Meet the new boss, same as the old boss.

While Jim the Realtor is on a well deserved and long overdue break he has foolishly handed the helm over to me.  Rob Dawg.  

When last we did this it was a different world.  Think back to the halcyon days of 2007.  A bucolic time when people were still discussing “if” there was a bubble and anyone predicting 10% declines was checked for drug abuse.  We certainly have mostly burned off the excesses in normal residential housing.  It still remains to see if the high end will join the rest.  I’ve loved reading JtR getting an education about San Diego and lots of laughs in the process.  

So, today’s question:  Are there any more shoes to drop on Southern California?  And please, not the old earthquake meme.  

Do they include every repeat sale they find, or just the recent ones?

Because the long-time owners, ones who paid $33,000 in the 1960s, and are now selling for $700,000, could really skew the index.  Thankfully, the folks at CSI have published their methodology:

http://www2.standardandpoors.com/spf/pdf/index/SP_CS_Home_Price_Indices_Methodology_Web.pdf

They exclude properties that were resold within six months, though the REOs being held longer than 6 months are going to be included.  The “purchase price” recorded by the banks at the trustee sale, in almost all cases, will be quite a bit higher than the final sales price – their purchase price was based on appraisals almost a year prior to the eventaul REO sale.

The CSI also excludes those sales which they can’t find a previous purchase price, which will eliminate many of the long-time owners, and they also exclude new homes that were resold too.

The CSI also assigns ‘weights’ based on time between sales, but they said that 85% to 90% are unweighted.  If they are downweighting the older ’sales pairs’, there has to be some extra emphasis in the index on the more recent pairs. 

Wouldn’t that make the index somewhat biased to the negative?

“When will the Case-Shiller index hit bottom?”

Other panelists politely side-stepped the question, so I took the plunge.  My last prediction was the infamous coffee bet from September, 2006, where I guessed that superior properties would hold up better, sliding only 10% in value, and inferior properties would get hammered 40% to 50% in value.  The jury is still out on how far off that prediction will be.

Last night I said that the Case-Shiller index would bottom in December, 2011, and be 25% lower than it is today.

Today’s index is 148.25, about what it was in August, 2002.

Knock 25% off and it’ll be 111.19, or about what it was in February, 2001.

The highest reading was 250.34 in November, 2005, so the 111.19 reflects a 56% decline.

I don’t like making formal predictions, let alone ones off-the-cuff.  What was going through my head in the 2-3 minutes preceding my statement?

Oceanside is the test case.  The market has worked perfectly in Oceanside, and properties in any condition, and in any location, that are priced at 50% to 60% off are flying off the shelf.

Will the rest of San Diego County need to hit 50% off to reach bottom? 

I don’t think so, but we’re talking about the Case-Shiller index.

If Oceanside is the example of what to expect elsewhere, then we’ll see a marketplace dominated by bank-involved sales.  Instead of ’giving their house away’, individual homeowners who are comfortable will find other alternative to selling, and the vast majority of the homes selling will be those that the homeowners can’t afford anymore.

It could cause sales to shrink in older neighborhoods, which could have a stabilizing affect on pricing.  The neighborhoods I mentioned in the coffee bet are holding fairly well, though Davidson’s La Costa Oaks has a couple of short sales in the works.

The index measures the decline between the last two sales prices of the same house.  

If the older neighborhoods have fewer sales, then the number of REO and short sales of homes built in 2004-2006 will probably be the determining factor of the Case-Shiller index. The newer McMansions loaded with HOA fees and Mello-Roos are in everybody cross-hairs, and it’s likely that we’ll see further price erosion for the next couple of years.

But the banks are squeezing the REOs out little by little, dragging out the inevitable.  That’ll continue for another 3-4 years at least, but, just like in Oceanside today, there should be over-shoot, so by December 2011 the index might hit bottom.

There are enough buyers patiently waiting for the higher-end homes to drop, and the second half of equasion is how much lower will prices have to go to get them to step up.  I think there is enough enthusiasm, plus the tempting low rates, that many buyers would be buy a home today if they could just find decent ones at 5% to 10% off.  Because the Case-Shiller will be loaded up with bank-involved properties that were purchased in 2004-2006, I think it’ll read worse than it is, but that might be too optimistic.

That’s my justification of a wild guess last night, but who knows?

The Case-Shiller index has been going down 4-5 points per month lately.  It only has to drop 37 points to be 25% less than it is today, so conceivably at this rate we could have a 25% decline in the index by early next year.

I’ll stick with the 25%, when it happens…..?

Here is a youtube of Rich answering the question, “What indicators do you watch?”

http://www.youtube.com/watch?v=gSkzEXpM8JM

And a photo of the after-party, where voiceofsandiego.org staffers carried on all night – what a bunch of partiers!

The number of sales have been low, and data scattered in both areas.

Here are the same-house sales in Starboard, listed in chronological order of their resale date, with the only three 2008 sales in bold:

The second REO sale had listed for $849,000, and the agent already had the buyer standing by at $900,000 – it went pending the first day, and could have sold for more.

There is an active short-sale listing of a 3,743sf plan, listed on the range $949,000 to $1,049,000, and a PENDING 4,398sf plan, listed for $1,549,000 to $1,649,000.

