and certified mortgage planning specialist. “But the restrictions are getting so tough that first-time buyers can’t hop in and if they can, they’re being outbid for these buy investors — all cash.” Goldman said lending needs to pick up rather than money flowing out that comes from private investors paying cash.
With multiple bids coming in for less expensive homes, Norm Miller, director of real estate academic programs at University of San Diego, said a floor can be formed, regardless if the people buying are private individuals or investors.
However, the housing market could have further to fall depending on how the economy fares within the next year or so, said Alan Gin, professor of Economics from the University of San Diego. “It all comes down to: is the economy growing in terms of jobs? And right now it isn’t,” he said. “So that is the fundamental problem.”
Adding to problems in the housing market is the general lack of consumer confidence, coupled with uncertainty about the country’s economic future, said Gin.
Homebuilders like Guy Asaro, the president of McMillin Homes, face similar issues that are complicated with resale home prices so low that new homes cannot compete. “Everyone in the money world recognizes historic opportunity to buy property at below replacement cost,” he said. “Once this stuff is gone, it won’t be at this price ever again because we can’t replace it at this price whether it’s new or used.”
While the housing experts did not come to a specific conclusion about when or how home prices will increase in the future, Miller said it is important to note recovery does not come in the shape of a “V”.
“Anybody who tries to time it is nuts,” said Miller about trying to purchase a home at the bottom of the market. “If you get within three months or five months of the bottom you did great.”
Posted on Saturday, March 28th, 2009 at 10:33 AM in Thinking of Buying? | 41 Comments » | 
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Just looking at my local markets and reading blogs like this one and others for various local markets in Souther California you see the same pattern.
Massive demand on the low end, inventory running especially low in that segment. Almost all of the demand is hitting REO first, Short Sales second, normal sellers third. With the foreclosures moratoriums in place supply of the homes most in demand have dwindled a lot. REOs have some pricing power on the low end (temporarily?) but I don’t see them using it.
I think it is a combination of the ultra low rates and the housing credit combined with areas in So. Cal. with a ready pool of people who were waiting to buy (renters).
The big question is.. is this just a temporary phenomenon? Is the demand for the year being pulled forward, low rates, fatigued of bubble sitting, improved affordability and tax credit make this an attractive time but the pool of buyers could be X and most of X is buying at the first half of the year. We could see a decline in sales (YoY) going past July/August due lack of motivated supply. Buyers have zero extra purchasing power, it is defined by rates, incomes, housing prices and down payments. That is why there is such massive demand in such a narrow band.
Effective Demand | March 28th, 2009 at 11:01 amThere has always been a bottom (the price at which buyers will get back into the market). Just about everyone who would like to buy can tell you where that bottom is for them. All that sellers have to do to move their houses is price them there.
GeneK | March 28th, 2009 at 11:56 amIsn’t “Buy Now!” a form of market timing? People where i live would have lost $10k per month, every month for the last 3 years if they had purchased the median home. I don’t see anything imprudent in “losing out” on the best deal in exchange for knowing you aren’t getting a bad deal.
I just knew the “below replacement cost” argument was coming soon. Irrelevant. When in the last 8 years was value a criteria? now all of a sudden it needs revival? Not.
Rob Dawg | March 28th, 2009 at 12:25 pmI have seen increased traffic in all the new home developments, plus people making offers on new homes in the 600K+ range.
Builders are slowing down to release less homes, to keep the demand in line and keep pricing as high as possible. Yet, they are still throwing everything at you to get you to buy at their higher than average prices. They have told me that they will slow everything down until the market turns around.
Also, I heard there is a limit as to what a builder can offer in incentives and build into the price. Jim, do you know what that limit is as a % or sales price or is it a flat number? Is it a California or Federal lending law in the builder’s, preferred lender backed mortgages?
Blue Streak | March 28th, 2009 at 1:19 pmI’m not in the construction industry, but I don’t think the statement “Everyone in the money world recognizes historic opportunity to buy property at below replacement cost” is accurate.
