From the North County Times:
For the first time since home prices started diving three years ago, the median price for a house in North County showed a meaningful uptick in April, a sign the region’s housing market might be transitioning toward stability.
To be sure, there remain substantial pressures on the market that could push prices down further.
Nonetheless, the increase in the median price – the middle point of all sales – is significant.
In April the median price for a detached house was $390,000, an increase from $364,000 in March but still down 24 percent from $510,000 a year earlier, according to a report released Friday by the North San Diego County Association of Realtors.
At the same time, the report showed two distinctly different markets: the high-end, with few foreclosures and no sales; and the low-end, with lots of foreclosures and booming sales.
For example, the market in Del Mar has 30 months of inventory, a measure of how long it would take to sell all active listings based on last month’s sales rate. That is five times higher than the six months of inventory that is widely considered to describe a normal Southern California market.
On the other hand, western Vista showed two months of inventory.
Further, that same ZIP code in Vista – 92083 – has more homes that are “pending,” meaning the sales are in escrow and could close in May, than active listings for sale, according to numbers provided by Jim Klinge, a real estate agent in Carlsbad.
“That is smoking,” Klinge said. “You could be 10 percent too high on price and sell right now because of this frenzy on the low end.”
Indeed, several real estate agents have reported that there are so many buyers interested in low-priced foreclosures that bidding wars have erupted, with 10 to 20 offers per listing.
At the same time, the median price is a crude metric that does not necessarily translate to overall price increases. It is simply the middle point of all homes that sold in April.
Robert Brown, an economics professor at Cal State San Marcos who compiles the HomeDex report for the Realtors association, said the market is split into three segments: red-hot sales on the low-end; a slight resurgence in homes priced from $400,000 to $600,000; and very few sales in the high end.
Indeed, the median price increase could be the result of more “normal” sellers getting into the market – homeowners who have taken care of their properties commanding a premium over a glut of beat-up foreclosures, said Kurt Kinsey, a real estate agent in Oceanside.
And buyers are looking to stay in the home for longer, meaning they might be willing to pay more, Kinsey said.
“A home is becoming a home again,” he said, speculating that the average homeowner during the last few years moved after two years and that time in a home is going to increase to five years.
HomeDex reported relatively mild sales for North County, increasing 6 percent from a year ago to 723 sales in April – well below the 1,117 houses sold in April 2005.
And even the increasing median price left plenty of room for uncertainty, with some analysts hesitant to declare recovery for the housing market.
“It’s hard to say,” said Brown, the economics professor. “We did have this little bump up, but I don’t expect any major price movement barring something happening.”
For Brown and other analysts, the largest area of concern is a glut of “pre-foreclosures,” representing mortgages in default but not yet seized by the bank.
In March, North County set a new high for this recession in such default notices. April numbers, due out early next week, are expected to be just as large.
And even though areas such as western Vista have just as many homes in the sales process as homes up for sale, those pre-foreclosures loom.
Indeed, despite booming sales in western Vista, for every home sold, two others were in default, according to ForeclosureRadar, a tracking firm in Northern California.
Analysts say banks have slowed the foreclosure process, meaning thousands of homes in foreclosure have not hit the market.
For even more skepticism, Klinge, the Carlsbad real estate agent, said the buying frenzy on low-end properties could be purely seasonal – sales traditionally pick up during the summer.
“My guess is it will settle down again,” Klinge said regarding the emerging bidding wars and 10 to 15 offers per listing. “You’ve got a bunch more foreclosures coming on, so when you get to the last three to four months of this year, you’ll get one to two offers – if you’re lucky.”
ZACH MENTIONED THE GLUT OF PRE-FORECLOSURES
(I’d guess that 25% are in MLS active or pending already)
Carlsbad to Carmel Valley, attached and detached:
Active listings in MLS = 1,666
Pending Listing in MLS = 431
NOD, NOTS, REOs = 1,977 (x 75% = 1,482)
Total solds Jan 1- April 30:
1997 = 904
1998 = 1,051
1999 = 1,131
2000 = 1,248
2001 = 1,015
2002 = 1,347
2003 = 1,227
2004 = 1,297
2005 = 1,155
2006 = 907
2007 = 912
2008 = 646
2009 = 562
This high level supply can’t sustain limitless frenzied buying.
