Here are some same-house sales in Carlsbad, Encinitas, and Carmel Valley:
4120 Skyline, Carlsbad 92008
3 br/2 ba, 1,725sf
YB: 1958
SP: $1,410,000 11/06
SP: $1,130,000 6/09
MT: 439 days
This is the house on the splittable 0.72-acre lot on the corner of Tamarack and Skyline, the top of the hill in Old Carlsbad with sweeping ocean views. The 2006 buyer had financed $1,128,000, so losing the entire down payment of $280,000 (and then some) turned out to be a better option than to continue making those payments. In the MLS remarks: Lot split almost completed
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2804 Rancho Costero, Carlsbad 92009
5 br/4.5 ba, 3,743sf
YB: 2000
Monthly fees = $361
SP: $1,320,000 5/04
SP: $1,101,000 7/09
MT: 10 days
These sellers might be second-guessing themselves (or agent), they only listed for $1,100,000 and got a thousand dollars over LP right away.
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2997 Via Conquistador, Carlsbad 92009
5 br/4.5 ba, 4,453sf
YB: 2000
Monthly fees = $296
SP: $1,175,000 12/07 REO
SP: $1,000,000 7/09
MT: 29 days
If these sellers from Arizona (second home?) would have only paid list price when they bought it ($1.1M) instead of $75,000 over……..
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510 Camino de Orchidia, Encinitas, 92024
5 br/4 ba, 4,915sf
YB: 2005 Monthly fees: $362
SP: $2,300,000 12/05
LP: $1,299,000 5/09
SP: $1,325,000 6/09
MT: 3 days
The buyer probably feels like they “stole one from the bank” here.
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572 Lynwood, Encinitas, 92024
5 br/5.5 ba 5,177sf
YB: 2004
Monthly fees = $535
SP: $1,800,000 1/05
SP: $1,725,000 7/09
MT: 27 days
Big ocean view from the top of the hill in Encinitas Ranch, but after Orchidia’s closing I think they’d have a hard time reproducing this sales price.
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5448 Valerio Trail, San Diego, 92130
5 br/4.5 ba 3,922sf
YB: 2003
Monthly fees = $289
SP: $1,825,000 7/05
SP: $1,515,000 7/09
MT: 923 days
Seller had listed for $1,995,000 in 2006, but once he got the list price under $1,600,000, it only took another 60 days to find the buyer.
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5468 Meadows Del Mar, San Diego, 92130
5 br/5.5 ba 6,762sf
YB: 2003
SP: $3,300,000 7/06
SP: $3,300,000 6/09
MT: 157 days
According to the MLS remarks, the seller had put in $300,000+ into this double-gate guarded home. He should feel pretty good though, two others have closed since June 1st, for $2,400,000 and $2,558,375, and there are 11 active listing and one pending currently.
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The Meadows buyer used a $2,300,000 down payment, and the Via Conquistador buyer financed conventionally (it just closed, tax roll not changed yet).
ALL of the other buyers paid cash.
510 Camino de Orchidia, Encinitas, 92024
5 br/4 ba, 4,915sf
YB: 2005 Monthly fees: $362
SP: $2,300,000 12/05
LP: $1,299,000 5/09
SP: $1,325,000 6/09
MT: 3 days
The buyer probably feels like they “stole one from the bank” here.
wow, Jim, that is basically 45% off peak… can’t argue with that. plugged it into zillow, eppraisal, and realquest, got $1.4-1.6 mil. so true value probably $1.5 mil?
so this guy paid cash? what about putting my prior theory to the test and see if the current owner made out big and sold during the peak?
Hey Jim… I asked this question before but think it got lost in the wash.
Maybe the question is too general, but I’m curious to hear your take — Where exactly is all this cash coming from?
Employment nationally is a debacle. In California, its that much worse. Not only is effective unemployment well past 15%, but we’re getting to the point where I’d guess a fair number of people who are still employed are at least *worried* about losing their job and are spending accordingly.
Everyone always talks about “sideline cash”. Guys on CNBC use it as a reason why stocks are set to rebound. Commercial real estate “experts” cite it as a reason why CRE prices won’t crater. The UST market has rallied back in the face of unprecedented auction volume (i.e., those bonds are being bought by someone). And all the while, the volume of “all cash” transactions in residential California real estate appears to be increasing.
So where is the cash coming from? And who are the buyers who are willing to plow so much of their savings into another house? We’ve been told the American problem generally is that no one saved any money… given these transactions that clearly isn’t the case.
Are these buyers people who don’t already own a home? Did they own a home at some point but walk away from it and this is their fresh start?