If you take Rich’s data at face value, then prices in San Diego right now are fair: they are in line with historical averages.
Certainly, the trend is downward, and there’s plenty of historical evidence to suggest that prices will continue to go down.
The economy sucks. Anything related to construction is dirt cheap because everyone is idle. Lumber, sheetrock, raw land, etc. are all cheap. Could a competent builder that’s not saddled with legacy costs buy all that stuff now and build now a house profitably? If houses now are at fair value by historic measures, why does Guy Asaro think that homes are below replacement value? Perhaps it’s because his company bought land and paid for construction prices at the peak? Or because he’s just doing his share of company PR and spin control? Or is he just a idiot who was dropped on his head when he was a child?
It just doesn’t make any sense. If I had to choose between the statements “homes are below replacement value” and “Guy Asaro is a tool,” I’d definitely choose the latter.
greenlander | March 28th, 2009 at 1:25 pm(I mean to say “…is inaccurate” in my first sentence above.)
greenlander | March 28th, 2009 at 1:26 pmWhen every last REO, short sale and just plain “I wanna sell my house” home has been sold, the supply will be low enough that the cost of building “replacements” will become a factor. But there’s enough “stuff” available that it will probably be upwards of 10 years before it’s all “gone.” Until then, anyone who misses out on this month’s bargain REO will be able to “replace” it with one coming up next month that will have the same floorplan at the same or lower price.
So “replacement cost” really is a valid arguement, in the same way that it’s valid to argue that if you put a $100 in an IRA at 2% interest, it’ll grow to a useful retirement nestegg…in about 500 years.
GeneK | March 28th, 2009 at 1:35 pm“It’s a great opportunity for first time buyers,” said Mark Goldman, professor of real estate at San Diego State University and certified mortgage planning specialist. “But the restrictions are getting so tough that first-time buyers can’t hop in and if they can, they’re being outbid for these buy investors — all cash.” Goldman said lending needs to pick up rather than money flowing out that comes from private investors paying cash.
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If the government ever cared about getting homes into the hands of owner-occupiers, they would have eliminated the mortgage interest deduction and the cap gains exemption for investment properties (not 2/5 years, but continuous occupation of the home, and for no less than two or three years).
Interest rate gimmicks and toxic loans were never they way to create an “ownership society.” It was a guaranteed “foreclosure society” from the get-go.
In California, the first thing they should do is eliminate Prop 13 protection for investment properties. I would make an exemption for apartment buildings or rentals where the landlord agrees to rent control restrictions; that way, the tenant would receive the benefit of the subsidy instead of the LL — the argument people would use to advocate for Prop 13 for investments would claim that renters lose as LLs can keep rents lower because of Prop 13. In reality, landlords rarely keep rents low because of Prop 13, because they let rents float with the market, and they pocket the subsidy.
I am a staunch advocate of Prop 13 for primary residences because it’s never good to tax people out of their homes, and older residents should not be punished for the behavior of reckless speculators and the rise and fall of housing bubbles that are so common in California.
If property taxes floated for investment properties, it would help stabilize prices because taxes would rise during boom/bubble times, potentially putting more inventory on the market at exactly the time it’s needed, because the landlords’ margins would get squeezed during the boom times.
This way, LLs would win because they could sell at higher prices, and new buyers could win because they would see increased inventory and hopefully, a dampening effect on prices, exactly when it’s needed.
California desperately needs money right now. We should not subsidize landlords. IMHO, Prop 13 is the main reason we have such a high renter/owner ratio. Everything is really stacked against renters and young, first-time buyers.
CA renter | March 28th, 2009 at 1:43 pm“Certainly, the trend is downward, and there’s plenty of historical evidence to suggest that prices will continue to go down.”
After a crash, prices don’t just drop to “fair,” but sink below it. During the bubble, overconfidence convinced some people that things would never stop getting better; we are now in a “reverse bubble, where panic convinces some people that things will never stop getting worse. The one thing we can usually be certain of is that in the long run neither view will turn out to be correct.