I’ve been speculating that this little buying frenzy is much like the current bear market rally in stocks. The fundamentals are horrifying – that there is a rally at all defies logic. People seem sharply divided between a bullish outlook that is whispering “buy, buy, buy” and the bearish “this thing is going to tank any moment now, look out down below.” Someone is going to be on the right side of history, the question is who…..
Don’t forget pent up demand contributing to this uptick. I think some buyers have been waiting the bubble out. If the peak was in 2007 we’re getting close on 2 years of sitting around, or more if you could see the disaster looming in 2005. At some point people just want to dump the vertical-blind and beige-carpet rental and get on with life.
If top tier prices dropped 50% I can guarantee you’d see a buying frenzy there too. 🙂
Multiple bids by itself doesn’t mean anything.
Any property in any market can get multiple bids at an appropriate price point. Receiving multiple bids just means that the seller priced it at or below market. It doesn’t mean that the market itself is high or low.
The low end buying frenzy is very logical:
1. In many low-end areas, it’s cheaper now to buy than to rent. In some cases, MUCH cheaper (as in, the monthly payment on a three bedroom house (with only 3.5% down) equals the monthly rent of a one bedroom apartment). So, many many many MANY long-time renters are entering the market for the first time.
2. Interest rates are amazingly low (this factors into #1).
3. The eight grand tax credit is a big incentive in this part of the market.
But this only works for the lower part of the market. Higher end properties are mostly priced at or above rental parity, and the eight grand tax credit is peanuts or doesn’t apply at all on the high end.
Someone is going to be on the right side of history, the question is who…
There’s no question. Fundamentals simply aren’t there, and history itself shows it’s way too soon.
Unfortunately too many people are still in bubble mode; instead of seeing this as a bear market rally, they see it as the end of a bull market trough. They’re wrong.
Jim,
BTW, the idea of the government taking over all mortgages isn’t a profitable one. The GSEs have always borrowed short and lent long, using “dynamic hedging” to (not always successfully) alleviate rate risks.
Unfortunately for them, a significant rise in rates may create a profitable spread on new mortgages — of which there would be few, given the havoc those would wreak on the housing market — but it *kills* them on their existing portfolio, most of which refinanced into low rates over the last 7+ years.
But this only works for the lower part of the market. Higher end properties are mostly priced at or above rental parity, and the eight grand tax credit is peanuts or doesn’t apply at all on the high end.
That’s the truth. If you can afford a 400-500k mortgage, then you’re outside of that $75k income limit on the tax credit.
With all the bidding going on for buying rental property, I’m not sure the return justifies the price. At some point, it’s better to buy CA bonds if they yield 6% or better since that’s state and federal tax free. With the state running out of money, yields will only go up.
I agree with Geotpf and greenlander. Many of my wife’s teacher friends are now looking to buy as the mortgage is equal to monthly rent. The low interest rates plus the tax break are making homes 200-400k very attractive for normal families.
“I’ve been speculating that this little buying frenzy is much like the current bear market rally in stocks. The fundamentals are horrifying – that there is a rally at all defies logic.”
Hmm, I wouldn’t necessarily compare the stock market to real estate. Real estate lags unemployment which lags the stocks. Many good companies are still selling below book value. I don’t see the current rally continuing, but there’s a shot at some stability soon I think (still at 35% under peak.)
Sorry for the tangent – it’s all speculation anyway. As for the $600k+ market, I still don’t believe incomes are high enough to support such a large inventory.
Chrisg,
For teachers your wife’s friends don’t demonstrate much foresight. “The low interest rates plus the tax break” will end and prices will go down to compensate, precisely because NOT having those things will handicap future buyers. That leaves any current buyers stuck well underwater for the foreseeable future.
