What can we expect for 2010? Let’s review the stats (2009 numbers are up-to-this-morning):
| SD County Det. | 2007 | 2008 | 2009 |
| Total listings, year | 46,056 | 42,567 | 33,573 |
| Total closings, year | 15,713 | 19,103 | 21,594 |
| 4Q Closings | 2,965 | 5,450 | 4,891 |
| 4Q $$-per-sf | $329/sf | $233/sf | $244/sf |
| 4Q SP:LP | 95% | 98% | 100% |
| 4Q Avg. DOM | 71 | 62 | 58 |
Even though we’ve had 20% fewer listings this year, detached closed sales have already surpassed last year’s total. It looks like the intensity is rising, but is it? We saw on video a bunch of high-enders get marked pending recently, has the whole market been cooking?
Here are the number of detached homes that were marked pending each month:
This month’s decline of new pendings could have been due to buyers rushing to buy in the previous months due to the tax credit, or just sheer exhaustion of seeing few deals and lots of junk all year. Plus, 92% of this month’s new pendings are still pending, where most of the previous months have already closed. The final tally for December is likely to be under 900.
While there’s been a flurry of activity since the first quarter of 2009, it looks like we lost some momentum right here at the end. But if there were more good homes for sale at attractive prices, sales would be better. The latest tsunami warning from B of A is to expect an upsurge in REO listings around April 1st, which will likely be another cruel April Fool’s Day joke. As long as the inventory is restrained, the market’s urgency is likely to stay like we’ve been seeing it – full of frustration and anxiety!
Merry Christmas, Jim.
Great post Jim. Given the crazy 09 spring and summer selling season, I wonder if frustrated buyers who presumably lost out on many bidding wars this year, decided to pull the trigger before the 10 spring selling season commenced. Mortgage rates turned lower again in December too (broke 5%).
I still view the low inventory situation as a temporary issue and will be standing by waiting (with my liquidity in hand) for the insanity to end. Thanks for all the data.
“Y’all know me.
Ya Know how I earn a livin’. I’ll catch this bird for you, but it ain’t gonna be easy. Bad fish. Not like going down the pond chasin’ bluegills and tommycods. This shark, swallow you whole”
What I am hearing in the REO trenches is incresing inventory gradually each month through mid 2011. This seems to be the synopsis with my discussions with the banks,outsourcers,REO kings and most in the buisness.
Dont be surprised if this shark does swallow you whole .
duncbdunc, I’m a frustrated buyer who “lost” a handful of homes this spring-fall. The rates dipping below 5% did make me look a little harder, but everything out there in my range is junk. We’re just waiting, and waiting, and waiting. I bet there are a lot more like us just waiting for nicer homes and hoping rates stay low.
Jinx, sounds like you have a greater “patience” threshold than the people in Jim’s two December sales videos. While I’m sure it must have been satisfying for them to get some closure on the “house hunt” think how bad you would feel if you settled on a crappy overpriced home a year before inventory normalized. In the big scheme of things, one year isn’t very long. I’ll admit, my patience has been tested but I’ve decided that I’m not going to be coerced into buying by Mr. Bernanke and friends. Its about fundamentals, for me at least, I just hope it doesn’t take another four years to get to equilibrium. My kids are growing up.
Happy Holiday’s to all ! Remember 2010 is gonna be better than 2009 !
The current trend of lower inventories and still lower prices is not sustainable. We are not moving toward an equilibrium but rather an instability.
Moving towards more reasonable home prices that are supported by fundamentals (i.e. income) is moving towards equilibrium. Keeping inventory at artificially low levels is just slowing down the process. The question is, how long can this last and do you have the patience to see it through.
I guess the two aren’t mutually exclusive. You could have a scenario where housing continues to move towards equilibrum (albeit slowly) and we experience instability as the consequences of our monetary and fiscal policies begin to emerge. This suggests that an overcorrection is a possibility (we move right on past equilibrium). But this discussion is probably beyond the scope of this blog.
“Moving towards more reasonable home prices that are supported by fundamentals (i.e. income) is moving towards equilibrium.”
If we are moving toward an equilibrium, then why does inventory keep dropping?
Inventory is not dropping – just marketed inventory is. Inventory is actually rising its just not listed yet.
