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Category Archive: ‘Market Conditions’

Just Say It: “Over-Priced”

leslieThroughout the history of the world, those charged with the duty of describing market conditions have been reluctant (or ignorant) about discussing price as a cause.  Finally, the vice-president and chief economist of C.A.R. mentions that price is an issue!

I had this on twitter but let’s play it for the bubbleinfo audience too:

First, the C.A.R. president wimps out with the usual reasons:

“While the demand for housing was up from February, the market is taking a hit from lower housing affordability compared to a year ago, which led to a decline in home sales from last year,” said C.A.R. President Kevin Brown.  “Moreover, concerns over tighter lending standards and increased borrowing costs are also contributing factors to the sluggish market as they both negatively impact the bottom line of home buyers who obtain financing through mortgages.”

But then Leslie delivers a game-changer for all real estate spokespersons:

“While housing inventory has loosened since last year, it’s still below what’s considered typical in a normal market,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young.  “Many of the listings continue to be priced above what the market will bear and are not moving.  As such, even with improved home prices over the past year, new listings are lagging because would-be sellers who have limited options on where to move are hesitant to put their properties on the market.”

Hooray for Leslie!

http://www.car.org/newsstand/newsreleases/2014releases/march2014sales

Posted by on Apr 23, 2014 in Jim's Take on the Market, Market Conditions | 2 comments

San Diego is #1

Of the top 25 metro areas in America, San Diego is the least affordable, according to this report from Zach Fox at SNL (and formerly of the North County Times):

http://www.snl.com/InteractiveX/Article.aspx?cdid=A-27562902-13864

An excerpt:

sandiego1Housing prices have enjoyed substantial, double-digit growth over the past year, leading to affordability issues in some major metro markets that could cap prospects for future growth.

From a renter’s perspective, San Diego might be even less affordable than San Francisco, which famously boasts the nation’s most expensive real estate.

Prices in San Diego shot up 19.4% year over year in January, according to the latest data available from the S&P/Case-Shiller home price indexes. With prices so high, real estate agents said first-time homebuyers need to adjust their expectations.

Young renters can only make the leap to homeownership in San Diego with help from a government down-payment assistance program or their families, said Leslie Kilpatrick, president of the Greater San Diego Association of Realtors.

“I think we’re seeing more and more of that,” Kilpatrick told SNL. “This generation of parents is realizing the difficulties their children are facing in buying a home.”

A recent study by HSH, a provider of mortgage interest rate data, details how much income a household needs to afford the typical home in a given market. HSH calculated the minimum income needed to purchase a median-priced home in a given market. The study assumed a 28% front-end debt-to-income ratio and a 20% down payment and only covered principal and interest.

The results of this study raise an interesting question: How many renters in each market could afford to buy the typical home?

While it may not be possible to come up with a definitive answer, SNL explored the question using the HSH study, recently released U.S. Census Bureau data detailing renter incomes and corresponding Census data on housing units.

By one measure, San Diego had the lowest ratio of income-eligible renters — meaning they earned enough to buy a median-priced home — to housing units among 25 major metropolitan areas.

In San Diego, real estate agents think the market might be stabilizing, but prices are so high that first-time buyers are struggling to find entry. But that does not necessarily mean the market is in a bubble again.

Rich Toscano, a financial adviser with Pacific Capital Associates in San Diego, launched a blog in 2004 presciently predicting a housing crash based on overvaluation. He maintains a graph that compares home prices to a blended value of rent and per capita income. The index is now at the peaks seen in 1979 and 1990, but it is still well-below the most recent bubble.

“People say to me, ‘Are you worried about it?’ And I think, ‘It’s expensive, but it’s always been that way,’” Toscano told SNL. At the same time, he does not think there is much more room for prices to sustainably rise.

“I wouldn’t say there couldn’t be more upside, but what I would say is that whatever upside there is, I would expect to be given back eventually, at least in relative terms,” he said.

Real estate agents in the San Diego metro area seem to agree with Toscano that prices are starting to stabilize and that the days of double-digit annual growth have likely passed. Still, for buyers interested in the lower end of the market where homes are more affordable, bidding wars remain fairly common.

