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Yesterday CR showed the breakdown of distressed sales year-over-year for different cities here.

Let’s look at our last six months, the period during which short-sale approvals have sped up, and compare to the previous year.

A comparison of NSDCC detached listings sold between August 15th and February 13th:

Here are the currently active detached listings in North SD County Coastal:

The conversion of REOs to short-sales appears to be underway, though the distressed properties are continuing to make up only about 20% of the sales. How many of the currently non-distressed listings will end up sliding into the other two categories? Probably 25% or so?

Don’t be surprised if REO listings dry up, and short-sales surge the rest of the year as we bear down on the expiration of the debt-tax-relief on 12/31/12.  Will Congress extend?  Could it end up being a political football in this election year? It should, so sellers know where they stand.

CR’s bottom call caused many to scoff, and point to various ivory-tower theories to refute it.

This is what he said, which is more of a technical call about home-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 house-price indexes are good for measuring the general regional or national trend, and reflecting some consumer sentiment.

The naysayers are using either general theories with little or no specific current evidence to support them, or they declare that history always repeats itself so we don’t have to consider relevant facts.

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Let’s examine these theories, and use actual evidence from the street in rebuttal. 

These apply to my local market, but because San Diego is not different, they could apply to other areas.  You can decide for yourself:

1. Wages/Incomes haven’t risen, high unemployment/no jobs, and household formation is lagging.

There are people who are struggling, and I have empathy. 

But in spite of the unemployment/no jobs/no raises, there has still been a healthy demand for houses that are priced correctly (around recent sales), and it is building steam.

Consider my listing at 554 Meadowbrook, which was mentioned on the talk show with Bill.  We ended up having to take the one owner-occupied offer because Fannie gives them special consideration for the first 14 days on market.  But he had a tax lien on him that he couldn’t resolve.

The house went back on the open market, and open to investor offers.  Between Friday and Tuesday there were eleven all-cash offers submitted, and it sold over list price. 

There is nothing about this house that would warrant such a fanatical response – see for yourself:

MLS listing: 554 Meadowbrook   Map: http://g.co/maps/wu3dg

Richard’s video: http://www.youtube.com/watch?v=yUt4hxHt2lE

Could unemployment/no jobs/no wage increases cause people to have to sell their house?  Yes, but there were 11 cash investors that are willing to pay retail or close for this dog, plus another couple dozen phone calls from people who would have paid less and didn’t offer. 

Investors are providing a pricing floor to the market, and either flipping or building their portfolio.  If the market runs out of steam and they can’t flip, they will be stuck renting them, but that is their problem – they are paying cash.

Furthermore, virtually every offer I make on behalf of clients finds itself in a bidding war.  We are like most buyers and only chasing the good buys, but there is competition literally on every single offering.  There could be hundreds of additional sales if sellers would get off their high horse, price-wise.

2.   Shadow inventory/underwaters – Laurie Goodman is still the current record-holder of the highest guess – she expects 10 million more foreclosures.  Four or five million houses sell every year in America, so if a third of those are distressed sales, we could clear out the entire inventory of those underwater in 5-6 years.  But have you noticed how reluctant people are to give up their house?

Let’s note how hot the market is now – San Diego County detached-home listings:

Active detached-home listings:

REO/SS: 1,558

Non-REO/SS: 3,930

Total active detached listings: 5,488

Pending/Contingent detached-home listings:

REO/SS: 3,405

Non-REO/SS: 2,142

Total pending and contingent detached listings: 5,547

There are more listings that are pending/contingent than active!!!

In addition, the REO and short-sale listings are the hot sellers.  We are regularly seeing short sales get approved in 60 days (we got two approved this week) and buyers are more willing to wait, due to the overall low inventory. 

Bring on the distressed properties, buyers are waiting!  The Fed/Gov/Banking troika will ensure that they are dripped out in an orderly fashion.

3.  Overshoot

Overshoot already happened in San Diego, at least at the lower-end where everyone thinks recovery has to start.  I’ll use Oceanside for an example, one of the largest towns in the county and full of regular folks.

Detached-home sales under $200,000:

2008: 101

2009: 214

2010: 80

2011: 79

2012:  6 houses currently for sale under $200,000 in Oceanside, and three of the six are priced at $199,900.

4.  Higher-end hasn’t corrected yet.

These are the houses worth keeping, and owners will try harder to find a way.  There are only 654 properties (in a county of 3 million people) that are on the default lists with loans over $800,000.  Last year we sold 2,248 SD County properties over $800,000 – we can handle more higher-end distressed sellers.

5.  Can’t get mortgage financing.

An bold-face lie spewed by those not in the business, and just scraping for headlines.

6.  When rates go up, everyone is toast.

According to the Fed statement, they won’t be raising their rates until late-2014.  If the bond market went nuts, and mortgage rates jumped more than 2% (we’d handle anything less) the Fed/Gov will find a way to ease the pain.  They’ve given their banking buddies too much help to screw it up now.

7.  The trillions in government debt has to come home to roost.

The USA will conduct a strategic default if/when needed.  Every county does, and at some point, there won’t be any other choice.

We’ve been in these market conditions for almost three years.  Whether we label it ‘bottom’ or not, this is what we have – a trading range of about 10% for any property, with swings in that range based on the quality of the physical condition/sellers/agents.

People should question the application of old theories/history in an environment that is unprecedented.  Consider the upside surprises – the two big ones are how much cash is in play, and how resilient underwater sellers have been so far.

What say you?

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.

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:

For those of you who wonder if it takes an expert to complete a major remodel – buying an old fixer and adding a second story to get a good ocean view – here is the before-and-after video of a house re-build in Old Carlsbad. 

The last four minutes is the owner talking about the project:

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.

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?