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Category Archive: ‘Market Conditions’

“Trend Towards Rentership”

Hat tip to GW for sending in this discussion on today’s market conditions:

http://finance.yahoo.com/news/housing-market-is-stuck-in-downard-spiral–shari-olefson-155251001.html

An excerpt:

Home prices appear to be moderating but that’s good news says Shari Olefson, CEO of The Carnegie Group. “Those big increases that we saw last year were not sustainable and in general we’re still seeing an upward trend when you look at the big picture,” she says.

Still, it’s not all roses for Olefson. “What I wasn’t happy with are some of the trends we’re seeing in new construction,” she notes.

New homes sales fell by 2.4% from June to July, yet July’s new homes sales were up 12.3% from the previous year. “New construction appears to be up significantly from last year but when you dig beneath the surface what’s up are multifamily homes,” says Olefson. “Single family homes are up by just 1% which defies logic because we’ve had over 3 million single family units that have been converted to residential rentals.”

Some believe that these numbers mean that housing is approaching normal levels, but Olefson disagrees. She sees more potential buyers turning into renters and believes there’s a lack of suitable housing and loan products for what people can afford now.

Posted by on Aug 26, 2014 in Market Conditions | 4 comments

What’s Holding Back Buyers

This guy says there are 5-6 million people who were or could be homeowners but are on the sidelines – the buy vs. rent equation isn’t compelling enough.

She says these potential buyers don’t have the down payment and don’t know about FHA, but she might be guessing.  Though FHA is very expensive and caps out at $546,250, it’s definitely a viable option in San Diego County.  Of the 14,129 house sales this year, 1,459 of them (10%) have been financed via FHA.

Remember when we said that the market would be seasoned when we see more FHA and VA purchases…..the bidding wars would have died down, and buyers with more horsepower have passed on those deals?  Here are the percentages of FHA+VA loans used to purchase SD houses:

2011 = 35%

2012 = 31%

2013 = 25% (FHA got tougher in June, 2013)

2014 = 25%

There are more VA loans than FHA this year (59% vs 41%).

Posted by on Aug 25, 2014 in Interest Rates/Loan Limits, Jim's Take on the Market, Market Conditions, Mortgage News | 3 comments

Stepped-Up Tax Basis

The other day, I used the term ‘die correctly’, which refers to those who hold properties until death, allowing those who inherit to step up the tax basis.

From wiki:

Under IRC § 1014(a) the general rule applied to property a beneficiary receives from a benefactor is that the beneficiary’s tax basis equals the fair market value of the property at the time the decedent dies. For example, Decedent owns a home they originally purchased for $35,000. Their tax basis in the home is equal to its cost, $35,000, assuming no adjustments under IRC § 1016. On the day Decedent dies, the fair market value of the home is $200,000. If Decedent bequeaths the home to Beneficiary, Beneficiary’s basis in the home will be the fair market value, $200,000.

In contrast, had Decedent given the home to Beneficiary before their death, Beneficiary would receive a carryover basis, which would be equal to the decedent’s adjusted basis in the home, $35,000.

Because of this provision, any appreciation of the affected property that occurred during the decedent’s lifetime will never be taxed. Thus, this provision provides an incentive for taxpayers to retain appreciated property until death.

As the baby boomer generation begins to expire, we should see more inventory – especially rental properties.  Any houses within a few miles of the coast are already in record territory, price-wise, and the beneficiaries would be smart to liquidate at least some of the properties while they can get top dollar.

The ones to sell would be the older homes needing more work, and/or those in inferior locations.  Keep the best, and sell the rest!

If you are thinking of selling, give me a call!

Posted by on Aug 25, 2014 in Market Conditions, Shadow Inventory, Why You Should List With Jim | 17 comments

More on July Sales

San Diego

Hat tip to Dennis for the cnbc.com report on July home sales in San Diego:

http://www.cnbc.com/id/101919762

Their report references the DQ report from Wednesday:

2014 July sales

Downer Diana noted that last month’s total was a three-year low, but didn’t mention that the frenzy started in the second half of 2012. As long as we are comparing to frenzy months, the 2014 totals will be lower – no frenzy now.

