Hat tip to Kwaping for sending this along, from the U-T:
The real estate slump has arrived in La Jolla, Rancho Santa Fe and other high-end San Diego County neighborhoods.
After holding their own in sales strength, sales of homes priced at $1 million or more started to fall a year after lower-priced homes hit the skids.
Now, instead of selling their multimillion-dollar homes at multimillion-dollar profits, some sellers are taking a bath or renting their properties while they wait for a sunnier day.
“The market is terrible,” said Jan Paulin, 58, who bought his 4,164-square-foot home on Hillside Drive in La Jolla for $2 million in 2000, put it on the market for $4.5 million last year and is now hoping to get $3.8 million.
If Paulin doesn’t get what he wants, he plans to rent it for $10,000 a month. Other high-end owners are following the same strategy, area agents say.
“I’d rather hold on to it for a while and wait it out until the market turns, and we can get some revenue in the meantime and at least cover the carrying costs,” Paulin said.
Yesterday in the Cielo project east of Rancho Santa Fe, Bill Menish, a former local TV anchor turned auctioneer, conducted an auction for a 5,000-square-foot home bought for $2.65 million in 2001. The highest bid was $1.965 million, which took 20 minutes to reach and was close to the seller’s reserve.
“The owners have a lot of equity in it, have moved into another house and would like to take their capital and move it into an alternative investment,” said listing agent Bill Taylor.
Through the first four months of the year, 337 homes priced at $1 million or more closed escrow, down 52.4 percent from the same time last year, according to MDA DataQuick.
Over the same period, sales of homes less than $1 million totaled 10,987, up 37.5 percent. The overall median price in April was $290,000, down 44 percent from the peak of $517,500 in November 2005.
“The low end has been driving the county sales higher, while the luxury market has typically remained extremely sluggish,” said DataQuick analyst Andrew LePage, adding, “Wealthy folks have taken huge hits that they haven’t taken in a long time, if ever.”
Obviously, the top end represents a small fraction of the local inventory. According to Zillow, 44,500, or 5.9 percent of the nearly 750,000 homes the online company tracks locally are worth $1 million or more. They are generally concentrated in coastal communities with a few scattered throughout the rest of the county.
But of the 13,010 homes on the local multiple listing service last week, 2,537, or 19.5 percent, carry asking prices in the seven figures. The National Association of Realtors reports that the national share of sales above $750,000 is half of what it was two years ago.
In San Diego County, the drop-off of sales of homes at $1 million or more is even more dramatic, down from 73 percent this year from 2006’s peak rate.
“I’ve been doing this since 1975 and never seen anything quite as volatile,” said Willis-Allen Real Estate agent Linda Daniels.
Daniels said buyers are playing it cool, offering 40 percent below asking price and walking away if sellers don’t cave.
“It’s wild,” she said.
And yet, Mike O’Brien, 38, wasn’t fazed when he put his waterfront home in Bird Rock up for sale for $8 million, three years after moving in. O’Brien and his wife, Julie, 34, paid $6.4 million and put $1.5 million into improvements.
“We’ve had a lot more showings recently,” said O’Brien, an online business entrepreneur. “I feel like we’re seeing more serious buyers. One group has come back three times.”
The O’Briens are selling because they are expecting their fourth son and would rather move than remodel.
O’Brien said the subject of real estate hardly comes up in conversations with friends: “The only thing families talk about less than sex is finances.”
There are several reasons behind the woes faced by the wealthy, experts say. Upper-end buyers have lost money in the stock market, have less to spend and, like many other San Diegans, are worried about their job security.
Those who are able to buy find that a “jumbo” loan — more than $697,500 — is hard to get and carries a premium interest charge of one or more percentage points above the norm.
“The jumbo market is not functioning,” said Lawrence Yun, chief economist at the National Association of Realtors. “We hear from our members every day — ‘Fix the jumbo market, fix the jumbo market.’?”
“You can’t buy today because you can’t get a loan, no matter how golden you are,” said Maxine Gellens, an agent with Prudential California Realty in La Jolla.
When their offers are accepted, buyers sometimes have to endure multiple appraisals by lenders before a loan closes. “It is definitely becoming more difficult to find good comparable sales for the variety of characteristics that million-dollar properties present,” said David Eshelman of Eshelman Appraisals Inc.
The problem is most critical for what David Adamo, president of Luxury Mortgage in Stamford, Conn., calls the “HENRYs” — “high-earning but not rich yet” dual-income households — those who earn between $250,000 and $500,000 annually. They can’t buy what they want because of the difficulty of securing a jumbo loan.
To get around the financial roadblocks, some buyers have enough assets to make all-cash offers.
“Cash buyers are getting wonderful values because they can pull the trigger,” said Lou Martin, a Prudential agent in Rancho Santa Fe.