GeneK | March 28th, 2009 at 1:45 pmIf you can buy something on the market, then replacement cost is, by definition, no more than market price.
P.S. Greenlander, I think you had it right the first time around. I don’t think that the quoted statement is accurate either.
NateTG | March 28th, 2009 at 1:45 pmThe San Diego Market (coastal) has so far been extremely stable in comparison to many other markets. Take a look at Phoenix, Las Vegas, South Florida and parts of Central California if you want to see unstable. Those who are on the sidelines waiting to buy a primary residence should be careful not to let the right property pass them by waiting for the bottom to come. It would take a perfect storm to time the exact bottom of the market with finding the RIGHT property and such low interest rates. I just don’t see it getting that bad here (coastal).
Bottom? | March 28th, 2009 at 2:02 pmToo many people have too much equity–sure their equity has shrank, but if they don’t absolutely need to sell then they won’t–just not that distressed of an area–my opinion.
That will destroy the commercial real estate market in California. Prop 13 was voted in and should stay. The govenrnment of California, until quite recently, was taking in more money than ever before. They already have enough revenue flowing in already, they just refuse to budjet it wisely. In fact, we should have a huge surplus on money reserved for these times. It is no different than a household, they too need to live within their means and maybe actually save. A first time buyer should buy soon, while the market is nice and low. 10 or 20 years from now, if they keep the property, they will have a low tax base-that is the idea.
Local Boy | March 28th, 2009 at 2:16 pmSorry – the above post was in reference to CA Renters post regarding Prop 13 being “unfair”
Local Boy | March 28th, 2009 at 2:17 pmCommercial real estate should follow the same tax policies as residential real estate. Otherwise, you’ll get odd distortions in zoning and building trends.
I have no problem with Prop 13 protection for commercial real estate, but think it should apply to one property per entity/person.
Agree with you 100% about California’s budget. The problem is that solving it would not be politically palatable. The majority of our budget goes to schools, prisons, and healthcare. All of these budgets are out-of-control largely because of illegal immigration. Solve that problem, and California’s budget would likely be fixed. Still, even with that, the state (and municipalities) spend very foolishly. There is no doubt about that.
CA renter | March 28th, 2009 at 2:25 pmThat builder talking about “below replacement costs” is talking his book. He’s hoping nobody notices the deflation occurring all around him.
It would take a perfect storm to time the exact bottom of the market with finding the RIGHT property and such low interest rates.
You don’t need to find the exact bottom, but there’s little sense in buying when prices — and all the factors that drive them — are still heading south.
Interest rates are irrelevant, too; the argument “buy now before rates rise” is as stupid as “buy now or be priced out forever”. Should rates jump housing prices will drop to compensate.
I just don’t see it getting that bad here (coastal).
They you’re in for a really big surprise.
tj and the bear | March 28th, 2009 at 2:48 pmAgree with you 100% about California’s budget. The problem is that solving it would not be politically palatable.
As California goes, so goes America. The system absolutely has to crash before it can be fixed.
tj and the bear | March 28th, 2009 at 2:52 pmYeah, the coastal market is really stable if you consider massive inventory and no sales to be signs of stability. Homes are consistently sitting on the market with no offers. Woohoo!
The value of replacement cost as a proper metric for home prices went out the window when developers built the next decade of inventory with no buyers in sight. Who cares what it costs to build? The market is totally oversaturated with excess homes now, so what it costs to build more is completely irrelevant.
Paul | March 28th, 2009 at 2:52 pmPaul: Are you talking about SD County? I didn’t see that much building taking place, but I could be wrong. We needed about 16,000 new homes last year to house the 40,000 additional influx of people to the county–did we add that many homes in the county? Did’t seem like it?
CA Renter: Agreed, the illegal ones have been draining the system pretty hard. I have heard that many are migrating back to their homeland due to lack of work–probably just temporarily.
Local Boy | March 28th, 2009 at 3:03 pmWhen I mentioned this week to a successful RSF agent that there weren’t many detached closings in Solana Beach last month (there were none) she said,
“But they’ve really held their value”.