Let’s consider how last month’s sales of San Diego detached homes compare to previous years:

Year
# of SD Detached-Home Sales in July
2000
1,958
2001
2,291
2002
2,364
2003
2,871
2004
2,603
2005
2,338
2006
1,644
2007
1,470
2008
1,979
2009
2,170
2010
1,777
2011
1,900
2012
2,211
2013
2,402
2014
1,905

The July, 2014 sales look pretty good, given how high prices are now, and how fast they rose. Higher mortgage rates helped to cool off the frenzy too.

As a community, we should prefer a non-frenzy environment.

But the media insists that something is wrong. Diana said, “California is often seen as a barometer for the rest of the nation’s housing market. If that is the case, then housing this fall is not looking good.”

It looks good to me!

We know that when sales start declining, prices usually follow. But Rob Dawg noted this benefit here – payments are still cheaper than before:

The typical monthly mortgage payment Southland buyers committed themselves to paying last month was $1,602, down from a revised $1,616 the month before and up from $1,537 a year earlier.

Adjusted for inflation, last month’s typical payment was 34.4 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 46.3 percent below the current cycle’s peak in July 2007.

http://www.dqnews.com/Articles/2014/News/California/Southern-CA/RRSCA140813.aspx

In some areas we will probably see a few homes sell for less – neighborhoods where long-time owners have loads of equity and can still make out nicely at 5% to 10% under comps. But with so little pressure, it’s more likely that sellers will cancel and wait until next year, rather than dump on price.

Sales will probably keep dropping with the only folks selling are those who deserve a premium price – the turnkey homes in good locations – which in turn will slow any price declines.

Posted by on Aug 15, 2014 in Jim's Take on the Market, Market Conditions, Sales and Price Check | 2 comments

Gen-X Leaving San Diego?

genx

Hat tip to W.C. Varones for sending in this article about Gen-Xers leaving San Diego because housing is too expensive – and taking their kids with them:

http://m.utsandiego.com/news/2014/aug/13/report-gen-x-leaving-san-diego-taking-their-kids/

From 2008 to 2013, a period that frames the Great Recession and its slow-growth economic aftermath, the overall population of San Diego County grew by 3.9 percent to 3.17 million people, according to Cunningham’s analysis of census data compiled by the California Department of Finance.

However, the population actually fell by 4.6 percent over the five years in Generation X, the demographic cohort from ages 35 to 49. And Millennials, the cohort from birth to 19 (and the largest group), fell by 1.9 percent, indicating enough Gen X families left town to offset births and immigration of young people.

W.C. asked me what my experience has been with Gen X families leaving town. I’m not your typical realtor, but I haven’t had many Gen-X families move out of the county lately – just 2 out of 66.

Here are the seller categories of my 66 non-REO listings since 2010:

Investors/landlords: 24

Move Up or Down (within SD County): 21

Estate Sales: 11

Job Relo Out of SD: 6*

Divorce: 2

Retired, left SD: 2

* Of the six who left town, two were Gen-Xers

I think analysts and reporters jump to conclusions, and for the data to move a couple of percentage points in either direction shouldn’t be a cause for alarm. They included this at the end:

Meanwhile, Baby Boomers and retirees arrived in relative droves, with both groups rising in population by more than 15 percent.

Real estate is for affluent people now, regardless of age.

http://www.nusinstitute.org/press/releases/San-Diego’s-vanishing-Generation-X.html

Posted by on Aug 14, 2014 in Jim's Take on the Market, Market Conditions | 14 comments

Buy Now & Be Happy 2

There has been three categories of listings lately:

1. New listings that sell at or around list price the first week on the market.

2. Those that sell months later as price reductions finally intersect a rising market. In a slowing market (like we have now) pricing loses momentum quickly as buyers get more confident.

3. Those that don’t sell.

It’s going to get more obvious to sellers as showings slow to a crawl or less – if they want to sell this year, they need to lower their price. But hey, great news – those who are willing to sell for a price at the comps – or slightly under - should find takers.