As for the future, history does not portend good times for the rest of the year. Since 2001, the proportion of million-plus homes sold in the first four months was always higher than in than the last eight months, except in 2002 to 2004.
If that trend continues this year, the 2.98 percentage share this January-April would be the high point of the year.
Andy Nelson, president of Willis Allen, said top-tier buyers may upend history as they survey the relative bargains available and press sellers to lower prices even more than the 20 percent to 25 percent reduction so many already have absorbed.
“Yes, their existing homes may not be worth as much, but there are some great values out there to upgrade their location or move to a house on a single level,” Nelson said. “They may have an opportunity in the next few months to get something because we think the bottom is close at hand.”
That last quote qualifies for the psycho-babble tag! 🙂
$2 million in 2000, put it on the market for $4.5 million last year and is now hoping to get $3.8 million.
oh, poor princess! You cant DOUBLE your money in 9 short years? you poor, poor thing. here, have some of my tax dollars to dry your eyes.
“Yes, their existing homes may not be worth as much, but there are some great values out there to upgrade their location or move to a house on a single level,” Nelson said. “They may have an opportunity in the next few months to get something because we think the bottom is close at hand.”
Famous last words:) Hehehe..
Heard those in 2001, 2002, 2003 for .com stocks. 95% are bankrupt.
SD high end market is still 35% over prized.
“I’d rather hold on to it for a while and wait it out until the market turns, and we can get some revenue in the meantime and at least cover the carrying costs,” Paulin said.
Well I’m not sure the $4M and up market is big enough that these comments apply. But in general, relative to people’s incomes, we will never see those frothy peak-bubble prices again. Nominal prices will eventually stabilize and start to come back up because of the inflationary pressures of all the money we’ve been printing lately, if nothing else. But the “real” value of San Diego housing is extremely unlikely to get back to those crazy heights.
Whenever I read about someone trying to wait it out, I just think it’s code for saying they don’t know how to correctly account for the effects of inflation and opportunity costs.
Just want to point out that as I write this SDLookup.com is reporting 284 SFR’s listed for La Jolla (92037) I believe that is an all time high. Lots of luck with that bottom coming up soon.
Check the good comments from Austrian School in the UT article comments.
“If Paulin doesn’t get what he wants, he plans to rent it for $10,000 a month. Other high-end owners are following the same strategy, area agents say.”
is there much of a rental market at $10,000 / mo. ?
Funny Larry yun still in circulation
I’m so sad for all the rich people in la jolla.they might have to cut the golf club out, bummer.times must be real tough.
While there are a few foreclosures and short sales in the areas mentioned, you’re still looking at only ~ 20%+ off peak pricing. Granted, the high end did not rally in the bubble to the extent the low end did – see the C-S graphs – we still have a resistance to prices falling in most of these areas to equivalent relative levels. Disbelieving owners set new listings offered at prices above the last purchase in 2005 or 2006 even after “massive reductions.” On margin the only homes selling are those perceived as a “good deal” or “under market distressed sales.” So what we are seeing is the volume – or velocity of high end homes turnover greatly reduced. There is some truth that in many cases people can “hold out.” However, prices are set on the margin, and even in the high end the margin is the distressed sale. The reduced velocity means that it takes longer to see the effect, and prices to reach a clearing level. However one look at the number of homes listed/households within a market, vs.some surrounding areas, indicates the building stresses which can only be alleviated by a new pool of qualified buyers capable of clearing the market, reduced inventory, or lower prices. The current environment is likely to increase inventory as options arms and alt-A’s trigger, so eventually, lower prices will prevail. Perhaps not to the levels seen at the low end, as there is still a surprising amount of money around. The thing is there are more of these distressed sales at the higher end occurring as well. Which means the optional seller will have to rent out their home and wait for better times if they are in a position to do so. Only owners with significant equity will be able to weather the negative carry on such an arrangement.
The pretense demonstrated by the homeowners is staggering. They bought for $6.4M “put in” another $1.5M so of course it’s worth $8M. Hilarious. And their reason for moving, they have new baby coming “don’t want to remodel”. It’s not a very good $8M home that doesn’t have room for two adults, three children and a baby.
Welcome to hard times.
‘they have new baby coming “don’t want to remodel”.’
It’s a 3900+ sq ft house and they need to remodel for the new baby??? Confucius say ‘BS’.
In good times, people pay top dollar for the best because they can. You just can’t expect to find many takers in times like these.
Look on redfin at what’s for sale on the map, and La Jolla fills the map with green – total contrast with its neighbors like UTC, Clairemont.
284 SFR units in La Jolla for sale, 33 in Clairemont, 27 in UTC, 50 in Mira Mesa. It was almost the other way around not long ago.
It used to be that well off folks bought and then they stayed put. They had a true “owner”ship.