“Most people miss a few before they understand that when they see something they like, they have to act boldly and put in a strong offer,” said Kilpatrick, president of the local association.

Jim Klinge, a real estate broker in the metro area, similarly told SNL via email that the most recent low-end buyers he represented lost several bidding wars before nabbing a home. On Klinge’s blog, which gained national fame during the housing crisis for its candor and brash style, the agent reports hyper-local statistics on supply and demand. For now, the fundamentals suggest San Diego’s housing market is strong.

“What really matters is wondering if/when we will run out of rich people,” Klinge wrote.

Posted by on Apr 18, 2014 in About the author, Jim's Take on the Market, Market Buzz, Market Conditions | 10 comments

‘Rich And Everyone Else’

Hat tip to daytrip for sending this along from the latimes.com:

http://www.latimes.com/business/realestate/la-fi-home-prices-20140416,0,4794538.story#ixzz2z43iQrQ7

Excerpts:

Southern California home prices are surging as the spring buying season heats  up, with the median price in March hitting $400,000 for the first time in six  years.

But a deeper look at the market reveals a recovery divided between the rich and everyone else.

The market for high-dollar homes is hopping, with sales on the rise and  buyers launching bidding wars. But sales of low- to medium-priced homes have  plummeted during the same period — with many potential buyers priced  out.

Carey Chenoski, a real estate agent in Redlands, said she has seen less interest  in homes for sale lately as first-time buyers struggle to afford the new higher  prices. There are more homes on the market than last year — which is keeping  further price growth in check — but they’re not selling.

“Lately on Saturdays and Sundays, you see open house signs everywhere,” she  said. “The houses that last spring would be gone in the first day are sitting  maybe 60 days.”

That, in turn, is frustrating some sellers. Chenoski recently saw the price  on a three-bedroom in Redlands reduced to $299,000 from $315,000 — and it still  didn’t sell. So it was taken off the market.

It’s a different story in pricier pockets of the region, where high-end sales  are climbing, all-cash offers remain common, and well-priced homes go fast.

“We’re getting multiple offers on just about everything,” said Barry Sulpor,  an agent with Shorewood Realtors in Manhattan Beach, where he said there is a  new wave of tear-downs and new construction in prime beachfront locations. “The  market is really on fire.”

This is a marked shift from a year ago, when investors raced to scoop up  bargain-rate homes with cash offers and plans to rent them out. That sparked  price increases at the low end and sapped the supply of those homes. Now  investor activity is down, but for many, prices remain out of reach.

In fact, prices of lower-end homes have risen a greater percentage over the  last year than prices of expensive homes, despite the current bidding wars on  high-end properties.

Still, some signs indicate a broader recovery may be brewing.

The number of homes listed for sale in March, while still historically low,  was up 54% in the Inland Empire and 64% in Orange County compared with the same  month last year, according to the website Realtor.com. The job market is  gradually improving, says Appleton-Young, which should make more buyers more  confident. And investors are slowly backing out, said Derek Oie, an agent who  has done many investor deals in the Inland Empire.

That’s making room for families and first-timers who were crowded out this  time last year.

“You are seeing a lot more traditional buyers come into the picture,” he  said.

Still, the spring buying season in Southern California got off to a “very  slow start” in March, said DataQuick analyst Andrew LePage. And from her office  in Redlands, Chenoski doesn’t see much evidence that’s changing in April — so  far at least.

“Springtime is usually a pretty hot market,” she said. “We’ll see what  happens.”

http://www.latimes.com/business/realestate/la-fi-home-prices-20140416,0,4794538.story#ixzz2z46EMQhD

Posted by on Apr 16, 2014 in Market Conditions | 4 comments

Escalation Clause

escalationIn the spirit of fair play, this isn’t right.  But in a market where buyers get tired of losing, you can’t blame them for trying alternatives.  Agents should have a standard policy/strategy on how to handle the escalation clause – get good help!