I’m dying to be able to put this narrative together. Any help would be much appreciated. Thanks…
All cash deals strike me as very suspicious.
First,
I thought every savy investory “knew” that it’s stupid to pay cash for a home when you can borrow at such tax friendly historically low rates! Why are they so willing to tie up so much cash?
Second,
If they are buying as an inflation play, why now? Come on, if you can pay cash for a house, by definition you don’t need to borrow. If you expect inflation to take off, guess what happens to mortgage rates! Yep, they rise! Would you rather be a cash buyer in a 5% mortgage interest rate world or a 11% world? Duh!! You’d rather buy when rates are higher because we all know when rates rise, real estate prices drop. If you don’t believe me then why all the effort to keep rates low? Answer; to prop up asset prices.
I suspect that reasons vary of course, but a good deal of them may be defaulting elsewhere on even bigger properties. Think about it. These people are rich and have been living somewhere else obviously. What’s up with the houses they used to live in? Well, if you are going to walk away from a $3.5 million home that you paid $5 million for, then of course you can’t borrow to buy your next house. So you pay cash, rebuild your credit in a few years, and tada! Your paid for you next house with the money you saved by defaulting on your last.
Instead of move-up buyers using their house to buy the next one, we have move-down buyers using the default on their last house to pay cash for the next.
Thanks for putting this together, Jim. Quite interesting…
Is 572 Lynwood a house or an apartment building?
Director, District 5: Jenae Politovich Peckham
Jim you have got to be kidiing here.Why on earth is this woman on the board?This is just nuts.
Average Joe-
One thought is that they may be trade-down buyers (long term owners) whom have taken their equity out of their more expensive homes and simply no longer want a mortgage payment. The other thought is that since “Stated Imcome” (Liar Loans) are no longer available, a mortgage is simply not an option for many buyers who have alot of income, but either can’t prove it, or have the wrong type of income–underwriting is tough these days, especially for the self-employed.
“If your self employed you have virtually no chance of getting a loan”.
http://www.cnbc.com/id/31866385
“The other thought is that since “Stated Imcome” (Liar Loans) are no longer available, a mortgage is simply not an option for many buyers who have alot of income, but either can’t prove it, or have the wrong type of income–underwriting is tough these days, especially for the self-employed.”
Local Boy,
Puuuuullllllllleeeeeeeaaaaaassseeeeeeeee,
If someone has any income,they can prove it. If they can’t prove it on a loan, it’s because they are cheating someone, either the lender or the IRS.
AJ-
I have a client/investor that made $2M plus in Capital Gains income in 07, but hardly anything in 06 and 08–he paid taxes on the $2M, did not cheat anyone–he has averaged more than $500K per year for the last 8-10 years in Capital Gain income. He can not get a conventional mortgage–not steady enough income-wrong type on income acording the the bank–He paid cash for a $1.5M home.
AJ–Read AZ dude’s link. If you think that it is not happening–think again–credit score used to be enough for these folks.
Nothing wrong with paying cash to seal the deal on favorable terms. Can always get a mortgage after the fact to free up the cash.
Jim,
Thanks for doing the research on these. If this is the best folks can sell for during peak season, there’s going to be some real post-Labor Day carnage this year.
“He can not get a conventional mortgage–not steady enough income-wrong type on income acording the the bank”
That’s common for rich folks- the type of ‘work’ they do isn’t always something where income can be predicted on a regular basis.
What you have to consider here is: what in the world is prompting people with good money to spend it on something in very bad shape.
Rich does not always mean smart, indeed it very often only means right place at time.
I know I’m a new kid on the block around here, but it seems to me that it makes sense for wealthy people to pay cash for these houses. SDCCU.com has a rate of 6.625 percent on a 30 year no points jumbo loan. By not borrowing the money, these folks have a guaranteed return on their money of at least 6.625 percent (their interest savings). Most investments that would bring in a comparable level of income would be taxable which makes the interest savings even more attractive. Assuming you want to live in the home, why not take the interest savings which are a sure thing?
I’ve known several all cash people, and they simply had the cash and wanted to buy. You save on the interest and gain any appreciation, as an alternative investment to bonds.
Of course, there are people who buy stocks on margin. Most of them are very bad with money.
http://money.cnn.com/2009/07/06/real_estate/robert_shiller_housing_market.fortune/index.htm?postversion=2009070711
Shiller’s professional ambitions are so big because his fears are even larger. He worries that decades of a get-rich-quick ethos have eroded the work ethic that has been a cornerstone of U.S. economic and social stability. He is afraid that we stand at the brink of a destructive wave of populist anger, not entirely unfounded, against a financial system that has made some men centimillionaires while real income stagnated for almost everyone else. He believes that the financial industry has come to have such a big effect on the lives of all Americans that we need tools to protect ordinary people against market fluctuations. “Our sense of well-being in this country is ultimately supported by a general sense of fairness,” he says. “Democracy is eroded when it’s gone.”