Posted by on Aug 13, 2014 in Bubbleinfo TV, Market Conditions, North County Coastal | 0 comments

Bubble-Burst Less Likely

Someone asked me if I thought the bubble will burst again.  I said no.

Not in the same way that the previous two bubbles have ended – with foreclosures driving down prices across the board.

Why?

Because of these reasons:

1. The Foreclosure Process Has Been Compromised - Banks have been handing out loan mods like candy, and keeping defaulters in their houses at all costs. Of the 13,154 houses that have closed escrow this year in San Diego County, only 293 were bank-owned, or 2.2%. Only eight of those were in our La Jolla-to-Carlsbad coastal region, out of 1,730 closed sales YTD (0.5%).

How can banks reverse course, and start foreclosing again? They can’t, and instead the ‘loan-mod’ will become standard banking policy – though vague.

2.  Recent Buyers Were Well-Qualified – No exotic financing this time around.  Everyone who got a regular mortgage over the last six years had to qualify AND use a down payment.  Thanks to recent prices increases, most have tacked on some extra equity too – they aren’t going to panic-sell now.

3.  Those Who Do Panic-Sell – The kids who come to town to liquidate their parents estate will more likely sell to a flipper offering quick cash.  There have always been investors working the obits, but it is a cottage industry now – and they will improve and flip for a retail price.

4. Boomer Liquidation Less Likely, and Multi-Generational is the Substitute – Many of us have discussed the fear of baby boomers needing to tap their equity, and wanting to downsize. Here is an article:

http://www.bubbleinfo.com/2013/03/05/boomers-cause-next-crash-in-2020/

If they need money, the reverse mortgage is still around, and likely to stay.  If aging boomers want to downsize, they need to leave town to have it pencil – because it’s virtually impossible to buy a smaller one-story house in the same area and still save big money.

Plus their kids – who could have afforded a decent house 2-3 years ago - are now left holding the bag. It’s better for the kids to move in with the folks and take care of them, then to buy the crapshack.

5. Sellers are Resilient – If they can’t get their price, they will wait – and agents will wait with them.  It is typical for agents to take six to twelve month listings and hope that’s long enough for the sellers to eventually wear down if nobody comes along.

6. Higher Capital Gains Tax – The sweetheart 15% capital-gains tax went back up to 20% at the end of 2012 – a 33% increase!  Even though they can sell for more now, investors are very reluctant – they hate paying tax! Especially when a spouse can “die correctly” and leave rental properties to the other spouse with a stepped-up tax basis.

I don’t think we’re going to see the roller-coaster ups and downs any more.  It’s much more likely to feel likely a bloated, stagnant slush of goo than an exciting crash.  Thankfully, agents work on commissions, otherwise sales could come to a halt!

Posted by on Aug 10, 2014 in Bubble-Era Pricing, Jim's Take on the Market, Market Conditions | 18 comments

More Guessing

Hat tip to Richard for sending in this article:

http://realestate.msn.com/blogs/post–report-20-percent-of-homes-to-lose-value#scpshrjmd

The housing market has bounced back dramatically since the 2008 recession, but conditions have started to slow, a new survey says.

Veros reports 20 percent of homes are expected to lose value, while 80 percent are set to gain value.

Still, the housing market is yearning for a boost, instead of simply pent up demand from an unusually cold winter, which hampered economic growth and caused slightly stronger housing numbers toward the end of first quarter and the beginning of second quarter.

SD market

A slowdown in the pace of buying isn’t necessarily something to worry about when it comes to the health of the housing market, as this could bring price stabilization.

“We’ve been seeing major price swings over the last seven years and stabilization will be positive and will provide predictability to the market,” says Dani Babb, Broker/President of The Babb Group Real Estate Inc. “Some appraisers can’t even figure out how to value homes because of the swings.”

Unpredictable prices make conditions difficult for sellers who are trying to score the best price and buyers who may delay purchases if the market is telling them a significant price drop is on the horizon.

Posted by on Aug 7, 2014 in Forecasts, Market Conditions | 1 comment

The Market is Great

SD Case Shiller graph

We’ve seen the local San Diego Case-Shiller Index rise from 144.43 in April, 2009 to the most recent reading of 201.85 in May, 2014.

