We have discharged all previous assumptions, and are open to what the future may bring for the local real estate market.
Let’s examine – what are the possibilities, given these conditions:
1. Low sales volume.
2. Low pressure on pricing.
3. Not many foreclosures.
4. Abundant realtor fraud.
5. Lots of buyers willing to buy, but picky on price & condition.
Last year’s Spring Kick was a dud, by all accounts. Sellers came out blazing with high prices, but buyers didn’t bite – and the sales volume was lower than usual. When sellers succumbed, and got more realistic later in the year, then more sales occured (almost as many as 2005):
Buyers are holding tough, but I think we’ll probably see this year’s number of Spring Kick sales be better than last year, helped somewhat by the expiring homebuyer tax credit. But sales will still be low, compared to previous years.
Won’t low sales volume + anxious buyers = rising prices?
It has in the past, but thankfully we have jettisoned all previous theories.
What are the barriers to increasing prices?
The fraud will play a role in keeping a lid on pricing, and I think we’re seeing enough low/fraudulent sales that it’ll temper buyers’ enthusiasm. Buyers would need to see a flood of higher-priced closings for them to panic. A wider price variance could cause more confusion, as sellers focus on high comps, and buyers use the low sales for decision-making – and lead to The Big-Stallout.
The average cost-per-sf statistic is less then perfect, but in the graph above shows a limited decrease in pricing since the peak. It there had been a huge dive in pricing, there would be ample room for a spike, but that’s not the case. If there was a flurry of higher sales it might be noticable, but an occasional high comp won’t create a trend.
Where does that leave us?
Without a Spring Kick game-changer we’re just going to plod along. A few buyers will get lucky with the trickle of well-priced listings, and the remainder will be left wondering what to do.
Possible game-changers:
1. More over-priced listings = The Big Stallout.
2. More well-priced listings (REOs and short-sales) = more sales/frenzy that could possibly lead to upward momentum on pricing.
3. Higher mortgage rates (over 6%) = The Big Stallout.
What can buyers do?
1. Hang in there – be patient.
2. Compromise on parameters – area, size of house/yard, etc.
3. See if you have any deposits left at the Bank of Mom and Dad.
4. Eliminate or reduce other expenses to afford higher mortgage payments.
5. Wait until 4Q10, and hope that a Spring Kick frenzy might exhaust demand.
6. Stay tuned to bubbleinfo.com!
If you’d like some assistance, I’m here for you.
Minus: Interest rates and/or qualifying.
Plus: deferred gratification.
Patience is advised.
Thanks Jim, you keep making me thankful that I purchased the home that I did! I paid fair market price at the time, but at least I got a home that I love without having to get into a bidding war.
As a buyer, I’m being patient. I won’t buy unless I love the house and the deal is screamin’.
Forgive me if this is a stupid question… the fraud – doesn’t that usually result in LOWER prices on the transaction… A short sale “deal” for a friend or relative of the agent type of thing. Or am I completely clueless as to what kind of fraud is going on?
Thanks.
Yes, fraud = lower prices, keeping a throttle on any upward pressure on pricing. Maybe I didn’t make that clear in the post. (?)
Realtors are a funny bunch. I made an offer that was $70,000 over list price, and included my customary termite clearance and 4pm for possession and occupancy.
The listing agent countered “main house but no patio cover” on the termite clearance, and 6pm, instead of 4pm, for possession and occupancy.
I’m not kidding, just happened today.
Oh, I said ‘keeping a lid on pricing’.
I meant the lid like ceiling, or top, not the four-finger version.
Jim… I’m going thru ‘video withdrawals.’ No video in over 4 days. I’m already starting feel a cold sweat.
Sorry, somebody else emailed me too. I’m working on it, but low on material.
We’ve covered the f-list, it’s just a revolving ball of sludge kicked down the street currently with all the postponements, I don’t have any active REO listings, I’ve gotten complaints/cease-and-desist letters this year, and I don’t want to offend other agents, which really narrows down what I can do.
I’m down to showing birds flying around.
“What can buyers do?”
Bitch Bitch and more Bitching.
It sounds stupid but educating the masses on why a house may or may not be a good purchase is the way to go. The more people know about the process the less unethical realtors can screw you over.
Look at how much time and effort real estate groups spend trying to sway public opinion that “there’s never been a better time to buy” or “buy now or be priced out forever”. The truth is 2007 was a horrible time to buy. Unless you planned on being a deadbeat accounting for the years of free rent that were soon to follow.
Currently buyers are looking at prices that are propped up by government/fed giveaways. If you believe that the giveaways will continue. Then it’s likely that prices won’t fall. If you believe government/fed support will subside then prices are likely to fall again.
Personally I hate government intervention in markets. And have stayed away from buying a house simply on principle. It’s worked out really well. Houses that were listing/selling for 800k in 2007 are listing for 500k in 2010.
I haven’t seen houses that were selling for 800K down to 500K in Encinitas/Cardiff (where I’m hoping to buy). More like what used to be 650-700K is down to 550K.
Jim – just reading a very old post of yours and im stunned how accurate it is.
https://www.bubbleinfo.com/2006/09/16/grand-poobah-of-predictions/#comments
You lay out a compelling case (i.e. the flight to quality) for why premium properties will hold up much much better than the inferior ones which you said would get hammered. You even noted how the low end cataclysm would drive the Median Prices down a massive % even while the higher end remained relatively immune. Right on!
