The latest Case-Shiller/S&P report, the index measuring same-house sales, has the March numbers out today. They noted, “San Diego, in particular, has stood out with 11 consecutive months of increasing home prices.”
http://www.standardandpoors.com/spf/docs/case-shiller/CSHomePrice_Release_052506.pdf
San Diego was the only town in their top 20 that had all positives:
| Period | % Change |
| Jan-Feb | |
| Feb-Mar | |
| Y-O-Y |
According to the MLS, year-over-year SD detached sales were lower in April, but there could have been many that dragged into May to catch the state tax-credit:
| April | # of Sales | $$/sf | SP:LP |
| 2009 | $215/sf | 98% | |
| 2010 | $250/sf | 99% |
If the banks/servicers keep the extend-pretend tour alive by postponing the vast majority of trustee sales, will the streak continue? Buyers are increasingly frustrated by the lack of quality inventory, and what appears to be relative stability in pricing.
Will buyers concede? It might depend on how the media portrays the May sales numbers. The tax credits haven’t caused Y-O-Y sales to improve during the May 1-15 period, though the late-reporters might make it a close race:
| May 1-15 | # of Sales | $$/sf | SP:LP |
| 2008 | $290/sf | 96% | |
| 2009 | $223/sf | 99% | |
| 2010 | $254/sf | 99% |
It was in March, 2009 that the stock market rebounded, and real estate did the same as mortgage rates dipped under 5% – reflected in the May, 2009 closings. Where do we go from here?
The Dow isn’t exactly at 6,500 right now, but it isn’t at 14,000 either. With such volatility I don’t know who would dare predict anything.
IMO the only people with the means to concede are sellers. Buyers can’t make concessions with money they don’t have.
Another leg down is my prediction.
This is due most of the quick real estate money which was on the sideline being deployed over the past 12 months as people were afraid the ‘bottom was in’.
No net new jobs
No increase in pay
Rising taxes
Rising regulation (more cost to do business)
China/Europe contracting will slow down money to be invested in the US/Tresuries
Great chart of the 90’s from the Pigg Archives:
http://piggington.com/return_to_the_90s
Notice that it was 6 years from top to bottom
There were 6 TEMP/FAKE uptrends before hitting bottom
Housing bottom was 3 yrs AFTER employment bottom
My guess is that the rise in prices we’re seeing would correspond to the mid 1994 area on the chart with a solid 5-10% left to correct on the way down over the next 24 months.
Just doesn’t feel right…just feels ‘hopeful’.
Breaking news email from the U-T:
The nation’s housing markets are weakening, but San Diego’s prices are strengthening at an accelerated clip, the widely watched Standard & Poor’s/Case-Shiller Home Price Index showed Tuesday.
solid 5-10% left to correct on the way down over the next 24 months
Does that mean all a buyer has to do is score a deal at 10% or more below today’s prices, and in effect, price-in the bottom?
I think so.
I think it’s possible too, for those who bust their tail.
I don’t think I could disagree that an across the board 10% off of fairly priced closings would be a comfortable spot to be in for the long term buyer (don’t flip on this theory).
There will still be substantial distressed opportunities discounted well below retail value, and few head scratchers, but market wide 10% makes sense to me.
At that point if prior/current bottom in employment employment has truly remained in place, then back to steady inflation based increases 3+ or so years out.
Agreed: one must bust their tail big time to find these deals, but 10% off of $1mm is a full years pay for many people (and a dream salary for 99% of the nation).
OT – Does it seem odd that if Magnolia Estates in Bressi was proclaimed to be “all spoken for” by the listing agent (which means I want you to think their sold and popular but I never actually said they were sold) are still being posted for sale up on Craigslist for $1.5mm???
Seemed unbelievable that a very nicely appointed single story home has been on the market for a few months around $1.5mm with no takers, but a bunch of stale, beat up, unfinished, redo’s were all bought in arm’s length transactions within a few weeks of marketing…hmmm
Unfortunately, it’s entirely possible that houses are still “overpriced” but that you are still better off buying now. This is because we’re in California here and I guarantee you houses will be overpriced for as long as you live.
If a buyer wants to time the market, they should be more concerned with any potential steep drops in the next few years rather than if they “timed the bottom”.
I’ll use Japan to illustrate. In Japan, where they had prices decline for 20 years straight, it still made sense to buy long before “the bottom”. At some point the prices were flat after accounting for deflation of the yen, stuck neither going up nor down (but going down nominally). Would it really be a victory to wait 20 years and finally buy a house at the bottom when you’re near retirement? In extreme cases like this, timing the bottom is not just overrated but defeats the greater purpose of buying a home – to *live* in. In other words this thinking is really just another variation of putting home speculation above home ownership.
The best thing a home buyer can do is not to buy at their limit in the first place. I put just as much into the bank as I do into my monthly mortgage, so I could care less what other people think my home is worth on a yearly basis. I have every intention of paying off the last dollar and owning the home free and clear.
Too many people got burned trying to time the market rather than asking themselves if the time and financial terms were right for themselves. Timing the bottom is more about ego than realistic personal finance.
Thanks sdbri, well put.
Here’s what I like, all the naysayers being completely wrong again and again.
However, my new favorite false hope for the permabears is that the upper end is just about to capitulate, right?
From the U/T; “In a breakdown of the San Diego market, the top third of housing, priced over $465,686, did the best in March, up 2.9 percent from February and 7.7 percent from March 2009. The bottom tier, below $311,200, was down .3 percent from February but up 11.3 percent year over year. The middle tier was up .6 percent from February and 7.2 percent from March 2009.”