I think this is going to be typical in the prime areas from now on – lower short-sale or REO listings closing under the trend, interspersed with primo listings going for top dollar. The future sales depend on how many homeowners can’t hang on – about half of them had equity in the 0-20% range.

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Terramar has been beating the odds.

In May of this year, there were three different 1,500sf houses sell in the $800,000s on El Arbol and Los Robles, similar to sales in 2005.

There have been two shockers lately too.

The nutty 1,399sf house with a studio over the garage on the non-oceanfront side of Shore Drive closed for $1,600,000 cash to an Arizona buyer. It had sold in 2002 for $750,000.

And the 2,760sf house at 5390 Los Robles closed at $1,225,000 to a buyer from Simi Valley on 9/4/08. I had it listed for $349,000 in 1995 and couldn’t sell it – everyone thought I was crazy. The owner finally did get lucky and sold it for $762,500 in August, 2003.

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The fewer sales in both areas help illustrate the difficulty for buyers looking for prime properties – do you keep waiting for lower prices, or take your shot when you have it, because of the few choices available?

]]> http://www.bubbleinfo.com/2008/10/02/more-coffee-bet-2008/feed/ 8 http://www.bubbleinfo.com/2008/09/25/coffee-bet-update-2008/ http://www.bubbleinfo.com/2008/09/25/coffee-bet-update-2008/#comments Fri, 26 Sep 2008 00:15:11 +0000 Jim the Realtor http://www.bubbleinfo.com/?p=809 It was September, 2006 that the famous coffee bet took place. 

I had put forth my hypothesis on how the downturn would end up, adding that with my prediction and about $4 you could get a cup of coffee.

Here’s a link for those who’d like to review the hypothesis:

http://www.bubbleinfo.com/2006/09/grand-poobah-of-predictions/

I said that ’superior homes’ might only lose 5-10% of their value, but inferior homes were likely to get clobbered, losing 40% to 50%, resulting in a combined blended loss of 33% in median home price.

Here was the justification:

Three general reasons the high-quality properties will do better:

1.  They’re older houses, owned by older people, with less debt.

2.  They have it so good, there’s no better place to go.

3.  Buyers are holding out for the good stuff.

Because of these three reasons, the supply-and-demand curve is much more healthy in the high-quality-home market.

I was vilified by most of the commenters, one in particular, the infamous powayseller.  It might have been the impetus for her to finally start her own blog?

Rob Dawg calmly offered, “I’ll buy you that $4 cup of coffee if you can find anything that isn’t off at least 10% from the peak this time next year.”

So I took the challenge, and mentioned three neighborhoods (Terramar, Olde Carlsbad, and La Costa Oaks - Davidson tract) that I thought could beat the odds.  When we reviewed them a year later and put it to a vote, I came out slightly ahead.

Where do we stand now?

Let’s start in Olde Carlsbad – 92008

For those who know Olde Carlsbad, I think you’ll agree that it’s a mixed bag – many older, smaller SFRs interspersed with new or remodeled houses and estates, many with ocean views.  Determining values is always a challenge around 92008, but you decide. 

Here are the same-house sales that have closed in 92008 since June, 2008:

1295 Cynthia  3 br/2 ba, 1,400sf YB:1960 short sale

$615,000  10/05    $411,000   9/08    Difference = -33%

2728 Forest Park  4 br/3 ba,  2,248sf  YB:1985  REO

$647,000   6/04     $435,000   8/08   Difference = -33%

1726 Forest Ave  3 br/2 ba, 1,900sf  YB:1962  REO

$545,000   8/04     $535,000   7/08   Difference = -2%

(former owner pulled a $720K loan and did full remodel, then had medical prob)

3255 Monroe  4 br/2 ba, 2,124sf  YB:1964  REO

$700,000    7/05    $575,000   6/08    Difference = -18%

2051 Laurie  4 br/2 ba  1,937sf  YB:1960  flipper

$460,000   2/08    $616,500   7/08    Difference = +34%

(seller/agent did full remodel, probably made $20-40K after costs)

450 Anchor  3 br/2 ba 1,877sf  YB:1982

$655,000   7/06    $650,000    6/08   Difference = -1%

(buyer exchanged into this year’s purchase, paid all-cash)

5111 Delaney  4 br/3 ba,  2,856sf  YB: 2004

$885,000   8/06     $875,000    6/08  Difference = -1%

3912 Garfield   2 br/1 ba, 832sf   YB:1940

$850,000    8/05    $853,000   6/08    Difference = 0

(remodeled)

2168 Dickinson  5 br/4.5 ba,  3,043sf  YB:2004

$758,000   5/04      $915,000   9/08  Difference = +21%

(new in 2004)

2178 Twain  5 br/4.5 ba  3,737sf  YB:2004

$727,000  1/04     $1,030,000   6/08   Difference = +42%

(new in 2004)

155 Chinquapin   4 br/4 ba, 2,292 sf   YB:1990

$1,200,000   2/04   $1,225,000  9/08   Difference = +2%

There were 79 sales closed since June 1st, and these eleven purchased since 2004.  The remaining 68 who purchased in 2003 or earlier all sold for more than they paid.

Can I call the results a mixed bag too?

More later on the other two areas in question!