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Several readers have sent in stories over the last 2-3 days about the big investment groups.  These two stories mention the same company, Waypoint, but from different angles:

WaPo:

http://www.washingtonpost.com/business/2012/03/31/gIQAVOgDoS_story.html

N. Y. Times:

http://www.nytimes.com/2012/04/03/business/investors-are-looking-to-buy-homes-by-the-thousands.html

An excerpt:

This year, Waypoint signed a $400 million deal with GI Partners, a private equity firm in Silicon Valley. Gary Beasley, Waypoint’s managing director, says the company plans to buy 10,000 to 15,000 more homes by the end of next year. Other large private equity investors — including Colony Capital, GTIS Partners and Oaktree Capital Management, in partnership with the Carrington Holding Company — have committed millions to this new market, and Lewis Ranieri, often called the inventor of the mortgage bond, is considering it, too.

The investment angle to buying real estate has exploded, and everyone is doing it.  Now flipper groups are having to compete against buy-and-hold companies like Waypoint!

There are more local enterprises involved too.

Fortunebuilders.com runs a flipper education company, charging $1,200 for their basic courses, and up to $30,000 for the mastery coaching.  Or check out mavrixequity.com a company owned by two 28-year old flippers who are also a wholesaling company.  They tie up local deals and then sell them to you to flip – and they take a piece of your end-pie too!

The bigger companies have investment funds – they use your money and promise healthy returns.

How does it affect the regular folks?

1. If you’re an investor hoping to flip or rent-out, good luck.  The flippers have flooded the street searching for the next deal, and are working on thin margins.  They are soliciting property owners directly via mail and email, and working all the usual spots – trustee sales, defaulter lists, FSBOs, short-sales, MLS, etc.  Because sellers get bombarded, the price typically goes up – there won’t be many steals from now on.

2. Primarily, they are looking for fixers.  If you want a house to occupy and thought you’d save some money by purchasing a dog, you won’t save much.  You can avoid the rush by sticking with the turnkey properties, and hope to buy one with all the trimmings for a fair price.

3.  Appreciation – You might think that a wave of flippers selling renovated properties could lead to rising prices.  Maybe, maybe not – buyers usually can find out how much the flippers paid, and would have to be very frustrated to pay a lot more.  With the sophisticated flippers being careful to buy somewhat under market, and able to add cheap Chinese goods to improve them, they can live on thin margins and not count on appreciation. 

I think this will lead to a very active trading range of +/- 10% throughout the county, and for every lucky sale that pops through the range’s ceiling, there will be another flipper buying a lower sale to keep the pricing trend moderated.

We haven’t closed out the month yet, so add 10% or so to the March, 2012 sales below.

The preliminary stats show that sales and pricing look fairly steady, in spite of sellers attempting to lure buyers up the price ladder!

These are March closings of detached homes from La Jolla to Carlsbad: 

Buyers are ignoring homes listed more than 30 days ago, unless there is a big price adjustment.  As the over-priced listings begin to stack up in April and May, it will become more apparent to sellers that hope was a ship that sank – lower your price now, and get moving!  Buyers are standing by!

The media is enjoying the latest weak housing data, this from cnbc.com:

Several other analysts started to question the strength of the recovery as well, with some just hoping that perhaps a warm winter had pulled some demand forward from spring. Despite a miss on existing home sales in February, the headline pointed to, again, big gains from a year ago.

Yes, we are ahead of where we were, but as we’ve noted so many times here on this page, rising foreclosures will put added pressure on this market, and we may not be out of the woods yet.

“Despite an extraordinarily mild winter, home sales just plod along at a pace last seen during the mid-1990s,” notes Mark Zandi in his monthly report from Moody’s Analytics. “Thus, the underlying pace of home sales may not yet be strong enough to support a long-lasting upturn by home prices.”

Tomorrow we get the monthly reading on the S&P/Case-Shiller home price index. This index hasn’t been improving nearly as much as home sales, but the ever-hopeful housing lobby keeps blaming that on the fact that prices always lag sales, which is historically true, but what in today’s market has followed history?

Home prices are still falling not because of some lag, but because this housing market is running on sales of distressed properties at the very low end. The rest of the market is still stalled.