Never believe anything BofA says.
ncbdunc, I only have patience because I already own a home and can wait it out (although its driving me crazy! Like you said, kids are growing up). If I was a renter I probably would’ve bought by now. It seems like a lot of move-up buyers are still sitting on the fence and not swayed by the ridiculous tax credit.
I hope Santa brings some new inventory my way!
Moving towards more reasonable home prices that are supported by fundamentals (i.e. income) is moving towards equilibrium
And the fundamentals say that we’re at reasonable levels for San Diego as a whole on a price/income levels and price/rent level. We’re back to 1999-2001 pricing at those numbers. When you factor in interest rates, we’re sitting at the lowest monthly payment/rent ratios there’s data for in San Diego.
Sure, rising interest rates, rising inventory and overshoot could push us below the fundamentals of home prices but that’s a different argument entirely.
Maybe off topic, from NYT: Homes Being Stripped Just Ahead of Foreclosures
http://www.cnbc.com/id/34577150
Jordan, it would be easier for me to accept your argument if you could convince me that 4.8% mortgage rates are sustainable, 3.5% downpaymet up to $697K with 9,000 tax credit will be with us forever and that the growing supply of distressed homes coupled with the pent up demand from sellers who are “waiting it out” are a mirage. And rents are falling too.
Just to be clear, I’m speaking to higher end coastal regions and 56 corridor. Many markets accross the country, including parts of San Diego, have already reached price equilibrium in my opinion. In some towns in the Central Valley region of California, for example, home prices are back to late 1990’s levels and price per square foot is $70. That means land is free. This is clearly an overcorrection. But unemployment is 20%+ and oversupply is significant.
Thankfully for all of our sake, San Diego employment has fared much better. It doesn’t mean that home prices in “desirable” areas should be out of line with incomes or rents though. I’m waiting.
“And the fundamentals say that we’re at reasonable levels for San Diego as a whole on a price/income levels and price/rent level. We’re back to 1999-2001 pricing at those numbers. When you factor in interest rates, we’re sitting at the lowest monthly payment/rent ratios there’s data for in San Diego.”
Maybe for some of San Diego, but definitely not for the coastal cities and in many cases their neighbors. Most houses on my street rent for ~$3k but list for $1.5k+. That’s nowhere close to a reasonable ratio. As duncbdunc noted rents are going down here as well.
Just to be clear, I’m speaking to higher end coastal regions and 56 corridor.
I agree with your assessment of prices, and this line in particular. What are the fundamental prices for that area as far as price/income over the years? At the high-end there may not be very good data, but I’d be interested to see how it compares over the years.
I’m also not sure at the high end there’s ever been a decent correlation between rents and prices. There’s a strong signaling aspect to buying a home versus renting, and this could skew high-end prices higher on a price/rent ratio. There’s a reason that investors look at apartments and low-mid end areas for rentals.
As duncbdunc said, the rent vs. own calculation varies a lot depending upon the area you are looking at. I recently moved to a rental in coastal Encinitas and the rent vs. own calculation is completely out of whack. Of the places I was looking at, the rent vs. own calculation would require prices to come down by at least another 20-30% (assuming rents stay the same), and that is factoring in the ultra low interest rates right now.
The house I am now renting was for sale just before I moved in. The asking price would have resulted in a mortgage payment that is 4 times more than my rent. This is clearly an extreme case, but highlights the variability. I’d like to eventually buy in this area, but I’m certainly fine staying a renter as long as renting is this much cheaper.
Yes rents are collapsing in my area as well. Higher interest rates and declining rents are not good for the housing market. The short term indicators look horrible for housing right now yet it might not be a bad time to buy if you are in it for the long haul and find the right house at a payment you can easily afford. All of the negative indicators are short term. In the long run, supply constraints are going to dominate the equation in the most desirable areas.
If you are hoping rates stay low around 5% during 2010 you might be disappointed. I think rates will move up to 6-6.5% range over the next 6 months. The yield on the 10 year treasury has broken out to the upside over the last 3 weeks. Interest rates today are 5.25% on average on a 30 year conforming mortgage.
Where do you think interest rates will be a year from now?