From the Boston Globe:

http://www.bostonglobe.com/business/2014/04/13/buyers-turn-new-bidding-tactic-hot-home-market/7fWqb00kcwY9Zaq0NgE3TK/story.html

Katrine and Stephen Campbell were up against stiff competition from 10 other bidders for the Reading home they wanted to buy. So the couple tried an aggressive strategy to give them an edge: Instead of making a specific offer, they promised to top whatever turned out to be the high bid by an additional $5,000.

The increasingly popular tactic, known as an escalation clause, worked. The Campbells bought the four-bedroom house late last year for $597,000 — or $18,000 above the original list price, including the extra $5,000.

“We must have looked at 50 places before making a bid on a house,” said Katrine Campbell. “We made only one offer — and we got it. The escalation clause gave us an edge.”

In a sign of how competitive the Boston-area housing market has become, the maneuver is becoming part of the area’s bidding war landscape, brokers and other real estate executives say. Some report there hasn’t been this much escalation clause activity since the last house-buying frenzy 10 years ago.

There are several kinds of escalation clauses, but all involve an agreement to top the high bid on a home by a set amount of money — often $5,000, and sometimes more.

Potential buyers who offer such arrangements usually insist on a brief amount of time, an hour or less, to follow through or to back out once a top bid has been established.

Skeptics say the clauses are potentially risky and a needless ploy that could backfire by alienating some sellers. It can also lead to disputes about whether buyers or sellers have complied with escalation clause terms, they say.

“It’s a tactic that’s not going to appeal to everyone,” said Peter Ruffini, a regional vice president at Jack Conway Realty in Norwell and president of the Massachusetts Association of Realtors.

“It sounds a little risky to me. It sounds sort of like issuing a blank check to sellers.”

Read More

Posted by on Apr 15, 2014 in Ethics, Frenzy, Market Buzz, Market Conditions | 4 comments

Lost 10 In A Row


MANHATTAN BEACH (CBSLA.com) — According to real-estate website Trulia’s first-quarter “Bubble Watch,” the top two overvalued housing markets in the country are Orange and L.A. counties.

Climbing prices, combined with low inventory, is causing worry for some would-be home buyers, concerned about the possibility of another bubble.

Danielle and Robert Merrill told CBS2?s Serene Branson they have put in offers on 10 homes in the past five months, from Mar Vista to Santa Monica, but lost out on them all.

“It feels like it’s climbing at an unbelievable rate and it seems that prices have really jumped way up,” Danielle said. “It’s emotional. Every time a property comes on, and with this market you jump on the day it comes on the market.”

“It’s been a difficult process because the inventory is so low prices are just going up and up and up,” Robert said.

According to the California Association of Realtors, the median home price in L.A. County was $390,000 for February 2014 – up 15.2 percent from the same period last year.

In Orange County, the median home price last month was $677,000, up 11.6 percent.

The numbers show affordability has also dropped.

Only 30 percent of L.A. County residents can afford a median price home, down from 44 percent last year. In Orange County, it’s down to 20 percent from 34.

Real-estate agent Jeremy Shelton, of Shorewood Realtors, pointed to a three-bedroom Manhattan Beach home that sold over the asking price.

“Inventory is tragically low,” he said. “This came on a week-and-a-half ago. We had three offers right off the bat.”

Shelton said it’s a seller’s market, and he predicts modest increases before prices level off.

“Much like 2006, 2007, we have limited inventory. Prices are therefore going higher. There are a lot of qualified buyers, which is the key in the market now – unlike we had in 2007. So yeah, we are seeing a frenzy,” he said.

It’s a tough reality for buyers like the Merrills, who have been beat by so many all-cash, no contingency offers they’re taking a break before jumping back in.

“We’ve been through such an emotional ride with the market not knowing where it’s going to go from here,” Danielle said.

http://losangeles.cbslocal.com/2014/04/01/socal-residents-worry-about-possible-housing-bubble-as-prices-climb-inventory-drops/

Posted by on Apr 2, 2014 in Frenzy, Market Buzz, Market Conditions | 11 comments

March Sales – Sobering

The March sales will look bleak to the casual observer.