I don’t know what these individuals here think, or even if they have thought about what a home is. A home is a place to live, to be.
What they seem to have are businesses that happen to involve structures they sleep in.
If we agree here, then they bear all and evey risk of that business failing. All and every last one.
Make up your minds rich folks.
“O’Brien said the subject of real estate hardly comes up in conversations with friends: “The only thing families talk about less than sex is finances.”
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So it’s supposed to be a surprise that the subject of real estate (ie: huge evaporation of wealth) is not coming up in this guy’s discussions with friends?
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“I’d rather hold on to it for a while and wait it out until the market turns, and we can get some revenue in the meantime and at least cover the carrying costs,” Paulin said.”
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Kind of like the guy on the Titanic who’s plan was to just hold on and ride it out until the ship righted itself.
“While there are a few foreclosures and short sales in the areas mentioned, you’re still looking at only ~ 20%+ off peak pricing.”
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Assuming the 20% figure is roughly accurate pichon, on a high-end $3 million home that equates to the vaporization of $600K in equity. Ouch. Combine that with the losses many on the high end have suffered in other investments and it is not a rosy picture.
Exactly how much do you have to net every month to own these houses? 100K, 200K or more? You would have to be in the top 1% of income brackets. Last time I checked, 1% owns 70% of America’s wealth.
This means that these people live in a different world and I really don’t give a sh$t how their housing market is doing. That is until our taxes start bailing them out. In that case, they better have a very secure house with guards…
Disclosure: I net around $8500 – 9000 monthly which puts at middle/upper middle class.
Game Agent won this contest!!! You nailed it!
It’s almost as if the market is a giant slinky and the big pull that started at the low end is finally starting to whip the high end around wildly.
Greetings from Montreal.
Look, truly wealthy people do not have the bulk of their assets tied up in the home. For the most part, homes are a very poor investment because, unless they are rental property, they earn no income, require constant maintenance, and over the long haul only appreciate 2%. The people I know who have a lot of money, who own nice homes, do not have a lot of outstanding debt and don’t worry about the “sell price” of their home on a month to month basis.
Given market conditions, people who must sell their luxury homes now either weren’t rich in the first place or probably had a life change (death, divorce, illness, job change). And like any forced sell, they have to sell at market price. Their homes are combined with the glut of inventory in the market. If they have to sell at a loss, and they cannot cover the loss, it means they were way, way over leveraged.
The truly wealthy will do fine. Yes, they will be poorer but not poor. So you can save your tissues for someone else.
High end flipper in Vista!
Best of luck getting 200k out of improved landscaping and pool!
http://www.sdlookup.com/MLS-090034210-2010_Buena_Village_Vista_CA_92084
Del Mar Guy—
Liked your comments, but 2% long term? Check your math, not even close to that low even if you sell in down times.
Unless of course, you are saying ABOVE inflation, and that may be accurate.
I have a 1,750 sq ft house. It has enough room, IMHO, for a couple and three kids (although I live alone). A 3,900 sq ft house has more than enough room for a couple and four kids. It must be configured in such a way that it only has four bedrooms (like my 1,750 sq ft house). Remodeling it into a five bedroom will take a lot less effort than trying to sell it, no matter what they think.
His house has 5 br/5.5 ba, and 3,940sf. How could he fit an infant in there????
His loans are $4.5 million, those seem to be a more likely reason for selling. He did list for $9.975 million originally in November, 2008.
Maybe they deleted a bedroom in the “$1.5 million into improvements” they made and would now have to add it back. It’s still very silly.
Exactly how much do you have to net every month to own these houses? 100K, 200K or more? You would have to be in the top 1% of income brackets. Last time I checked, 1% owns 70% of America’s wealth.
“This means that these people live in a different world and I really don’t give a sh$t how their housing market is doing. That is until our taxes start bailing them out. In that case, they better have a very secure house with guards…”
BAM,
How quickly you forget that they have likely paid in far far more in tax (in absolute and relative terms) than you. If anyone is entitled to bailouts using taxpayer $, it’s those who paid the tax in the first place!
Once again, JtR nailed it in Comment #24.
“The truly wealthy will do fine. Yes, they will be poorer but not poor. So you can save your tissues for someone else.”
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What is “truly wealthy”? $5 mil net worth? $10 mil? $50 mil? Who decides the definition?
I disagree with the premise that high net-worth individuals will always “do fine”. I have seen plenty of downfalls over the years. But in the end it has nothing to do with whether the “truly wealthy” will “do fine” – I just don’t care – it’s about alot of expensive inventory and no buyers and prices coming down. That is what is going on and there is no end in sight to it.
“Full disclosure”…Wait a minute, I am BAM. Whoever you are who took my screenname, I presume it was coincidence!