In this hyped-up headline-grabbing world in which we live, those who just glean the headlines will think the real estate market is back in order.
This from Reuters:
U.S. home prices in August rose for the fourth straight month, surpassing forecasts and providing the latest sign that the hard-hit housing market is stabilizing after a three-year slump, according a report on Tuesday.
San Diego’s C-S index went up 1.5% from July to August, 2009, and -8.9% year-over-year.
All it does is give the gleaners a false sense of security that everything is back on track.
Don’t believe it. Instead, look around your local market area – that’s the real truth.
Shadash has some ideas on why, but it is puzzling.
Why are San Diego prices ‘sticky’, compared to other areas that have seen more rapid depreciation, like Phoenix?
Clearfund said that he thinks Phoenix has bottomed, and Vegas is close, but fears that there is more pain ahead for SD.
Oceanside and other parts of SD County have seen 40% to 60% off peak pricing, and could probably be compared to Phoenix.
But what about the higher-end markets, will their day come?
The doomers will say it’s just a matter of time before the real estate crash/depression hits those higher-end sellers who have been reluctant to lower their price.
In Rancho Santa Fe, Del Mar, Solana Beach, and La Jolla there are 696 active detached listings over $1,000,000 currently, and only 327 have sold this year, averaging about 33 closings per month. In 2005, the average was almost double, at 61 per month. So far there have been twenty-eight million-dollar-plus homes that have closed this month in those four areas.
The cost-per-sf is mind-boggling too; in 2005 the solds averaged $717/sf, and this year the average is $665/sf, only 7% less.
You see over-priced junk not selling everywhere. Then a well-priced offering will come on the market and fly right into escrow. There are potential buyers waiting, if more sellers were realistic there would be more sales.
How do you explain it?
Specifically, why has the demand for SD higher-end homes been sustaining?
Some of my thoughts/ideas:
1. Big Money – 114 of the 327 million-dollar-plus closings were cash buys (35%). The percentage of cash buys in 2005 was 15%.
2. Attractive mortgage rates – B of A has 30-year fixed rates up to $1.5 million at 5.625% on it’s website today, at 0.875 points.
3. The uncertainty of tomorrow must be more challenging than the certainty of today’s low rates and lower prices (‘close enough’).
4. Our prices still looks cheaper to folks coming from S.F., L.A. and other richer markets.
Numbers 1 & 2 may be similar in other markets though, as are the dollar devaluation and parents giving money to kids…..could the great weather this year be a reason?
Could higher-end SD prices somehow find a way to stick?
If you were a lender or mortgage servicer, you’d be thinking about adjusting your “liquidation strategies” right about now.
The foreclosure moratoriums provided some delay of the inevitable, but ultimately were good for nothing. Thankfully, you don’t hear anybody talking about new moratoriums today.
Uncle Sam’s attempts to push loan modifications are fully engaged, but they’re providing no significant help in stopping, or even slowing defaults. You could also surmise that they could make it worse. Loan-mod candidates who don’t get the terms they want will have one more reason to mail in the keys, justifying it with the old standard, “the bank wouldn’t do enough for me”.
The mortgage servicers have to be eyeing the trustee sales as a great way to liquidate their defaulted properties, for three reasons:
1. Sold “as-is”, with no liability whatsoever.
2. No costs/worries about the evicting, repairing, cleaning, evaluating, and selling.
3. Quick and easy, as long as they get the price right (give them away).
Servicers have to notice how well things are selling on the court house steps. In SD County over the last 30 days there have been 1,243 trustee sales, and 309 of the properties, or 25%, have been purchased by third-parties.
Buyers want a deal, and those with cash are considering trustee sales as an alternative.
Snagging a trustee sale will always carry the burdens/risks of occupancy, no title insurance, and physical damages + costs of repairs.
The first step is to be willing to accept the costs and hassles of dealing with the above.
Here’s an outline of possible costs:
Occupancy – $10,000 cash-for-keys should be enough to inspire any occupant to move. Your housing costs incurred while waiting for occupancy should be considered too.
No title insurance – The primary threat is from undetected liens on former owners, and a reasonable range of risk would be $10,000 to $50,000. The disputes that could arise from boundaries/easement issues with neighbors can be identified in advance, especially in tract neighborhoods.
Repair costs – You’d have to have a level of comfort with the occupants if we were willing to take a chance on buying an occupied trustee-sale property. “Comfort” would mean that there was assurance of the occupants vacating the property, but there can always be unexpected problems. Let’s budget of $5,000 for additional repairs caused by occupants. Yes, if they pour concrete down the toilets it could cost $25,000 to replumb the house, and that possibility should at least be on the radar screen, but if you didn’t feel comfortable with the occupants, don’t buy the house.
Miscellaneous – $5,000.
Let’s figure that if it took less than $30,000 in additonal costs to buy a trustee-sale property, then we did alright. Let’s make sure it’s reflected in the purchase price. And yes, if things really went crazy you could eat hundreds of thosands of dollars, but with proper investigation you can minimize the risks.
I have been developing my plan to offer assistance with the investigative service. My trustee-sale service plan includes:
A. With 10,172 properties in the county on the foreclosure auction list, we have to narrow it down. I am working on maintaining the list of “50 best buys” in North SD County Coastal, and have hired another person to assist with the compilation.