When you compare these preliminary numbers (late-reporters might add another 5% or so) to the frenzied-up March, 2013 counts, the differences are -29% and -22%.

March Sales of Detached-Homes

Year
NSDCC Sales
Avg SP/sf
SD Co. Sales
Avg SP/sf
2010
216
$395/sf
1,883
$249/sf
2011
238
$371/sf
1,883
$238/sf
2012
238
$357/sf
2,001
$228/sf
2013
299
$404/sf
2,202
$266/sf
2014
211
$519/sf
1,710
$319/sf

You can’t blame it on the weather – it’s been spectacular here the last few months.  Rates have been in the 4s and remarkably steady since July, so buyers are accustomed to them now.  Mortgage underwriting might be slightly easier, though case-by-case (FICOs down to 550 for FHA at a few lenders now).

What does inventory tell us?  The Under-$800,000 market around NSDCC is hot, but above that it is murky.

The number of homes for sale between $800,000 and $2.4M has risen 30% since the start of the year, and their avg LP/sf has dropped 5% to 10%:

http://www.bubbleinfo.com/2014/03/31/inventory-watch-more-steady-2/

The simple answer is that more sellers are priced wrong, but heck, this is the priced-to-see-if-we-get-lucky season.  Sellers will probably wait until May before giving up hope.

You can’t blame sellers for being optimistic when the average SP-per-sf is still rising. But sellers who are priced over $1,000,000 and have been on the market for more than 30 days should start sharpening their pencil now, and get going while we know there are plenty of buyers left.

Posted by on Apr 2, 2014 in Jim's Take on the Market, Market Conditions, North County Coastal, Sales and Price Check | 13 comments

Lower Rates Offset Prices

I hope more media types use actual real-life examples, but while we are talking about how they like to apply their opinions to vague, general data, let’s consider the other side of the coin.

Want evidence to explain the red-hot market conditions?

Look at mortgage rates, and how they’ve offset the rise in prices:

Year
SD Median SP
80% Loan Amt
Int. Rate
Mo. Payment
1990
$183,210
$146,568
10.13%
$1,300
2000
$269,400
$215,520
8.05%
$1,589
2010
$385,740
$308,592
4.69%
$1,599
2014
$450,000
$360,000
4.30%
$1,782

The cumulative CPI inflation since 1990 was 79.6%.

Add the 79.6% to the 1990 payment of $1,300, and today’s inflation-adjusted payment would be $2,335 – and we are 24% UNDER that now.

Bernanke is going to be called a hero.

Want more? The population of San Diego County has risen 29% since 1990 too – and apparently a lot of the newcomers were affluent!

Posted by on Mar 30, 2014 in Interest Rates/Loan Limits, Jim's Take on the Market, Market Conditions | 0 comments

Sales As The Leading Indicator

Livinincali left this comment Thursday:

If history is any guide you’d expect sales volume to start dropping before seeing any movement down on price. The sales volume numbers back in winter of late 2012, 2013 were seasonally higher than they have been and that marked the beginning of the price appreciation.  Now it seems as the sales volume have fallen off a bit and price appreciation has moderated.  If sales volume continues to be soft expect appreciation to be minimal this year.  It seems like some segments of the market are still hot but it doesn’t feel like the frenzy of last year around this time where everything in the county was hot.

Historically, sales are the leading indicator, and prices have always followed.

Many are very committed to the fundamentals, and that in itself could help propel the actual market activity – a self-fulfilling prophecy.  A loan rep in the OC named Logan has sparred with me about it on Twitter, and he has included the Trulia economist in the conversation – which is fine by me because they share the same view that history will repeat itself, regardless.

twitterwar

Logan is entitled to one man’s opinion.  But Trulia stories get published everywhere now, and could carry considerable influence with home buyers.  They are a mainstream-media source for market data, and have a responsibility to dig for the truth.

The Twitter war above got started over this article, which is now being published by media outlets everywhere:

http://www.latimes.com/business/realestate/la-fi-home-prices-20140326,0,4729002.story#axzz2xIS4jHJV

Suggesting that bubbles are forming in areas where prices rising faster than those incomes is shallow and incomplete.  Let’s consider additional facts.