Jim the Realtor | March 28th, 2009 at 3:10 pmLocal Boy, I’m just going off the top of my head, but how much housing was built between 2000 and 2005, seems like an absolute ton, though much of it was inland.
And I don’t know about the 40,000 additional people moving into the county each year (where does that number come from?). Does that continue with the economy, and particularly the high paying sectors of the economy, shrinking rapidly? The upper-middle class seems to be leaving, not moving in.
Paul | March 28th, 2009 at 3:14 pm“But they’ve really held their value”.
LOL! Yeah, that’s what happens where there’s no price discovery occurring.
tj and the bear | March 28th, 2009 at 3:18 pmGuy Asaro is just another moron in the housing industry making asinine comments in hopes that people will believe them, and will therefore come true. The only prices we won’t see again are peak bubble prices – just look at Jim’s Carmel Valley tour from a few posts ago (think that house will sell for $1.4 mil?)
Reality is coming soon to a neighborhood near you.
The Blur | March 28th, 2009 at 3:40 pmThe Blur,
It’s my expectation — and, I believe, that of several others here — that we’ll be lucky to stop anywhere near pre-bubble prices. The fundamentals underlying THAT market no longer exist and aren’t coming back.
tj and the bear | March 28th, 2009 at 4:02 pmPaul here is an article from the AP-ttp://ph.news.yahoo.com/ap/20090319/twl-metro-population-top25-1be00ca.html
With the affordabilty Index reaching an all time high in SD, I would expect migration into SD to continue–It is a great place to live and now has some nice affordable houses for people to buy (some areas). As far as the economy, some areas have been hit worse than SD some have done better than SD.
Local Boy | March 28th, 2009 at 4:16 pmhttp://ph.news.yahoo.com/ap/20090319/twl-metro-population-top25-1be00ca.html
Sorry it didn’t post – Here it is again.
Local Boy | March 28th, 2009 at 4:17 pmLocal Boy,
That data’s already 9 months old, most of it prior to the economy tanking. Can’t drive safely staring into the rear view mirror.
Otherwise, I would agree that SD is a great place, as I’m hoping to get there someday myself. Meanwhile I’m content to weekend there as often as possible.
tj and the bear | March 28th, 2009 at 4:44 pmTJ – The article was published by the AP 10 days ago and the statistics are the most current available. If you can find data that shows different feel free to post it. The fact is that there has been a shift from a net outflow to a net inflow of people. People are once again moving into San Diego County. With the affordability index at a near record high level, I would expect that trent to continue and to pick-up speed.
Local Boy | March 28th, 2009 at 5:03 pmFrom the article:
Population estimates for the 25 metropolitan areas with the largest increase from July 1, 2007 to July 1, 2008:
That makes it old news, and the trend can easily have reversed since then given subsequent events.
Furthermore, as I’ve noted previously, the affordability index is a sign of market weakness, not strength, just like interest rates.
tj and the bear | March 28th, 2009 at 5:27 pmTJ–Show me some more recent population figures or even forcasts. While you are at it educate me on how interests rates are somehow related to market strength–include some past examples. I can think of many times rates were high during strong real estate market, and I can think of times (like recently) when rates were low during strong market activity–I see no correlation whatever.
Local Boy | March 28th, 2009 at 5:51 pmShould have sated “strength/weakness.”
Local Boy | March 28th, 2009 at 5:52 pmHousing has definitely gotten more affordable (and then there’s the “affordability index” which just tells you interest rates are low), but it’s strange to think 40,000 more people would move in to the county when the economy has shed almost exactly the same number of jobs in the last year. Forty thousand more people and forty thousand less jobs. Strange.
Paul | March 28th, 2009 at 5:54 pmwe may disagree with Guy Asaro’s recent statement, but this guy did put his money where his mouth is and scored a beautiful 5400 sqft model home fully loaded with a pool for $191/sqft.
ocrenter | March 28th, 2009 at 6:20 pm“It would take a perfect storm to time the exact bottom of the market with finding the RIGHT property and such low interest rates. I just don’t see it getting that bad here (coastal).”