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“People think the recession should be ending now, so the stock market is responding to that, and to some extent recovery becomes a self-fulfilling prophecy,” he says. He also has what he calls a “doubt scenario” that reflects the impact of the unwinding of the greatest credit and real estate bubbles in history. “A reasonable case could be made,” he says, “that even though past depression scares have proven to be unwarranted, this time it might be different.”
@Potemkin: “these folks have a guaranteed return on their money of at least 6.625 percent…”
Only if the house value adjusts higher with inflation. If the value goes down (or stays the same when inflation comes back), that’s not “guaranteed” at all.
A simple CD ladder or TIPS/Treasury bonds will probably return better than a high-end house over the next 4-5 years.
-Erica
Without knowing the house in question, such a statement is ludicrous. While CDs will beat most houses in 4-5 years, they will not be beating most of the all cash offers I’ve seen in Oceanside and LA for investment purposes. Quite the contrary.
However, Potemkin is incorrect that this is a guaranteed return on their money. It is instead a guaranteed return vs. financing. In other words, if you are going to buy the house *anyways*, then the interest rate savings are guaranteed. The investment returns itself is not.
In other words, if you buy a car with all cash, you are guaranteed to save on the interest you would otherwise have paid – whatever that may be (including zero). That is no guarantee that your car is going to be worth anything tomorrow after you crash it into a pole. Hence your dividends on owning the car are not guaranteed even when the financing benefit is.
Hi Erica,
I did say “assuming you want to live in the home.”
So, if they want the house and they take out a loan, they will be in debt to the bank for the same amount that they would have paid in cash. They would have the same potential risks you mention, but they would owe the money to the bank and pay interest on it. Whether or not houses are the best current investment isn’t an issue for me.
sdbri,
I didn’t see your reply before I posted my previous note. I don’t disagree with the way you phrase the savings issue. It’s certainly true that you can lose money on any house. I don’t think anyone would question that. So, perhaps my earlier statement could have been more artfully phrased.
Average Joe wrote: “I thought every savy investory “knew” that it’s stupid to pay cash for a home when you can borrow at such tax friendly historically low rates! Why are they so willing to tie up so much cash?”
For the simple reason that many savvy investors can’t find alternative investments that safely return enough to pay interest on a loan. Think of it this way. Suppose you have a million bucks. You want to buy a house. You can use your million, or borrow someone else’s million. But if you borrow the million you have to pay that person (or bank) to let you use their money. For that to be a break even, you then have to invest your million and get enough to pay the interest on the million you borrowed. And that’s the rub. Suppose you got a mortgage at 4.25%. Yeah, great rate but where are you going to earn 4.25% on your investment without taking a good bit of risk in today’s environment? The stock market? Lots of savvy investors tried that, and it didn’t turn out so well lately. Maybe bonds issued by a big blue chip company, like or I don’t know, GM, or Chrysler, or how about a bank, like Lehman Bros.?
Maybe someday, some honesty and sanity will return to our investment world, but with the current situation I’d prefer to use my money to buy a house, than borrow someone elses money and try to invest mine.
Spotty
Would be interesting to find out who is the person or persons buying on cash.
I don’t get it where is the cash coming from in a bankrupt nation? Also, if there is cash around then why the TARP program. Something is strange!!
NKC–I didn’t know our nation was BK–Thanks for letting us know!
Are these the only sales in the +$1MM range or only the most interesting?
These samples seem to indicate that the sellers priced in a discount and took the offers within 30 days.
The others that sat took the biggest hits.
I’ve heard that cash buyers refinance after closing the deal.
Very good conversation folks, a lot of fun!
I have the same questions as Mozart Jim…are these just the most interesting $1M+ sales, or typical?
Working on next post with answers to questions posed.
All these sales are $1MM+
Doesn’t surprise me that upscale homes involve more equity / cash. After all, who can / wants to support a $1MM+ mortgage?
Glad to see we have lot of economics majors in the room. Does anyone go to college anymore? You may be bankrupt, but the country isn’t.
The cash comes from many places including from legitimate biz people who worked hard and lived within their means. (Read “The millionaire next door” for details.)
Six percent return is six percent return, regardless of investment. The only inflation hedge you have is TIPS, as someone mentioned.
If we have hyper inflation, the cash payers lose, if we have deflation (both long term) they win.
You make the call.