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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.

There have been thoughts that selling real estate could become fully-automated, and realtors as we know them will be kicked to the curb.  Here’s an example of how it could look:

For robo-real estate to succeed, sellers would have to be convinced that utilizing an auction-type method to sell their house is the best option – which it is.  The banks might convince themselves someday, because they have the experience to figure it out.

But as long as there are sellers who believe that they are the ones who determine sales price, regular realtors will be around to serve them.

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.

The November 2011 Case-Shiller Index was released today.

Here is the San Diego seasonally-adjusted CSI, compared to two other indicators:

It looks encouraging to me. Both of the markers on pricing are acceptable, rates are at all-time lows, and the leading indicator, number of sales, is on the rise.

But the negative soundbites will discourage consumer confidence, thwarting any euphoria building among homebuyers – who, as a result, will be reluctant to pay more than the comps. Sellers who can live with a reasonable price will have no trouble finding a buyer during the next few months.

Case-Shiller HPI: San Diego, CA Chart by YCharts

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.

The existing-home sales stats for 2011 are out today; here are Diana’s comments from cnbc:

Home sales rose in December to the highest pace in nearly a year. The gain coincides with other signs that show the troubled housing market improved at the end of last year.  Still, sales remain depressed and ended 2011 well below healthy levels.

The National Association of Realtors said Friday that sales increased 5 percent last month to a seasonally adjusted annual rate of 4.61 million, the best level since January 2011 and the third straight monthly increase.

For the year, sales totaled only 4.26 million. While that’s up from 4.19 million the previous year, it’s below the 6 million that economists equate with healthy housing markets.

Sales are increasing at a time when the market is flashing other positive signs. Mortgage rates are at record-low levels. Homebuilders have grown slightly less pessimistic because more people are saying they might be open to buying a home this year. And home construction picked up in the final quarter of last year.

The median sales price rose 2.3 percent to $164,500 in December.

The glut of unsold homes declined to 2.38 million homes. At last month’s sales pace, it would take a nearly 7 months to clear those homes. Analysts say a healthy supply can be cleared in about six months.

Once last year she mentioned that we should keep our focus on local market activity – let’s do that!

Detached-Home Sales and Pricing:

For the comparison by zip code, click here.
http://www.bubbleinfo.com/2012/01/03/north-san-diego-sales-2011/

Yesterday during our regular broker preview, I went on a thorough tour of homes around the southern part of NSDCC – Del Mar, Solana Beach, RSF, and Carmel Valley.  As expected, the ‘overpriced-ness’ was astounding.

Are buyers going for it yet?

There are 462 active listings of detached homes in those areas, averaging 148 days on market.  It sure seems like buyers are willing to be patient!

Is there demand?

Here is a comparison of NSDCC detached sales closed between December 1st and January 15th:

Here is the same chart for just those four areas:

There are plenty of buyers for well-priced homes, but there is quite a spread – the list prices of active detached listings in DM, RSF, SB, and CV are averaging $689/sf!

Can sellers hold out long enough to outlast the buyers’ patience?

How are short sales affecting the market?

This chart divides Actives by Pendings (A/P, our gauge of the relative ‘health’ of each market). We’ve seen in the past that a 2.00 reading seemed healthy, and 3.00 was tolerable. I included contingents in the Pending counts because now they are much more likely to stick, and if a buyer does cancel, it’ll be because they found a better one and replaced it.

The two columns on the right side of the chart show the number of short sales in each Pending count, and the total number of short sales closed last year in each town:

Oceanside and Vista are smoking red hot with 1.05 reading – they literally have almost as many pendings as actives. Why? Because sellers AND buyers AND agents have embraced short sales. Comparing the pending short-sale counts of current vs. last year, it looks like Oceanside and Vista will probably set new records this year – and received a lot of experience in 2011.

But in NSDCC (the last six categories), it appears that short sales are a relatively new concept – but coming on strong. The difference is capitulation – Oceanside and Vista sellers have conceded on price, and buyers are responding. As a result, the market is working.

We need some old fashioned market clearing in NSDCC, where it is stale and stagnant.

In the last six towns on the list, there are 1,086 detached homes for sale. Even with the dozens of “refreshed” re-lists in the new year, the average market time is 121 days – with 21% of them having been on the market for more than six months!

How many sellers are in the ‘pre-distressed’ stage, and are just testing the market today at higher pricing to see if they can get out with at least enough for a steak dinner?

There must be quite a few – what will be the effect when they finally cave?

Specifically, would it hurt the market if they lowered their price and entered short-sale status?

Based on areas that have already seen capitulation, it doesn’t look like it (capitulation = lenders and listing agents getting sellers off the fence, price-wise).

Oh but wait JtR, Oceanside and Vista is a whole different socioeconomic class; there aren’t that many rich people. OK, we’ll see, but when there are 18 offers submitted on a funky older house on a busy street in La Jolla, I’ll stick to my guns that there are plenty of buyers….waiting.

Short sales are the device being used to ensure a softer landing, and the lenders/servicers will control the pace as needed. But they would be smart to recognize that market clearing is working great where implemented!

In the not-so-distant past, both buyers and agents avoided short sales. They took too long, and the outcome was very uncertain.

But closings of detached-home short sales are increasing around the county:

We saw that the banks’ approval rate of recently closed NSDCC short sales was less than 60 days – helping to keep buyers interested in sticking around. With banks typically pricing REOs at retail, short sales might be the only place where you can find a deal.

We have wondered if 2012 will be the Year of the Short Sale.

Reader TH asked, “What is the problem with short sales?”

The gripe about short sales is that they take so long to complete.  Over the last few years, it would be 6-12 months before you’d hear anything, let alone close – and buyers wouldn’t wait. 

But now with HAFA throwing a little money at the sellers ($3,000), and relaxing the qualifying guidelines, the process has been streamlined.

A review of 23 short sales closed since November 1, 2011 around NSDCC revealed the following:

1. The average time to approve these short sales was 66 days.

2. Removing three that took 100+ days, and the average was 55 days for short-sale approval.

At first we thought that HAFA’s rule requiring that the lenders waive their right to collect any deficiency, combined with California’s SB 458, could cause the lenders to slow down or stop short sales altogether. But instead, it appears that the system has improved greatly. 

There were 59 sales marked as short sales, but due to the lousy reporting by listing agents, I only considered the 23 that marked their listing from ACT to CONT, and then from CONT to PEND and measured the difference in time. 

The MLS remarks allow for the listing agent to report any concessions.  Only two of the 59 mentioned any money brought in to make the deal, another sticking point from past short sales.

If the lenders are willing to process these promptly (less than two months), and not demand money be brought in, we should see smoother sailing with short-sale approvals this year. 

It looks like 2012 could be the Year of the Short Sale!