I completely agree with duncbdunc, you can’t call any housing market that needs under 5% rates, 3.5% down and a tax credit to keep sales moving.
Is that same market stable and achieved price discovery at 7% interest, 20% down minimum and no tax credit? If people can’t afford to buy on those terms, the market is overpriced. All these incentives are in place because prices are still too high and buyers have to be lured in with incentives.
We’re back to 1999-2001 pricing at those numbers.
Not where I’m looking (cardiff, encinitas, some parts of carlsbad). The properties I’ve been interested in have been priced at around 2004 levels (which is one reason why I havent bought yet).
alles_klar, I might be your neighbor soon if I don’t find something decent to buy. If you want to be close to the water, renting seems to be the way to go.
Art, yes government intervention has a lot to do with low interest rates but another big reason they are low is because the economy sucks. Yields on the 3 month treasury have been driven down to 0% because of the flight to quality. When people pull out of assets and go into cash equivalents interest rates on debt drop. This is not a new phenomenon and in fact it happens every time the economy goes into the tank. The tax credit is basically irrelevant for the coastal SD market. Finally, try to but a trophy REO with 3.5% down. It isn’t going to happen. You will get blown out of the water. So again the low downs are not a factor when one discusses coastal property.
Sometimes the simplest explanation is correct. That would be that inventories are low and prices have slowed there descent because there is still a tremendous demand for prime real estate (especially at these discounted prices) and supply is indeed quite limited because the best locations have already been built on.
Not where I’m looking (cardiff, encinitas, some parts of carlsbad).
I never claimed it was for every market in San Diego, just for San Diego as a whole. I will say that places near the beach seem to be out of whack, but I don’t know if that’s normal for the area or not without the historical data.
I completely agree with duncbdunc, you can’t call any housing market that needs under 5% rates, 3.5% down and a tax credit to keep sales moving.
As Jim has pointed out a lot of the action has been with high cash down payments. The low interest rates are helping, but in North County Coastal it seems like FHA/VA loans are not the norm.
Jinx & duncbdunc & Genius,
You’re my neighbors — and my competition. I’ve been trying to find a SFR for a reasonable price in the same areas.
I think we need to learn what JOSHUA learned in War Games: the only way to win is not to play. If we can rent an incredible house for less than 1/2 the cost of owning, what the hell are we bitching about!!!
The short term indicators look horrible for housing right now yet it might not be a bad time to buy if you are in it for the long haul and find the right house at a payment you can easily afford. All of the negative indicators are short term.
Pameliza,
I’m surprised to hear someone say that short term looks horrible, but long-term looks good. From my vantage point, I’d say that’s ignoring the elephant in the room for the long-term.
Higher interest rates
Higher taxes
Reduced demand by Boomers’ saving/retiring
Poor jobs climate in CA in the future
Possible lost decade ahead of us
I’d say that the medium term 7-10 years looks terrible. It seems that if nothing, Californians are always optimistic, even in the face of indisputable evidence that the future looks terrible. That’s a very good trait to have when facing possibly terminal cancer. Cause that’s what this state has.
Personally, I’d rather be paranoid. It has worked good so far, but by all means, everyone should be my guest and catch that falling knife.
Chuck,
I completely agree if we don’t go into serous inflation.
But everything Bernanke and Obama are doing points to serious inflation. You could buy an overpriced place today and within 10 years your mortgage payments could be equivalent to a pack of smokes.
W.C. – With the way things are going, in 10 years a pack of smokes will be $5k and illegal to own within 10 miles of any beach (but feel free to blaze up a joint). However, I agree with your inflationary fears. I’d pay good money to watch Volcker bitch slap Bernanke, who is Time’s person of the year.
I won’t be in the market to compete with you for a while unless I hit the lotto or land a generous cougar. How about a nice game of chess instead?
Sometimes the simplest explanation is correct. That would be that inventories are low and prices have slowed there descent because there is still a tremendous demand for prime real estate (especially at these discounted prices) and supply is indeed quite limited because the best locations have already been built on.
pemeliza | December 23rd, 2009 at 5:27 pm
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Then they should have no problem removing the tax credits, interest rate manipulations, low-down/FHA/ultra-high jumbo conforming limits (should be limited to houses under $250K, IMHO)… Oh, and perhaps they could also allow banks to finally kick out all the deadbeats who refuse to make good on their mortgage commitments, right?