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My guess is that it will get worse than you can possibly imagine. I heard all the standard buzzword arguments during the early 90′s recession regarding coastal real estate – “established neighborhoods”, “long-time owners with equity”, “everyone wants to live there”, “bulletproof”, “it’s like GOLD” etc etc. Then I watched equity evaporate and values drop just like everywhere else.
Of course the well-to-do La Jollans will be fine, though. They are immune, what with their fat portfolios being managed by Madoff, Inc. and their blossoming diversified real estate holdings in other solid markets in Arizona, Nevada, Florida and New York. They have nothing to worry about. Until their neighbor on Hillside Dr. sells the $3 million home he bought in ’05 for $1.7, and then they try and redeem some dough from Madoff. Uh oh.
So I am adding drama here, of course, but you get the point.
RSS | March 28th, 2009 at 6:23 pmShow me some more recent population figures
I don’t have any, but that’s beside the point. You’re extrapolating on old data despite obviously changed circumstances. For example, the S&P was at 1280 on July 1st, 2008, too. That doesn’t tell us anything about where it’s gone since.
I can think of many times rates were high during strong real estate market
Sorry, should have been more specific. I was saying that long rates are generally indicative of the strength of the overall economy, not housing in particular.
tj and the bear | March 28th, 2009 at 6:36 pmTo all the bottom-callers: if there’s any sign we’ve hit bottom in North County coastal, please show it to me. Every sale seems to cut local comps another 5-10%. If someone gets a “great” deal at $X/ft, the next house in the neighborhood will go for $X-10/ft. More volume doesn’t mean a stabilizing market, it means accelerating price drops.
And as a “p.s.” to mister Asaro: trying to get within 3-5 months of the bottom, IS timing the market. This is real estate, not stocks.
The Blur | March 28th, 2009 at 6:55 pmMish:
http://globaleconomicanalysis.blogspot.com/2009/03/california-association-of-realtors-car.html
San Diego county down 48% / 301K in 33 months, so far…
tj and the bear | March 28th, 2009 at 8:42 pmBought at the peak in 2006 and I’m only down 11% from purchase price – yahoo! That is until the next comp – boohoo!
3clicks from da Beach | March 28th, 2009 at 9:42 pmJim,
Just caught the latest video; shaking my head too.
tj and the bear | March 28th, 2009 at 10:25 pmtj,
Hang on, that video goes with my next post. Did you just scoop me, or did I scoop myself?
Jim the Realtor | March 28th, 2009 at 10:30 pmIt’s a “fool’s rally.” Job loss effects show this Summer. Federal irresponsibility (i.e., taxes/inflation) effects show this Winter.
I’m a big fan of NAR’s “buy, buy, buy” and pundit bottom calling. Likewise, talking replacement cost on crap houses that never should of been built in the first place or have wholly depreciated at the natural 27.5 yr rate or accelerated depreciation through abuse.
It all translates to less competition in 2010 at prices that make 2008 and 2009 look like good years.
Mike_S | March 29th, 2009 at 7:46 amJust to tag on the end of this debate about net migration:
http://www3.signonsandiego.com/stories/2008/dec/19/1n19migrate062949-sd-county-bucks-trend-15-populat/
NOTE: “The net domestic migration rose 3,032, compared with a decline of 3,373 the year before.”
That means only a net of 3,032 people moved here over moving out.
The county itself grew 46,634 – I would have to assume that means a lot of brand new babies, none of whom are going to be buying houses any time soon, along with the “continued influx of international migrants” (chuckle), who are most likely not in a position to buy a house.
Bottom line: there’s been a steady migration of people out of the county (most likely due to housing), and they’re being replaced with babies and illegal immigrants. I don’t see where the positive is in that?
PS – Let’s not start another screed on illegal immigration either.
Big E | March 30th, 2009 at 12:56 pm