B. Determining, and sizing up the occupant, plus I want to arrange for a physical inspection of the property every chance possible.
C. Have title experts evaluate for liens and encumbrances.
D. Have money sources lined up.
Since posting this idea a few weeks back I have had many inquiries, which I appreciate. I have been reluctant to commit full-speed, but as of today I am willing to pursue these in earnest because of these two reasons:
a. The increased likelihood of more properties be sold at trustee sales.
b. Getting an assistant to help with the research.
Cash buyers who save the cost of 5-10 points on borrowing the money have a viable opportunity with trustee sales. For those with big down payments, there is still possibility, but it would take more people being more comfortable, and the cost of that would push the sales price (and need for a ‘deal’) down further – which could limit the properties available.
Trustee -sale buyers are going to save the 1% that they usually pay for title and escrow services, so I think my 2% commission for the investigation looks reasonable.
But you have to be comfortable with the risks, because trustee-sale properties aren’t for everyone.
The REO in the village of Carlsbad finally listed today.
The list price? $601,900.
I mentioned that my BPO was $599,900, but the video must have been powerful. Of the record 92 guesses, only 19 were under $600,000, and 20 were OVER $700,000!
I appreciate the optimism, and it’s a direct contrast to prior contests when most guesses were well below the eventual sales price.
I’m hoping this doesn’t get too out of control, because I just received my latest quarterly scorecard, and got ripped again for selling them too high. Every category had a perfect score except BPO:SP, which equaled 114%. They dinged me for 35% for missing so badly!
The contest was to guess the sales price, and the winner to receive a slightly-used bubbleinfo t-shirt and prize-to-be-named-later. Guesses are in the comments section, and here is the original video:
Somebody was already happy to post this in the youtube comments:
Your video on the Bluewater Crossing project is very uniformed.
First, Trammell Crow didn’t design the project, another developer did. The ultimate doomed project was the collaboration of a Planning Department and City Council in Carlsbad who insisted on an Urban Transit Oriented Development. They required the awkward combination of retail/live-work. Of course most developers would have built typical condos on the site if they could have. Several tried to get plans approved for a normal, on-grade townhome project. The city insisted on a retail component even after every study doubted the feasibility of retail at that site.
If anything, Trammell Crow was guilty of being too optimistic on the success of a Transit Oriented Development concept in North County San Diego. Now the City and the banks will be stuck with a poorly planned project on a prime parcel.
It has been a wild 6-7 months – ever since March when mortgage rates dropped under 5%, the buyers have been very active. Many here thought that worsening economic news would temper buyer enthusiasm, but lately it’s ramped up instead.
In our first installment we noted the biggest reason – prices are lower than they used to be, and apparently there are motivated buyers that want/need a house bad enough that prices must be low enough for them.
We also noted how the internet has empowered people to search for homes, and serves as a gut check when people see properties they like, go flying off the market – the anxiety starts rising.
The realtor shenanigans being deployed don’t seem to turn off the motivated buyers, if anything they appear to get more anxious the next round, and bid stronger. Their realtor should control the situation, but they get anxious too, and tell the client to keep bidding higher.
Then you have people who just buy because they want to buy real estate, and in many cases don’t put any more thought into it.
The CAR president sent a letter to realtors this week that Kris quoted on her blog:
The upshot is that, statewide, we can expect the median home price to rise 3.3 percent to $280,000 in 2010, while sales will moderate to a more sustainable pace, posting a 2.3 percent decrease next year. 2010 should mark the beginning of a “new normal” for California’s housing market, and likely will feature a steady stream of sales driven by distressed properties in the low end of the market, coupled with moderate home-price appreciation.
I commented that the guy is talking out his ear, and that 2010 sales in San Diego would be 20% higher than 2009 – maybe we’re different here? (I don’t think so). I know that might sound somewhat bullish, but I’m not enthusiastic about prices increasing.
I think as prices go lower, next year’s demand will get even hotter, as long as the Fed doesn’t mind throwing another trillion or two at MBS market.
Here’s why. Increasing sales counts will be fueled by the lower-end, but even the higher end buyers should be delighted to see more REOs coming to market, giving some relief to the stand-off.
Look at this chart of SD attached and detached sales, and cost-per-sf:
# of Sales
$219/sf thru 3Q
If we just see the same number of closings in 4Q09 as we had in 4Q08, this year’s total will be 34,392, a 15% increase Y-O-Y. But with the tax credit motivating additional November sales, this year’s count should end up even higher. Here is how monthly sales look on average, using the nine months of 2009:
Buyers have already been reading in the MSM that prices have been going up for 4-5 months straight, and when they hear that sales are spiking, it’ll provide more anxiety. If they don’t extend the tax credit, I think we’ll still see more sales, buyers have the fever. If they do extend, look out!
The lower prices go, the more sales there will be!
The bidding wars are intensely competitive, and without laws or regulations – anything goes! It is pretty impressive how many buyers are hanging in the fight, and willing to bid higher than list-price. Nobody likes it, but the multiple frustrations along the way make people want to just get it over with!
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