“Sometimes the simplest explanation is correct.”
The simplest explanation is that demand is being artificially supported by government policies and that supply is being artificially suppressed by government policies. The “frenzy” and “scarcity” is a mirage, unless you think these policies are sustainable of course. Simple econ 101. Are you really going to fall for these tricks?
“Are you really going to fall for these tricks?”
Someone once told me that you have to trade the market you have not the market you want. I understand that you would like to see the tax credit, interest rate subsidies, and FHA loans disappear. While we are at it why don’t we eliminate prop. 13 and the mortgage interest deduction. Both of those actions would certainly bring down house prices.
Top quality coastal real estate is not only scarce today but it is going to get more scarce. Ten years ago we didn’t have La Costa Valley, La Costa Oaks, Encinitas Ranch, and the list goes on. At one time all of these developments could have been considered “shadow” inventory. How many weak hands are there today? A La Costa Valley worth? The builders put their houses on the market one phase at a time and the banks are now doing more or less the same thing.
To be clear, I am most certainly not calling a bottom here. Those who have waited this long will get great deals. At some point, waiting will be the wrong move and I don’t think anyone knows when that time will be.
“Someone once told me that you have to trade the market you have not the market you want.”
So I assume you would have advocated to purchase a home in S. Cal in 2005? Hopefully you weren’t investing in dot.com stocks in 1999 either. That’s terrible advice, if you ask me. But to each their own.
Just to be clear are you arguing that the current supply situation and the federal reserve money printing (1.25 trillion) and the U.S. treasury deficit spending are as sustainable as the mortgage interest rate tax deduction and prop 13? If so, then please explain how this will work and maybe I’ll change my mind.
Also, I thought the scarcity argument was out the window in 2005. Instead of “not making anymore land in San Diego” now its “not making anymore land in coastal San Diego”. Pretty soon its going to be “Birdrock”.
No one’s arguing that coastal regions shouldn’t trade at a premium. They do and always have. The question is should they trade at a premium that is out of line with their historical average.
If you want to be a real bear, then you should ask whether historical fundamentals are even a good proxy? High income earners experienced the greatest % wealth deterioration this downturn, will be hit with a much higher tax burden in the coming years and we are beginning to see signs of a net migration out of California by the same group. I wouldn’t be surprised to see Prop 13 on the table as California decides how to fix its budget crisis either. It will be interesting to see how all of this impacts coastal real estate.
I’m not counting on the last part in my buy/rent algorithm. I’d be happy with late 1990’s/2000 fundamentals (when San Diego was still sunny, when La Jolla, Del Mar and Solana Beach were still capacity constrained, and when the Pacific Ocean was still close by).
Based on my calculations, 2003 nominal prices gets you pretty close to 2000 fundamentals. We’re getting there, its just going to take more time. Shoot, even if we were there on price I’d still wait for the inventory to improve. The selection is absolutely terrible. Merry Christmas everyone!
“So I assume you would have advocated to purchase a home in S. Cal in 2005?”
You misinterpreted my advice. Sometimes the best trade is no trade (i.e. just rent) or perhaps buying in a different location where the fundamentals make more sense. Just don’t constantly lament the situation because things didn’t turn out the way you wanted with respect to the foreclosure process and government support.
I didn’t say to buy now or be priced out forever. I left coastal SD in spring 2004 precisely because I realized we were in a bubble. I moved to North Carolina and lived there until just this fall. I didn’t even look back until this whole thing started to implode back in 2008. I was prepared to live in NC forever if the bubble never popped.
I do think prices are going to continue to slide. However, I am not so confident in my opinion as to ignore a serious reduction in available houses for sale as a sign that the price drop may be slowing.
We’ll welcome you back with open arms here in socal. We need the tax revenue 🙂 Just make sure you wait until I buy a house…haha. Just kidding. Merry Christmas to you.
Thanks and Merry Christmas to you as well. I’m sure you will find a great house.
All things being equal, I wouldn’t live in Oceanside. I’m happy to pay 1.5x to 2x premium to live elsewhere.