It’s November, and 2009 is on the home stretch.
Nationally, the pending home sales have increased 8 months in a row, and are up 21% YOY. Looney Larry says that prices have over-corrected and that the $8,000 tax credit is better than home prices going down $8,000. Why? Because if the national housing stock went down $8,000 it would be an aggregate destruction of $700 billion in housing wealth and raise more foreclosures. The tax credit only costs $10 billion.
http://www.realtor.org/press_room/news_releases/2009/11/rise_eight
What’s really happening?
First, let’s note how ridiculous the ‘Pending Home Sales Index’ is, when 30% to 50% of escrows are falling out these days.
But let’s also look at the October detached sales for North SD County Coastal, from La Jolla to Carlsbad. There will be late-reporters for 2009, but in spite of low mortgage rates, tax credit, and NAR hype, we’re still strugging:
| Year | # of sales | $ per sf | Avg Freddie 30YF Oct |
| 2001 | |||
| 2002 | |||
| 2003 | |||
| 2004 | |||
| 2005 | |||
| 2006 | |||
| 2007 | |||
| 2008 | |||
| 2009 |
* The October 2007 wildfires had an impact on closings.
In spite of pricing being 16% lower than 2005, mortgage rates being the lowest they’ve been in October, and the nutty tax-credit hype, you can’t say the local market is cooking.
I think we’ll be in for more of the same over the next few months, but next year is shaping up to be an all-out war between short sales and REOs in the higher-end markets.
“I think we’ll be in for more of the same over the next few months, but next year is shaping up to be an all-out war between short sales and REOs in the higher-end markets.”
Can you define what higher-end markets is currently? Is it 800k+ or 1M+ or?? Has that definition changed at all since the bubble burst?
Let’s call $1,000,000+ the higher end.
I don’t think the price points have changed, but what you get for the money has improved nicely.
There was a time not long ago when the sellers of this house in Fairbanks Ranch thought it was worth $3M-plus, and it just closed for $1.85 million for 6,117 square feet, at a tidy $302 psf:
http://www.sdlookup.com/MLS-090044575-16779_Avenida_Arroyo_Pasajero_Rancho_Santa_Fe_CA_92067
Jim – A couple of questions:
-What’s the typical rate for falling out-of-escrow? (What was it in the 90’s? What was it during the bubble years?)
-And why are so many purchases falling out-of-escrow now?
I’d say in a ‘normal’ market like in the 1990s it was 10% to 20%, and during the frenzy it was well under 10%.
Today’s primary reason for blowouts is realtor error. Agents don’t have the savvy or salesmanship to know how to put together a deal that’ll stick, or rescue one that hits a bump in the road. They just throw their hands up and say “oh well”, and keep shuffing along.
I’d say that half of the deals that fall out could be saved by a professional.
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Hi Jim,
Can you clarify what you mean by “an all-out war between short sales and REOs in the higher-end markets” — in terms of what a buyer looking at $1M homes next year should be thinking about?
Thanks,
Don Q
Thought: If all sellers priced their houses at $283/sq.ft. and below (2001 pricing), we’d probably have had more closures this year than in 2001.
Jim, I know you bang this drum all day. I just wish everyone else would get on your bandwagon. 🙂
-Erica
Captain Obvious here. The temporary price of an asset is irrelevant if you don’t buy or sell said asset during said temporary time. Thus, even accepting that house prices jump for $8K for a few months before plummeting back $8K, for 99% of houses which are not traded in this time period it doesn’t matter. In fact, money is simply spent temporarily raising and then *lowering* all house prices even accepting his theory.
That said, his theory is flawed anyways. It’s just moot even if he were right.
JtR, I’m finding that many fall-outs are attributed to appraiser paranoia – intentional under-cutting at direction of lender, using incomparable comps and out of area appraisers.
Is the living room of the Fairbanks Ranch house an indoor putting green? That’d be sweet! I’d love to cruise around in there on my Segway with putter in hand.
intentional under-cutting at direction of lender
I agree that there are appraiser problems, but it’s not like the industry didn’t bring it on themselves. Brokers and agents have already proven that they can’t be trusted to hire a proper appraiser.
Secondly on a bank-owned this should be extremely easy to solve. Set the sales price at the appraised price and just go for it. Wouldn’t the bank just go for it knowing, it would never sell for more anyways?
WOW, that Fairbanks Ranch place was nice!!! HOA’s a little steep, and have to recarpet that great room, but that’s my kind of place!
well I’m glad my $8k in tax dollars can go to help those who own homes stay wealthy while I cant afford to buy one.
Lets keep the prices elevated so its affordable!
*sigh*
When you say professional realtors, do you mean like the ones on Bravos’ Million Dollar Listing show?
Late to the party, but that Fairbanks Ranch home was awesome!