The Spring Kick statistics for North SD County’s Coastal region are likely to be tepid, at best, over the next few months, just because of the low inventory – the quality buys are hard to come by.
But if there was an area that could continue to beat the odds, it’s 92130.
| Month | # of Sales | $$-per-sf | SP:LP | DOM |
| Feb. ’09 | ||||
| Jan. ’10 | ||||
| Feb ’10 |
I think most of us figured that Carmel Valley would be at $300/sf by now, but all four of these stats are holding up – why? The strength of the buyer pool is phenomenal, and the amount of cash is mind-boggling. Here are the down payments of the Carmel Valley SFRs closed this year (1/1-2/22):
| 0-19% | 20% | 25% | 30% | 35% | 40% | 50+% | Cash |
It’s been like this for months, 77.5% of the buyers have at least 25% down, and 35% used more than 50% down payments. Two thoughts: We’re probably not going to see cascading defaults of recent buyers in the future, when they have invested so much down-payment. Their payments are lower (though not low), and they must feel comfortable with their finances to invest so much up front – they must intend to stay a while. Secondly, we should grapple with the likelihood that real estate in the area has turned into a rich-man’s game….only. We know that homeownership isn’t for everyone, but if these trends continue, buying a house will just be for the elite, at least in 92130.
Are the sellers having to take big hits to sell? From the tax rolls, here are the same-house-sales data; the amount of price change between the last sale and the most recent (between Jan.1 – Feb. 22):
2002 and before:
+144%,+138%,+113%,+102%,+99%,+83%,+80%,+47%,+34%,+20%,+14% (REO)
2003:
+33%,+28%,+19%,+14%,-4% (REO)
2004:
+9%,+7%,+7%
2005:
-10%, -17% (REO)
2006:
+2%,-4%,-11%,-11%,-12%,-13%,-20%
2007:
+8%,-5%,-12%,-13%,-20% (REO),-22%
2008:
0,-2%,-4%
Will there be enough peak-buyers that either can’t afford their payments, or bail out due to being underwater that we’ll see a significant change in the trend? I think it would have happened by now, but if it’s still coming, we should see more signs in the next few months.
An indicator to watch is the amount of new listings coming on the market. This month isn’t over, but here are the number of February detached listings from 2001 to 2010:
85,70,81,63,70,79,75,73,73,and 69 so far this month.
Levitating, or just beating the odds – either way, it;’s been impressive in Carmel Valley!
Excerpt re: Housing market from Warren Buffett’s 2009 shareholder letter:
The industry is in shambles for two reasons, the first of which must be lived with if the U.S. economy is to recover. This reason concerns U.S. housing starts (including apartment units). In 2009, starts were 554,000, by far the lowest number in the 50 years for which we have data. Paradoxically, this is good news.
People thought it was good news a few years back when housing starts – the supply side of the picture – were running about two million annually. But household formations – the demand side – only amounted to about 1.2 million. After a few years of such imbalances, the country unsurprisingly ended up with far too many houses.
There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations.
Our country has wisely selected the third option, which means that within a year or so residential housing problems should largely be behind us, the exceptions being only high-value houses and those in certain localities where overbuilding was particularly egregious. Prices will remain far below “bubble” levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst.
Thanks clearfund.
I didn’t include the article in yesterday Union-trib about the planners who estimated that there are another 1 million people coming to SD County.
It seemed preposterous, given the economy, but if the population were to keep growing and building stagnates, then at least we’ll fill up the vacant houses, for starters!
Thank god we gave banks all our tax dollars to stay in business. They obviously know whats best for us all.
“We know that homeownership isn’t for everyone, but if these trends continue, buying a house will just be for the elite, at least in 92130.”
It sounds like the weak hands are being replaced by very strong hands indeed.
Did those 25% to 35% downers all have loan amounts of $697,000?
That’s the main reason I can think of to put extra down – to get inside the conforming limit.
“another 1 million people coming to SD County”
Over the next 40 years (per the article).
Year after year, the strength of this market continues to defy my expectations. I keep expecting to see some sort of sudden reversal, something that will cause this market to plunge. No dice.
The number of people with $$$ and willing to spend it on their DP amazes me. Perhaps I really have been priced out of this market.
“buying a house will just be for the elite, at least in 92130.”
