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Jim Klinge
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Posted by on Aug 15, 2012 in Forecasts, Market Conditions, North County Coastal, Sales and Price Check | 7 comments | Print Print

Dragging or Moving? Or Both?

Reader Susan commented,, asking a two-part question:

When you say “drag on for another 2-3 years minimum,” do you mean that it will take that long for foreclosure/shortsale inventory to clear out? Or do you mean it will take that long for prices to return to what they would be by now if the bubble had never happened?

I mean that it will take that long for the foreclosure/shortsale inventory to clear out – and maybe longer if banks and servicers feel the need to moderate the flow.

Prices aren’t being affected much around here by foreclosures and short sales:

1. There aren’t enough of them.

2. Those that do hit the open market, sell for retail price like everything else.

The “dragging on” of short sales refers to the fraud and abuse being perpetrated by realtors on the community.  If every short sale was exposed to the open market for all buyers to entertain, we’d have more inventory, and higher prices. Instead, we have realtors making off-market deals with friends at below-market pricing and raking in double commissions. 

If nothing is done, we’ll survive, but it will drag on – buyers get discouraged and the lower comps throttle any pricing momentum.  Thankfully, most of the NSDCC transactions are being sold by long-time residents/sellers with ample equity.

Second part of question:

 I have a condo that sold in 2002 for $129,000. In a normal market, it would be worth about $190,000 by now. Can I expect that in 2-3 years it will be?

Normal market? It sounds like normal to you means 4% to 5% per year appreciation.  If you are around NSDCC, you might be there already, or close.  If not coastal but still in San Diego, your value should be higher than $129,000 by now.

Those Fannie REO condos mentioned earlier that were being listed for at least 10% higher than comps have been selling – and getting multiple offers too.  The lower-end is so hot that prices have to be rising quickly, so yes, 2-3 years from now you should be fine.

$190,000?  Maybe, if you are figuring that you are already around $150,000 or so.



  1. It sounds like normal to you means 4% to 5% per year appreciation.

    There’s a new normal, and that isn’t it.


  2. If every short sale was exposed to the open market for all buyers to entertain, we’d have more inventory, and higher prices. Instead, we have realtors making off-market deals with friends at below-market pricing and raking in double commissions.

    Respectfully… I’m not confident what it would do to median, or average prices…

    But I believe normal owner-occupiers and average citizens would pay less. The “scamvestors” or “shortscamvestors” would be paying more; probably a LOT more by my cursory review. It might lift the market, but I’m not sure how much. There are mitigating factors including appraisal comps along with better buyer/seller ratios.

    Most important, though, is that it would level the playing field and bring transactions above-board… make them believable and trustworthy. RE in SoCal is so dirty right now. Probably on the level of Mexican Local Building Code Enforcement or equal third-world country traffic law application.



  3. Hello again Jim,

    Thank you so much for your detailed reply! I was surprised to see my question turned into a blog.

    I was indeed thinking in terms of 4-5% appreciation when I used the word “normal.” I believe that close to 4% is the historic rate for my zip code (92119). Unfortunately, while this would mean that my condo should be worth around $190,000 by now, foreclosures in my complex are selling for $85K and Zillow lists most units here at around $110K. This doesn’t seem to jive with the figures I’m reading re percentage price decline in my area (or, lately, appreciation), but that’s the way it is. We have a condo here that’s been sitting on the market for a month. It sold for $245,000 in 2005 and is listed at $109,000 (a price reduction of 20K in under 30 days–despite there being only 3 condos in 92119 listed at under $200K). If you have any thoughts on this, I would be interested in hearing them.




  4. Hmmm….that’s my listing!!

    It is one of the Fannie REOs that defied the comps and listed where asset managers thought it should be. Those last two sales were short sales – and fall in line with my previous comment about how they are throttling the price momentum.

    The last two sales were $79,000 and $85,000 of the same model on the same floor – and we listed for $129,900.

    Once we got down to $109,000, we had six offers – it sold over list price!

    Another fact of the realtor world – ethics drop with the price. Agents don’t really care about pushing for top dollar, they just want to hurry up and make their measly $1,000 or two.


  5. Susan, I think your point that the housing bubble collapse caused the market to overshoot to the downside relative to historic norms is probably true (although some bears think we are still 20-30% too high).

    As another data point, our house in 92103 is currently worth about 60-65% more than what it sold for in 1988. This works out to around a 2% annual appreciation rate over the last 24 years. The kicker is that interest rates in 1988 were over 10% and now they are 3.5%.

    Assuming that 2002 prices were as close to “normal” as 1988 prices were and assuming 2% appreciation per year your condo will be worth around 190k during the year 2022.


  6. Shrinking inventory and a shift toward short sales is causing analysts at Bank of America Merrill Lynch to dramatically revise their predictions of how high home prices will travel this year and next.

    After saying earlier in the year that national home prices in 2012 will rise just 0.5%, analysts at the bank now feel they will go as high as 2% this year. They also beefed up their 2013 forecast from 0.3% to 2%.

    The trajectory for the next several years changed little, however. BofAML forecasts cumulative appreciation of 44% over the next ten years.

    The revisions for 2012 and 2013 are a result of two national trends: inventory declining by more than analysts expected and a shift toward short sales as a means of liquidating delinquent loans.

    The slower flow of distressed homes to the market and less non-distressed inventory is resulting in the depressed inventory. And housing turnover has fallen to a historic low, particularly for turnovers not due to foreclosure. A reduction in turnover not only translates to less supply, it also curbs demand.

    “There are a few interrelated reasons for the exceptionally low rate of turnover. Most important is the health of the economy,” BofA analysts said. “With low-income growth and high unemployment, there are fewer “move-up” buyers and slower household formation.”


  7. Thanks again to everyone for your comments.

    So it sounds like JtR and pemeliza are saying the same thing: 44% growth over 10 years = 2% growth over about 20.

    Good to know that the unit listed at $109,000 received six offers and sold over listing. I saw it relisted on last night at 119,000–a flip perhaps? Or just an old page.

    Anyway, it still looks like a long drag up for me.





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