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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?

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.

From Trulia:

In today’s market, most listings aren’t instantly flying off the market. While we all know price is one of the most important factors in the sale of a home, there are other factors they can improve the saleability of your listings.  Here are a few tips to get that stale listing sold (besides the most important – lower the price!):

(1) Offer incentives or alternative financing options

Incentives can make a big difference for buyers who are stretching to find the down payment to buy a home or who may be sitting on the edge of loan limits. Seller incentives such as paying for closing costs, inspections, or repairs, or providing allowances or credits for home upgrades after closing can make a big difference to home buyers short on cash.

Other alternatives could include pre paying taxes, homeowners dues and insurance. Consider offering buyer incentives to encourage on the fence buyers to take action on your listing.

(2) Make it accessible

Take a hard look at the accessibility of a home. Today’s home buyer is impatient. They want to see homes and they want to see them now. Make sure your listings are simple and easy to show. Carl Medford, an agent with Prudential California Realty in the San Francisco Bay Area believes home accessibility is the #1 reason homes don’t sell. “If we can’t get in, we can’t show the house. If we can’t show the house, we can’t sell it. We frequently end up showing less than six homes because we can’t get access to homes on the list.”

(3) Expose it- everywhere!

We are often surprised by the number of homes with property addresses undisclosed on the internet. It’s no secret homebuyers are looking on the internet for homes, make sure they can easily find it. Two popular search filters we see prospective homebuyers using on Trulia.com are filters for listings with open houses and filters for listings with price reductions.  Want more eyeballs on your listings? Make sure they are updated weekly on popular real estate search sites like Trulia and Craigslist and be sure to list your open home times to get the max exposure for your listings. 

(4) Refresh your photos

Today’s homebuyer spends a lot of time online. As your listing becomes stale, so do the property photos. Consider retaking the photos, especially if seasons have changed. If taking new photos is out of the question, you may want ot consider changing up the order your photos display online to give it a fresh appearance for web browsing buyers. Many agents start their photos with a picture of the front of the house when they would be better served displaying the huge backyard or the amazing chef’s kitchen.

(5) Put some zing in your marketing copy

In addition to stale photos, your marketing copy may be putting prospective buyers to sleep. “Check out my 3 bedroom, 2 bath home in a great location.”  Yawn. Add some zing to your headlines and descriptions to draw the attention of homebuyers. Your marketing copy needs to tell a story that appeals to the people most likely to buy your listing. Your copy can get old too. Simply freshening it up frequently is a good way to capture more attention to your listings.

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!

From Lawrence Yun, NAR economist – I just want to have this on record:

I participate in the Blue Chip Consensus forecast with around 50 other economists representing organizations such as FedEx, Dupont, Ford Motors, the U.S. Chamber of Commerce, Wells Fargo, Bank of Tokyo, Swiss Re, and UCLA. This forecast is often mentioned by the Congressional Budget Office, Administrations, and various politicians to say that their outlook is (or was) not too much different from the private sector forecasts.

Forecasting can be a hazardous sport at times. Interestingly though, this Blue Chip average consensus forecast value generally tends to be more accurate than any individual economist’s forecast over the long run. That is to say, it is better trust the consensus forecast more so than an individual economist’s forecast.

So, what is the Blue Chip consensus saying about the bottoming of home values? In the latest January issue, a solid majority of economists said the Case-Shiller home price index will finally bottom in 2012.

The exact phrasing of the question and the response tally are below:

Technically, if counting the small decimal point, the price may in fact bottom out in 2012. But as the graph below shows, for all practical purposes it looks as if home prices started to stabilize from 2009 onward. Of course, there will be local market differences (with markets like Washington, D.C. showing price gains while Las Vegas is showing price declines). It is therefore not surprising that mortgage loans originating from 2009 on show exceptionally low default rates.