This appears to be the case. But for every elite buyer who buys a head-scratcher in CV, there’s one less seller in Encinitas and Carlsbad who’ll have their wish fulfilled. In a way these sales could put more pressure on north county. If you already believe there’s more value in Carlsbad, there could be silver lining in these CV stats.
Wow, CV market reminds me of Irvine.
My wife and I are looking at the 800-950k range in CV and from the looks of these stats, we’d need all the luck we can get to compete. We’ve saved around 30% DP but that would mean we’d deplete our savings and if anything were to go wrong we’d be SOL. Lucky my parents are willing to give us 100k to help but I think we’ve decided we’d get more bang for your back in Carlsbad so are now looking there instead.
Can’t compete with FCB.
sorry, great data, but alot of the CV and RSF coverage lately is outside of my budget, comprehension, and interest. let’s see some more graffiti houses by the back gate 🙂 i’m sure you love doing those (joking)
A few possibilities.
why prices for all homes can still go down in prices.
The Fed quits buying mortgages at the end of March. Interest rates goes up a half percent.
Option Arm begin to hit the market. That will do wonder for comps.
We go into a double dip recession this fall.
China economy burst. That will take down all of Asia. Tall office building still being built in Shanghai with a current 50% vacancy.
A blow up the the 60 trillion derivative market.
Banks this time don’t get a bailout because the American people are mad about their conduct in the past year.
Home prices continue to decline like they did in Japan for fifteen years.
Buyer go back to buying houses 3 to 4 time their yearly income.
Banks acquired to much shawdow inventory and have to put more houses on the market than the market can handle.
It makes absolute sense that CV is the latest market to become insulated in the ‘elite’ status. La Jolla is the king of high value, then it spreads along the coast through del mar.
Once you pass del mar, you begin to get a bit far from major employment (due to the encinitas area morning logjam) and UCSD research jobs so the pressure pushes east into CV. I can see the justification for a very high floor in CV now that the westerly part if essentially built out.
Its not for me,however, I can see the supply/demand logic being emperically put on display in JTR’s numbers.
The real question is that if the thesis above is correct, what is the next adjacent community to have a high floor put in over the next decade?
Encinitas?, east on the 56?, south to University City (housing stock may be too old for the new big paycheck crowd), etc???
Agreeing with worm on all accounts. In addition; banks filing NODs at standard 3 months instead of 9 months or longer would tell us the true default situation in CV as well. Most will end up as short sales but that will pressure resale values as well.
“The real question is that if the thesis above is correct, what is the next adjacent community to have a high floor put in over the next decade?”
Yes, and that is the question that today’s buyer should be asking themselves instead of wondering when the bank is going to release the flood that is going to take the elite areas down to 3 or 4 times incomes. In my opinion, 92075 and 92007 have worked there way up to elite as well. Although 92024 may not yet have elite status, the prices have gone up tremendously in the last decade and so it is hardly bargain basement these days. If you can find a great deal up in 92024, you probably are setting yourself up pretty well for the long run.
The I-56 going in has definitely helped the communities just easy of CV. If you want land and need to commute to the coast north Poway seems like a nice choice with prime schools. Going south is dicey because of the schools.
clearfund:
I don’t disagree with you, but by account of value spreading out from La Jolla wouldn’t you expect higher prices in Clairemont and Mira Mesa / Sorrento Valley?
“The real question is that if the thesis above is correct, what is the next adjacent community to have a high floor put in over the next decade?”
I don’t see this happening any sooner than 10 years, but it’s certainly an interesting question. There’s really nowhere for it to spread other than away from the coast. That is unless people start buying in PB, razing the houses and building mansions in their wake.
Genius – MM/SV/CMT likely didn’t take off because they were old, ugly, builtout, and inhabited by families with smaller paychecks than the new CV imported people at the time.
Same reason why the momentum kind of slowed down after Del Mar/SB border.
I think one example to consider is to look north to the Silicon Valley & Mountainview. It is stupid expensive up there along with Danville, Walnut Creek, etc and they are nowhere near the ocean…just suburban CV’s with overflow tech paychecks.
Granted there are a lot of jobs north of $125k for young people so a couple could earn $250k in their early 20’s…not happening here. However, biotech and wireless are makeing CV the equivilent, albeit with about 10% of the charm of those northern towns.
We know that homeownership isn’t for everyone, but if these trends continue, buying a house will just be for the elite, at least in 92130.
