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Yesterday we saw that list pricing of San Diego houses had jumped recently, and a reader wanted to scale it down to local markets.

You can see in this Carmel Valley graph that last year the list pricing never picked up any momentum during the prime spring selling season – the average list-price-per-sf was in a downward trend for the first three quarters of the year.  But there has been a surge over the last four months, though still well under all of 2010.

Also note that the buyers have stayed under control the last two years - the average sales price stuck right around Carmel Valley’s magical $330/sf , until recently:

Sales during the prime spring/summer selling season weren’t as successful either, staying well below those in 2010.  They tapered off early too – the late-summer plunge in sales looked like totals from winter months, even though inventory had been on the rise through June/July. 

But it appears that there must have been a lot of market-testers, because the inventory dropped steadily in the second half. 

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Here are the same two graphs for SE Carlsbad’s 92009 zip code, which is about the same size as Carmel Valley. 

This graph shows how committed buyers were to staying in the tight $240/sf-to-$250/sf range last year, as they watched sellers go nuts with their list-pricing during the spring kick.

Buyers were very patient, just picking off the good buys; and as the inventory of seller/dreamers thinned out heading into the holidays, so did sales:

What will it be this year? 

Buyers have waited this long, they aren’t going to pay a lot more than the last guy – maybe a little.  If so, they’d still be in line with 2010 pricing on these two graphs.

Bill at CR is letting it rip today!

http://www.calculatedriskblog.com/2012/02/housing-bottom-is-here.html

An excerpt:

For new home sales and housing starts, it appears the bottom is in, and I expect an increase in both starts and sales in 2012.

As the first graph shows, housing starts, both total and single family, bottomed in 2009 and have mostly moved sideways since then – with some distortions due to the ill-conceived housing tax credit.

New Home sales probably bottomed in mid-2010 and have flat lined since then.

Back in 2009, when I first wrote about the two bottoms, I thought we were close on housing starts and new home sales – but that it was “way too early to try to call the bottom in prices.” In real terms, house prices have fallen another 10% to 15% since I wrote that post according to the CoreLogic and Case-Shiller house price indexes.

And it now appears we can look for the bottom in prices. My guess is that nominal house prices, using the national repeat sales indexes and not seasonally adjusted, will bottom in March 2012.

The problem with using the house price indexes to look for a bottom is that they are reported with a significant lag. As an example, the recently released Case-Shiller index was for November and the index is an average of September, October and November – so it is a report for several months ago. The CoreLogic index is a little more current – the recent release was for December, and CoreLogic uses a weighted average for prices (December weighted the most) – but that is still quite a lag.

Both of those indexes will bottom seasonally around March, and then start increasing again.

There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgage settlement, the HARP refinance program, and more).

Of course these are national price indexes and there will be significant variability across the country. Areas with a large backlog of distressed properties – especially some states with a judicial foreclosure process – will probably see further price declines.

http://www.calculatedriskblog.com/2012/02/housing-bottom-is-here.html

Bill also added this post with more facts and graphs:

http://www.calculatedriskblog.com/2012/02/housing-two-bottoms.html

List and sold average cost-per-sf for San Diego houses, from ‘fin:

The weather has been nice and all, but we haven’t seen an explosion of seller enthusiasm like this since the boom years, and maybe never.  The fantasy-to-reality gap over the last two years has been around 20-30 points, but now it’s over 50!

Could it just be a return to 2010 list pricing?  It might be, and if buyers continue to hold out for better quality, then the average-per-sf of solds could conceivably go up too.  

It is likely that we’ll be seeing a more volatility, and/or a standoff.

In the last post we were talking about the low volume of sales hamper easy decisions on value.

This is a good example of how a specialty feature – a newer, Spanish-style one-story house - will cause fits for nearby sellers of larger two-story models.   They will get caught up in the cost-per-sf argument, and expect to sell for $100,000 more than this one – but they’ll be lucky to get the same:

Hat tip to Booty Juice for supplying more evidence on the impact of mortgage rates on home prices.

http://seekingalpha.com/article/278146-interest-rates-do-not-affect-home-prices

An excerpt:

At first glance, this is one of those things that makes perfect sense:  The same mortgage payment translates to a larger loan value when rates are low. But how does this hold up under statistical scrutiny?

The answer shocked me: They don’t. In fact, history shows the exact opposite is true.

Home prices tend to go up with interest rates:

How Is This Possible? There are two things I can think of to explain what we’re seeing. Either interest rates don’t matter as much as other factors in determining housing prices and the correlation is merely coincidence; or, higher rates harbor, or are harbored in, conditions that favor housing.

The first case isn’t too difficult to imagine. There are many factors that can affect housing: personal income, general economic conditions, supply vs. demand, family formation, population growth, technological innovations like the automobile that enabled suburbia, and so forth. Interest rate consequences can easily be lost in the mix. Maybe, if all other factors were held constant, we’d see a negative relationship to validate conventional wisdom.