They don’t think about any other possibility, they just make up the hot soundbites and push hysteria.

There is another explanation – sellers have gone crazy with their list prices, and buyers  – loaded with ample market data – aren’t going for it.  As a result, sales will suffer.

Here a examples of the seller exuberance, and how buyers are reacting:

San Diego:

Carmel Valley:

Del Mar:

Encinitas:

SW Carlsbad:

There would be a surge of sales if list prices were more reasonable – and about 10% less would probably be enough. But the media won’t look deep enough - just a casual look, and off to the usual panic phrases. 

Look how steady the SOLD $/sf trends are in every market – the buyers aren’t biting, rates are going up, and it’s almost April.  If you are trying to sell, and  your list price hasn’t worked by now, it’s probably time to beat your neighbor to a “price adjustment”.

These sellers just paid cash for this house:

http://www.redfin.com/CA/San-Diego/6610-Three-Canyons-Ct-92130/home/21852565

So I guess they can ask whatever they want for their old house:

With the tax exemption of debt-relief expiring at the end of the year, we keep thinking that there will be a surge of short-sale listings coming to market.

Not only is there NOT a surge of short-sale listings, there’s not a surge of ANY listings, relatively.

Here are the total new listings that came on the market in SD County between March 1st – 15th:

You’ve been waiting patiently for the right house – preferably an older home with character.

One that’s been well cared for, and if it were on a canyon lot, great.

You see a video on the internet of a new listing in University Heights, which doesn’t have the refinement of Mission Hills, but is still a pretty good neighborhood.  The last sale on the street was the house next door, which sold for $735,000 in 2008.  So even though the list price of $799,000 seems high, you reluctantly decide to join the bidding war.

But someone with more horsepower blows up the field.

The house on Arch just closed for $900,000 cash, and 13% over list price.

http://www.redfin.com/CA/San-Diego/4448-Arch-St-92116/home/5286660

Hat tip to our friend Auntie Agent, who was involved with the sale:  “Good listings in that area are SO limited. The house is nice but nothing overly special, it is just its siting and location in the neighborhood. It is so highly prized in that area and being on the canyon just brought buyers out in droves creating the frenzy that propelled the price skyward.”

Another Investor said yesterday:

Prices are going up in Phoenix, why wouldn’t they go up in San Diego? No foreclosure inventory, and as you say, buyers are everywhere. When buyers become resigned to paying something closer to the new listing prices or going home empty-handed, they will buy at the higher prices. As long as they can afford the payments, that is.

Overpriced turkeys are always out there. The nice property that lists five percent higher than the most recent sales will draw bids when buyers see there is nothing else out there. Prices move up when buyers are more confident and sellers are not desperate. Barring a significant increase in interest rates, I think you will see at least a five percent increase in your market this year.

I agree that we could see a five-percent increase in prices around NSDCC this year, even though the measuring of price changes is imperfect.  If the SD Case-Shiller Index rose 5% this year, it would only get us back to 2010 readings, because it dropped about 5% in 2011.

Why won’t prices go up much?

1)  Buyers stay picky when they plan to live there long-term.  The inferior properties aren’t enjoying an across-the-board appreciation like they did in the peak era, and still need to be aggressively-priced to find a buyer.

2) There should be a flood of short-sale listings over the next few months, unless the N.A.R. can petition Congress to extend the exemption to taxing debt relief that expires at the end of the year.  I haven’t seen any official announcement from N.A.R. about them working on this.   They didn’t have the juice last time, and the Fannie/Freddie conforming loan limits reverted back to the previous lower amounts, until Congress caved and bumped our FHA limit back to $697,500. 

3) There isn’t much competition from investors around the higher-priced areas of NSDCC.

4) For every higher-priced sale, there is a fraudulent short-sale in the other direction.

5) The increase in activity might just be from lower prices, and the statistics will bounce around:

SD County Detached Sales for Jan and Feb:

NSDCC Detached Sales for Jan and Feb:

The DOM and SP/LP categories are worth keeping an eye on, because they, like sales, are leading indicators. I don’t think buyers have to worry about prices getting away from them, but the agonizing wait for the right house, at the right price, may take longer than we thought.