Do reports of fewer sales have to be contributed to stagnant incomes, un-affordability, employment, economics, DTI, etc., that will drive prices down, or are there other explanations?

1.  It was predicted here six months ago that people would be comparing 2014 sales to the ultra-hot frenzy months of 2013, and claim the sky is falling.  You could say that the low rates of 2013 alone were driving people to buy; now that higher-and-steady rates aren’t driving the market, sales look pretty similar to recent years – IN SPITE OF HIGHER PRICES.

Detached-Home Sales Between Jan. 1 – March 15:

Year
NSDCC Sales
Avg $/sf
SD Co. Sales
Avg $/sf
2010
360
$377/sf
3,428
$237/sf
2011
412
$376/sf
3,476
$234/sf
2012
450
$367/sf
3,987
$226/sf
2013
518
$389/sf
4,423
$255/sf
2014
459
$500/sf
3,518
$312/sf

Take out the 2013 frenzy-driven era, and sales look similar, or better, than previous years, even though pricing is substantially higher.

2. A preliminary sign of a market top would be more homes not selling, and inventory rising. If inventory was rising steadily, AND sales were flat or declining, then a call for lower prices would be obvious.  But the inventory is about the same as last year:

SD inventory

A big difference that is critical to the equation is that 2013 sellers were caught off-guard at rapid rebound in pricing.  But the word is out now, and the 2014 sellers are VERY WELL AWARE of the improved market/higher pricing.  Yet sales are strong.

3.  This year’s sellers are more elective.  They didn’t have to sell last year, and waited until they could get even more money this year – and they are only selling if they get their price.  Yet sales are strong.

4.  Every seller wants more, not less.  It is the sellers’ creed – tack on a little extra to what the last guy got.  Yet sales are strong.

5.  If prices did falter, sellers just wouldn’t sell.  The ego of a seller is powerful, and selling for any less than ‘their price’ is ‘giving it away’.  Sellers will avoid that at all costs, and just cancel their listing instead.  You’ll know that pricing is heading downward when you see inventory dry up further.  Yet sales are strong.

6.  There is absolutely NO threat of distressed sales undermining the market.  Of the 1,180 NSDCC listings this year, 12 have been short-sales, and one has been an REO.  Yet sales are strong – stronger than when buyers could have gotten a deal.

7.  Multiple offers are everywhere. I can only speak about the north-coastal region of San Diego County, but everywhere I go, there are multiple offers – even on houses that aren’t that great.  You will see bidding wars dry up before sales start to drop.  Yet sales are strong.

8.  We have never seen the inventory sustain at levels this low.  There is an awareness and appreciation about one’s home that is superseding price – people aren’t interested in moving, no matter what they could get for it. The Z-man said yesterday that the low inventory is due to 20% of the country being underwater.  Did he interview each one of those people?  They could have short-sold anytime over the last few years if they wanted to move – but they didn’t.

In summary, buyers are ready, willing, and able to buy homes today – at these prices, and these mortgage rates.  There would be as many – if not more – sales this year, than in 2013, if there were just more decent homes to sell at today’s prices.

Homes that aren’t selling today are the ones priced outrageously – anything close to the right price is selling. Hopefully it means there is a price ceiling - and we have arrived at the unaffordable plateau for now.

Sellers are insisting that we stay at these prices, or higher – they aren’t backing down. For now, buyers are agreeing.  I haven’t seen any house sell for less than the comps this year – have you?

Until the bidding wars dry up, and then sales start to falter when compared to non-frenzy months, then prices should hang around these levels.

Posted by on Mar 29, 2014 in Frenzy, Jim's Take on the Market, Market Buzz, Market Conditions, North County Coastal, Sales and Price Check | 13 comments

Booming Markets

qualcomm-logoFrom our friends at John Burns Real Estate Consulting – HT to Stormin!  Although John included San Diego as one of the towns that could be impacted by FHA loan limits being reduced, we’re probably more of a booming-market hybrid. Our drivers include Qualcomm and biotech, foreign investment, and low inventory.  