Oh, wow, serious bubble years deja vu!
It sounds like the weak hands are being replaced by very strong hands indeed.
Try “weakest” and “strongest”, because it’s all due to the supply constraints.
I agree with clearfund – you have to factor in the marquee value of the name for the peer group. CV has premium cache for a certain peer group, even more so than La Jolla. La Jolla smells like old money and very, very big money — same with DM and SB. For a younger family and younger mentality, CV is “the place to be.” People naturally tend to clump together in peer groups based on income and age.
I’d expect to see some change over time as our society moves away from the “biggest house you can afford” mentality that has been so pervasive for the past 15 years. The sense of frugality that is building now and will be with us for a generation more will tend to push people toward more modest homes that don’t take so much to clean, heat and cool. CV may be hot for now, but as the tides change I expect “big bombers” to become less and less attractive to more financially conservative buyers.
CV has stayed strong because of proximity to the biotech and wireless companies, the Asian immigrant engineers (esp Chinese and Koreans) that work at those companies and their desire to cluster, and the top schools (whose scores are helped by the kids of those Asians).
I don’t think any other area in SD matches this.
Buffett is hilarious. “speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers”
“Yes, and that is the question that today’s buyer should be asking themselves instead of wondering when the bank is going to release the flood that is going to take the elite areas down to 3 or 4 times incomes.”
Agreed – as much as I would like to side with worm’s list of potential doom, its looking more and more remote all the time. I mean, why not add an asteroid hitting nearby as another source of “potential” doom?
Jim,
How does this transaction volume compare with prior years? To echo TJ’s supply constraint comment, the price is being set by the marginal buyer right now, which may not be reflective of the marginal buyer a few years from now when volume eventually returns to normal levels.
Thanks.
I’ll get to that later today, I’m slammed currently.
But under our theme of “all previous assumptions don’t apply”, I’m not sure we will ever get back to normal volume, and not even sure what normal is?
If you consider CV, if we backed it up to 2002 or 2001 volume, would a comparison tell us much about the future?
How many more houses have been built since, how Qualcomm and biotech has grown, etc., makes it a new playing field.
My view of “all previous assumptions don’t apply” means all “RECENT previous assumptions…”.
First assumption from the bubble that I have revised is turnover. I do not envision the 2 year own/occupy/sell/move/rinse/repeat cycle to appear for a long time.
Thus, 100 families who sold every 2 years would account for 300+ purchases over 6 years. If they stay put for 10 years now, that same 100 families countes for 100 purchases. So I envision a population adjusted reduction of the sale transaction volume.
#2: If #1 is accurate then this recent flurry of transactions will likely have exhausted a sizable portion of the ‘easy/qualified’ buyer pool leaving a smaller volume of buyers going forward. Remember that there are only so many buyers and I guess that the bulk of the bell curve has jumped in as ‘there is no better time to buy than now’. Again, net result is fewer transactions moving forward. Not a drop to nothing, just smaller pool of willing candidates.
So, fewer sellers as they want to stay put, and fewer buyers (they aren’t selling but rather stay put) keeps the supply demand in balance, just at a lower level and pricing could likely remain fairly stable.
I cannot believe that the market is acting this way, but the trend is your friend, like it or not (and I do not like it).
There is some minimum level of transaction volume. The average tenure at the same employer or in the same marriage has been going down over the years and not up, which should increase turnover.
Also, I bet that the supply of housing in CV has increased since 2001/02 along with the demand arguments you make.
I think it would be interesting to compare the turnover today with some ‘normal’ level. There are a little over 10,000 detached housing units in 92130, right? What would a ‘normal’ turnover be? 5% of the housing stock? Is that greater or less than current levels.
When you look at the demand side it is hard to see how that increases materially. Buyers now need 20% down with a 5% interest rate. That isn’t getting better only worse. I guess you can probably hope for some economic recovery / job growth but that may be offset by interest rate increases.
If the demand for housing stays flat and the supply increases, then obviously the price has to fall (aside from the effect of household wealth growth).
I would bet that the premium locations have transaction volumes below ‘normal’ and the hardest hit areas have transaction volumes closer to ‘normal’ if not above. Interestingly, the below ‘normal’ inventory may be pushing some of the demand to the hardest hit areas increasing the buyer pool and helping prices.