A whopping 40% increase in just five years.  What a ride!

Yet all we hear from the media is that the housing market is faltering, sales are down, and soon the sky will be falling.  Here are the reasons why it won’t:

1. Even though prices are much higher, there hasn’t been a flood of inventory.  Consider how many sources of inventory that you’d expect to be flooding the market; bank-owned properties, flippers, previously-underwater homeowners, the elderly, etc.

Not only has there not been a flood, but around NSDCC there have been 3% FEWER houses listed in the first seven months of this year than in 2013.

2.  Rates are Holding.  Though sales and prices would probably be affected if mortgage rates did go up, so far they are steady – in spite of wars, improved employment, ebola, etc.  Buyers will live with rates in the fours, and I just had a 30-year jumbo rate quote in the high-3s.

3.  There is lots of activity. The house in yesterday’s article whose broker said she is having no showings must be ridiculously over-priced, because the attractive buys are getting action.  Any seller who could live with 5% to 10% less than the list prices of active (unsold) listings nearby won’t have any trouble selling today.  If prices in general did pull back, it would stimulate a new round of sales – the buyers who feel priced out would love another chance.

4.  No Frenzy Means More Caution.  After prices go up 40%, it’s a lot easier to make a mistake, and buyers are being more selective. A smart market is a healthy market.

The next few months are going to be terrible for sellers who insist on tacking on another 10% or so on top of what we’ve already gained.  But reasonable sellers will have no trouble selling – the market is fine.

Posted by on Aug 6, 2014 in Jim's Take on the Market, Market Buzz, Market Conditions, North County Coastal | 5 comments

Slowing Sales

We are still getting reports that year-over-year sales are declining, and that means something is wrong or bad.  Below they are comparing the counts to last year’s frenzy numbers and are crying wolf.  But what do you expect when the frenzy is over?

Our local stats look great – this year NSDCC has about the same number of July sales as we did two years ago, when prices were 20% lower (some late-reporters still coming too).

NSDCC Sales, July
# of Det. Home Sales
Median Sales Price
2001
291
$575,000
2002
347
$640,000
2003
430
$745,000
2004
351
$975,000
2005
281
$1,045,000
2006
220
$1,006,000
2007
255
$1,050,000
2008
222
$898,000
2009
237
$800,250
2010
223
$833,000
2011
231
$825,000
2012
258
$850,000
2013
297
$930,000
2014
250
$1,017,500

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

From the U-T:

http://www.utsandiego.com/news/2014/aug/03/housing-market-flashes-caution/

Persistent sales slowdown keeps the local recovery fragile, raising odds of relapse

A time-tested signal of weakness in the housing market is flashing yellow.

When you compare the number of home sales (which are highly seasonal) with those from the same month a year earlier, this key measure has declined in San Diego County for nine consecutive months through June — with five at double-digit rates.

Statewide trends are similar, with 11 straight months of year-over-year sales declines, according to the latest figures from DataQuick, a company that tracks transactions reported to county governments.

“My sellers are in complete shock. We’re getting no calls, no inquiries. It’s like the market just went away,” said Kimberly Dotseth, a San Diego real estate broker. “Buyers think prices are too high.”

An exception is the lower-priced segment of the market, where homes listed for $400,000 or less are still receiving multiple offers and quick sales. This supports the view that high price might be a primary factor discouraging many sales, rather than other factors such as tough lending standards or too few homes on the market.

In the history of housing markets, downturns typically have begun with sales weakness that sometimes ended up forcing down prices, but not always.

This holds back the wider economy, even if home prices don’t fall in the near future — as they have twice since 2006. That’s because low sales activity reduces a giant source of spending for remodeling, decorating and new construction.

Given the trauma of the last decade, the condition of the local housing market is a serious subject.

Read the full article here:

http://www.utsandiego.com/news/2014/aug/03/housing-market-flashes-caution/

Posted by on Aug 5, 2014 in Jim's Take on the Market, Market Conditions, North County Coastal, Sales and Price Check | 2 comments