Blur – I was referring more to a mentality and “irrational exuberance” on the part of a number of people convinced the bottom is in and it’s time to belly up to the bar. I’m sensing the same thing at work in both places. I pretty much agree with Myraid that the low end of the market is ripe pickings for first time buyers who’ve been waiting the bubble out – assuming they can beat off the hoard of all-cash offers.
TJ, I’m with you. I think this gets much worse before it gets better.
Tj,
Not sure I agree. If you’re renting a house at the same price, might as well buy. Sure, it could go down, but you could also win the lottery or get hit by lightening.
People aren’t rational, but they try to be. If you can pay the same amount per month and get equity and a tax break, that’s a good deal. Futures be damned.
Futures be damned.
You say that, but historically people move every 7 years. Even if they like their place their circumstances can and generally will change — family, income, employment, etc. If they are seriously underwater they can’t move without defaulting.
Tj,
You’re completely discounting the FED. In 2002, the FED lowered rates to 1%, a historic low at that time, and look where house/commodity/inflation went from there on. If it weren’t for the late 2008 margin call on the economy, oil would be at $200 and inflation over 6%. Now, the FED has outdone itself on a historical basis. FED rates are at 0%, mortgages are at historic lows, just like 2002 only on a grander scale. All that money sloshing around will find something to buy, oil, gold, houses, tulips, etc.
I don’t see how prices can be stable when there has been so much panic created nationwide. I think San Diego is an odd town and supply and demand toyed with.
To begin with San Diego had some sort of problem- where else does a city of 2million warrant a 500k average home? While a great city, SD is not a Manhattan where the use of property can earn such premiums.
Even today I went to a 1996 2300SQ home and they want 800k for it. It’s probably actually worth around 200-300k.
Somebody’s going to eat one hell of loss.
no bubble here,
That’s a rather superficial read on recent history.
Current circumstances are *nothing* like 2002, and if you don’t realize that then you can’t possibly understand why the Fed’s actions are guaranteeing further devastation in housing.
Governator: I have enjoyed all of your this that and the other about housing prices and such. But seriously….you must vote to tax yourselves more on the 19th…its so Calyfornian to do so anyway. If you do, I promise to enact state of faults number b413… which vill guarantee equity price increases next year to anybody how buys now before the za ends of za year. Trust me.
Jim
As far as all of those sales in Vista. Do you know if they are being bought primarily as owner occupied or rental? If it is the latter it will be interesting to see if they can be rented as easily as the “investors” believe they can be rented.
I believe you are seeing apartment complex vacancies skyrocketing. If these are bought as rentals it should be interesting. If you lose out on buying one of these properties you might be able to buy it out of foreclosure in a couple of years?
What do you think?
LV Renter-
The vacancy rate on apartments countywide did drop. It dropped something like 1%, down to 4%. I would hardly call that a “skyrocketing” figure. I think as usual the media just wanted a story and the headlines looked shocking–3% is considered “full” in apartment management. Compared to some other areas that are experience 15-20% vacancies, SD is looking solid. Keep in mind that there are only a few new buildings being built, or planned.
Sales ALWAYS go up in spring. Then peak in the summer and decline in the fall and winter.
This us not a bottom it’s just how the cycle works. If banks weren’t given all the free money by tarp prices would be through the floor.
I think the San Diego rental markets in certain areas will remain relatively stable. Bank Foreclosures and debt problems are causing consumer credit scores to plummet fueling the rental market. If you are able to buy low end investment property in the right area and get a 6% return, then why not. I’ll let someone else pay down my mortgage any day to earn a decent return while I’m building equity. Due diligence is key, and there are great deals out there for the long term buyer. Market timing is never going to be perfect and history has taught us that a long term outlook in real estate is a healthy gamble. Short term investors are simply taking too much risk in buying right now expecting to make a quick return.