Read the full article here:

http://www.realestateconsulting.com/blog/john-burns/housing-booming-busting-and-muddling-along

A brief excerpt:

Booming Markets

I find three primary reasons that certain housing markets are booming:

1.
Tech boom. Prices are rising rapidly in the best locations in the Bay Area and Seattle. I believe the best Bay Area locations, which extend all the way to the East Bay, are now officially overpriced because the wave of tech millionaires will not continue forever. Our Northern California leader Dean Wehrli recently calculated that one city in the Bay Area  is usually 20% more expensive than a more outlying city is now 50% more expensive!
2.
Pro-growth environment and oil boom. Texas’s pro-growth attitude, which is best exemplified by their governor who has been flying all over the country to recruit companies to Texas, has succeeded in adding 700 new jobs per day for the last two years, and those new employees are buying homes, particularly in Houston. Our Dallas consulting leader Paige Shipp notes that the oil industry boom helps, but health care, financial services, transportation, and other sectors have also contributed to the growth.
3.
45+ buyer markets. The oldest Baby Boomer turns 68 this year, and the youngest turns 50. They are buying homes in droves as their employment situation, home values, and stock portfolios have almost fully recovered from the Great Recession. Our Florida leader Lesley Deutch was recently in Naples, where prices are rising rapidly thanks to strong sales. We are seeing strong sales in this same demographic throughout the country, however.

Posted by on Mar 26, 2014 in Jim's Take on the Market, Market Conditions | 0 comments

Pre-Listing Websites

pre-MLS saleFrank has a local SD page in his Facebook network, but it has been among the slower to attract new members.

He allowed me to join, but then wondered if I was the enemy.  I just want to see if it gains any traction – but so far, not much.  There are 254 realtors in the group, but only five properties have been imputed since November.

But if NAR continues to implode, and agents get more desperate, the whole basis of the multiple-listing system – sharing listings among agents – could die.

There are many market forces pushing towards single agency, and there may be more than one solution.  In the meantime, we will see many alternatives:

From the wapo:

http://www.washingtonpost.com/blogs/where-we-live/wp/2014/03/24/in-tight-market-pre-listing-sites-becoming-popular/

Excerpts:

Some agents believe that as members of MRIS they are required to list properties on the service. The issue has spurred heated discussions at local brokers offices in the region.

“We call them the old boy or old girls networks, where the small group of people that belong get the first opportunity,” said Tony Duncanson, chairman of the D.C. Real Estate Commission. “When we get into tight markets, like in the last two to three years, you start hearing about these type of networks more and more,” Duncanson said.

The close-knit networks Duncanson was referring to include brokers that only market properties to agents affiliated within the same brokerage firm. Some refer to this as a pocket listing.

“The main concern in these situations is that those properties were not given the maximum exposure to the marketplace, particularly in the good market that we have now where the seller may be able to get a better price,” Duncanson said.

“There may also be a fair housing issue,” Duncanson added. “It doesn’t seem to be fair because many people are totally excluded. There are those in the fair housing arena that consider it discriminatory because the listing is not marketed to every licensed agent.”

LLosa said he opposes pocket listings. “How is that best for the seller?” LLosa said. “I am against brokers trying to snag both sides of the deal at their clients’ expense.”

Roger Carp, managing broker of the Long & Foster office in Georgetown, agreed. “Who does it benefit not to put the house on the MLS?” he asked. “ It doesn’t benefit a seller. The MLS was created to give homes the maximum exposure possible. Anyone that is buying real estate searches the MLS. With all these different types of exclusive clubs, many Realtors are not hearing about properties that could be beneficial for their clients. In the end, the seller could be missing out.”

Some agents believe that as members of MRIS they are required to list properties on the service. The issue has spurred heated discussions at local brokers offices in the region.

“If there is permission from the consumer, then the agent does not have to list the property on MRIS,” Strauch of MRIS said.

Posted by on Mar 26, 2014 in Jim's Take on the Market, Listing Agent Practices, Market Buzz, Market Conditions | 2 comments