Now of course, the doomers and denialists couldnt handle this truth so they come out swinging. Heres a sample of my favorite responses:
***If the aggregate market drop from peak-to-trough is only 33% in San Diago, I’ll fly down there and buy you a beer. Greenlander | September 16th, 2006
Did you ever get your beer Jim???
***I think even the good stuff will fall at least 30%…Those people in Del Mar and La Jolla, went out and refinanced their 30 year loan into an Option ARM just like everybody else. Schahrzad Berkand | September 16th, 2006
BZZZZZZ Sorry! If this woman had nuts, she sure got kicked in them when you showed us how few option arms were in the premium areas.
***However, I have to disagree with 5-10% drop for superior properties if bad properties drop 40-50%. More likely, superior properties would drop 10-20% in that scenario. Equalizer | September 16th, 2006
This guy may have edged you a bit Jim. Bravo Equalizer!
***8.I’ll buy you that $4 cup of coffee if you can find anything that isn’t off at least 10% from the peak this time next year. Robert Cote | September 16th, 2006
Over time that may have proven true, but not within a year. $4 coffee to Jim!
***Me thinks you are shooting in the dark, now saying the top-end homes will be less clobbered. Misson Viejo, OC | September 17th, 2006
If Jim was shooting in the dark he scored a direct hit on Mission Viejo.
*** I am going to stick to my guns and predicted the “superior properties” will get hit at least as hard as the inferior, if not harder. SMC | September 17th, 2006
BWAHAHAHAHA!!!
*** Jim, Sorry, but I have to jump on the “BIG correction” train here. CA renter | September 17th, 2006
Too bad that train didnt have a conductor.
***Later, it looks like there was a BIG knock down drag out between Ms. Berkland and Jim. She was apparently ranting and raving about doom and was furious that not everyone would agree with her. How funny was it when she later came on your blog and had to eat a big, hot pile of steaming crows!
Bottom line Jim – while you had some misses, and may have been a bit too optimistic on the high end, you were pretty much right on the money. Imagine how much time and energy we would have all saved had we just listened to you in the first place!
OT:
Jim or anybody else:
Have you heard about the cancer cluster claims in Carlsbad by Pacific Rim? They just did a story on it on NBC 739. Kinda scary. Enough that my wife wants to move.
What do you think this would do on property values for the area? Anything? Do people believe this stuff like me and panic?
http://www.nbcsandiego.com/news/health/Carlsbad_Families_Demand_Cancer_Study_San_Diego.html
I have heard the “cluster” claim about homes built on retired farmland several times before–that is probably about 1/2 of Southern and 7/8 of Central California???
“I’ve gotten complaints/cease-and-desist letters this year, and I don’t want to offend other agents”
That explains why you no longer go into random listings and video tape them without the listing owners knowledge (I noticed you thanked the listing agent in the last couple interior videos). So the snark is gone-too bad. Your best videos were of the trashed/goofy REOs, like the million dollar fraud freeway house or the former nursing home with seventeen bathrooms.
I think we are in the new normal. Short sales in all of their convolutedness are now the market. Long waits, lots of uncertainty, collusion. Pricing with built-in discounts and attempts at creating bidding wars.
Many people who didn’t default previously are now fully engaged in the loan mod or short sale program. And just to really piss off Shadash they get a few months of free housing. Likely this will take the better part of this year to get through this latest play on gaming the system.
Probably won’t be a very interesting year in real estate. Mild appreciation but not a spike. Buy now, buy later, it won’t matter. Buy what you like because the volatility is gone.
Oh, and most (but not all) cancer clusters are BS. Things that are truly random will frequently cluster, purely by random chance. If you flip a coin 100 times, there is a high chance that it will come up heads or tails ten times in a row.
You left out point 6. Jim, Higher inflation leading to raised real estate prices (Though the prices will be measured in dollars of deflated value)
Reformed Doomer, its interesting to see how over the top pessimistic some people were on this blog. I wish Jim hadnt deleted her whole rant, but apparently Ms. Berkland believed OC inventory would hit like 80,000!!!
What did it peak at 25,000? 30,000???
Great prediction back in 2006!
“I’m down to showing birds flying around.”
Had to laugh on that one,thanks!
Jim,
I know it is a bit of your base but can you do a piece on condos (downtown, UTC)?
Thanks
of = off
spelling is hard
Regarding Jim’s post @#5, we have encountered some oddities with listing agents throughout our (seemingly endless, argh) hunt. We bid low on one house that had been sitting for a relatively long while in what should have been a hot area – but the place was trashed. No flooring in the living room, unpermitted add-ons in the hallway, paint on the carpets because they’d let their kids paint their own rooms, and an overall feeling that something more structural could be lurking. According to the notice on the door, the house had been in distress since 2006 (now foreclosed). While we thought our price was a little bit of a low-ball, we didn’t think it was unreasonable for the condition of the house – plus, it was actually attached, not even an SFR. The agent countered with a price $3000 under list, which, ok, but the rest of her demands were insane, including something like a five-day period to remove contigencies. Um … why the rush, butternut?
Our agent told my husband she’d break his fingers if he signed the counteroffer.
Going to be interesting to see what happens over the next couple of months. Most of the stimulus is expected to end in the next 8 weeks. MBS purchases end March 31st and they only have 30 billion left for that program and the tax credit ends April 30th. Will the spring kick be a short lived affair until the government comes in with more stimulus or can it stand on it’s own 2 feet. We might need to go all the way back to the mid 90’s to get a feel for how the market might look this year. I do think NC Coastal will fair better then the low end without the stimulus based on down payment data Jim has provided us with.