The second case is more difficult to explain. Can high rates actually benefit housing prices? High interest rates provide incentive to save. More savings mean healthier consumer balance sheets, better credit and more equity to put down on a home. So higher rates should influence the relative mix between debt and equity capital, but it doesn’t necessarily influence total asset prices.

Click here for more: 

http://seekingalpha.com/article/278146-interest-rates-do-not-affect-home-prices

JtR:  The 1998-2007 mega-boom was fueled by several additional factors besides improving rates – more favorable taxation that encouraged flippers, exotic neg-am terms with fog-a-mirror qualifying, and 100% financing.

More from HW:

The FHFA set off a firestorm of discussion in 2011 when it announced an REO-bulk sales initiative that aims to repair the hardest-hit housing markets by selling off bulk assets to investors who have the ability to turn those properties into rentals.

The FHFA, as conservator for the government-sponsored enterprises, says investors can now enter the pre-qualification process to establish whether they have the financial ability and property-management capacity to bid on transactions during the initial pilot phase of the program.   

“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” said FHFA acting director Edward DeMarco. “I am grateful for the collaborative effort by the many stakeholders including investors, nonprofit organizations, and state and local government officials, who have worked together on this Initiative.”

Investors who qualify will be able to purchase pools of foreclosed properties for the purpose of turning those homes into rentals.

The pre-qualification process will identify which investors have the expertise to manage the properties and the financial capacity to deal with the homes for a long period of time. Investors who participate have to sign agreements, promising to keep certain aspects of the deals confidential.

Investors who want to pre-qualify, can click here for information.

Just because a listing looks like a deal on paper doesn’t mean a thing these days.

Buyers want value.  They want extras.  They want to feel good.

They want a manageable floor plan that flows, a house that’s ready to move-in with a decent yard where they can watch the kids grow up.  Schools, culdesac, three-car, south-facing, one-story, newer, older, character….the list goes on and on.

The great news: If that’s what you are selling, you’ll get top dollar.

The not-so-great news: If that’s not what you are selling, you really need to work on your price.

Rich T. noted that in the past there hasn’t been a significant relationship between rates and pricing:

There’s actually very little correlation between interest rates and home valuations, and if anything, homes have tended to get more expensive in rising rate environments (due to rising rates typically being accompanied by rising wages, as well as other external factors).  However, I think that a sufficiently steep and abrupt rate rise could really hurt home prices.

But recall that I am more concerned with minimizing monthly payments than the purchase price.  If rates rose enough to really impact prices, it’s likely that those higher rates would have affected monthly payments even more.  So for a long-term, heavily leveraged purchase, the threat of rising rates is a reason to act sooner rather than later.

tj & the bear agrees, saying that this time it is different:

J6P now has no useful equity, which means any purchase has to be financed in it’s entirety. That puts pricing directly tied to income via the payment, which in turn is determined by rates. IMHO any significant rise in rates will have just as dramatic an effect pushing prices downward as the original drop in rates did in pushing prices skyward.

The FedGov has thwarted previous bear campaigns with the various can-kicking devices in support of big banking, would they let interest rates get away from them?

Last week the Fed stated that they plan to keep rates low through the end of 2014. 

If something went crazy and mortgage rates did start rising, they would have to go up more than 1% to alarm home buyers.  Purchases of homes at an effective rate of 50% off with inflation will still be attractive.

But let’s imagine that rates did hit 5% or higher – what would sellers do?

Let’s examine who is selling today.  Short sales and REO listings only comprise 10% of today’s NSDCC detached inventory for sale.  The rest are probably split between long-termers with substantial equity and those looking to get out with enough for a steak dinner.

If prices went down, those with little or no equity would just stop making payments – then it would be up to the TBTF banks to decide whether they want to cause a foreclosure tsunami, or let the defaulters ride for free as long as they mow the lawn.  You can guess which path they’ll take.

The long-termers with substantial equity?  One more notch down and forget it – they aren’t going to give them away!

The initial scramble to buy something – anything - once rates went up would be exciting, but short-lived.  Fear/greed would overcome buyers who have been very patient, and they’d gladly get back on the fence in anticipation of plummeting prices.

Consider who the sellers would be – only those that need their equity to keep breathing.  The FedGovBigBank troika will take care of the rest.

If mortgage rates start rising, it’ll likely cause fewer and fewer sales.  There is probably enough organic demand who will keep buying with cash or big down payments to have pricing look statistically flat or lower.  But if there are few houses to buy, who cares.

I erased yesterday’s three podcast attempts, but this one will stick – new pendings:

Where are the most stubborn sellers, price-wise?

NSDCC active detached listings by price range:

Last year there were 646 closings over $1,200,000, at an average of $541/sf, which sounds miraculous in and of itself.

But there are more listings priced OVER $1,200,000, then there are under!

Can the upper-enders hold out long enough? Will they adjust their price, and if so, when?