And rates are dropping again, this is clearly the sweet spot for a real estate buyer. Risk is gone which means any buyer who didn’t buy last year missed the bottom but at least they can buy with confidence.
If we go back to Case-Shiller Index from back when the housing peaked and started to bust. It was the ARM’s that went bust first. As per the chart we should see sometime in the 2nd to 3rd quarter ALT-A reset. That will go on for at least 18 months.
Carlsbad is full of Alt-A type mortgages. It will be very interesting to see how that will transpire.
Also, I look at Bay Collection as my proxy (since it’s next to me) almost every home there is underwater and not by few thousand, its by 100’s thousands. Lot of them are Alt-A type or similar.
I think this dead cat bounce was because of govt. intervention and housing will eventually regress back to the mean (meaning housing PE, rent to price ratio, income to price ratio).
Average household income Carlsbad: 106k (from county records)
If we do the numbers then average house in Carlsbad should not be more than 350 to 400k. Some High end around 600 k to 700 k (today’s 800 to 1m ones).
Conclusion: Still long ways to go for the bottom (20 to 25%).
My humble 2 cents
a little off topic. Another underpriced listing that came on the market marked as contingent. This one says, “Received offer while pre-marketing”. What in the heck is pre-marketing?
http://www.sdlookup.com/MLS-100031544-9446_Laurentian_Dr_San_Diego_CA_92129
I disagree with comment #7 about timing being more ego than personal finance. I think timing the bottom (at least near the bottom) is about the most important financial decision many people can make. Not only can it save you hundreds of thousands of dollars, but can also impact a person’s mobility. It’s tough to move to take a higher paying job when your home is underwater.
If a person believes that they can’t “live” life by renting, then maybe buying without timing the market is the way to go. But that is an emotional, not financial decision.
I’m not concerned about timing a bottom, but rather about using the true underlying economic causes for the housing market to move.
Monthly, quarterly, YOY all don’t do much. To me its all about jobs, jobs, jobs. Jobs mean EVERYTHING. It tells us about the economy’s direction, health, incomes, etc.
trying to time the market and say any month is the exact bottom is putting too fine a point on it.
All I care about is general turns in the market. Its like going to the beach, I just want to know if the tide is coming in, or going out, so I know where to put my towel. Don’t care how high/low the tide actually goes, just where is it headed.
This theory helped us dodge the down by beginning to sell in 2005, and we’re selectively starting to buy very discounted items now but nowhere close to “all in”. Now that buying was mostly on the commercial side, but that is just a different dialect of the same language.
alles, you’ll see you changed my quote and left out the word “realistic” and that may be the source of my point not being clear.
How realistic is it to time the bottom? There is only one bottom. If home ownership is over say 30 years and only one year or month is the bottom, timing the bottom isn’t realistic. Even today, you can’t tell me if last year was the bottom or X years ahead.
All along we saw people who believed they could predict home prices and burned themselves without enough down payment and ability to pay. That’s what happens to people who think they can time the bottom, and it’s not realistic.
If you read my original post it points out the main question is if prices will fall drastically in the next few years. If not and you buy within your means (i.e. 20% down), it’s mathematically impossible for you to be underwater. And if we’re talking about losing hundreds of thousands of dollars, how is that possible without steep price drops? The most ironic thing about that question is that it illustrates what happens when you time the top, and the people who timed the top were the very same people who thought they could time the market!
Note that if they had asked if they could afford the house, the answer most of the time would have been a resounding no. That’s why the question must be asked. It’s a whole lot more reliable than asking “Is this the bottom?”
More to the original point, I was simply pointing out there are scenarios where even timing the bottom is a bad move. In other words, even with perfect hindsight in cases like Japan timing the bottom is not the best financial move. I just wanted to dispell that other myth.
sdbri,
“At some point the prices were flat after accounting for deflation of the yen, stuck neither going up nor down (but going down nominally).”
Not following this. Wouldn’t deflation accelerate real price drops?
Mortgage rates are down now, but keep your eyes on LIBOR. The Fed can’t control everything.
Au contraire!
Don’t barf at these facts. I’m just the messenger.
Government jobs are rising
Government jobs are getting good wage increases
Euro crisis 2010 is causing a rise in Tbill as a rescue package (Geitner to the rescue!)
The dollar is gaining strength against the Euro
http://www.todayonline.com/BreakingNews/EDC100526-0000147/US-Treasury-Secy-seeking-to-calm-turbulent-markets-with-talks-in-Europe-about-debt-crisis
The question is, how do we profit from this “Destroy America” playbook????
Your ray of sunshine, justme
To answer my own question (this time of night, I seem to always have conversations with myself):
http://www.youtube.com/user/CaseyResearchFAN#p/search/0/IYNDB17JY4E
Justme – The current flight to Treasuries is just the shifting of funds already in the market from one sector (risk) to another (derisk). its a trade, not an investment. More of a temporary ‘safe harbor’ than anything else until the seas calm and new investing opportunities become clear.
This shifting of capital will taper off in the near term as there is only a finite amount of capital which is being transitioned. This switch is merely a short term blip, however, it yet another ingredient in a terrible economic stew.
The bigger trend, or tide moving out, is the loss of new money coming into Treasuries over time as China/Japan/Europe lack the funds/desire to purchase our debt. This is the systemic problem that could damage/sink the Titanic.
Normally I don’t avoid the macro view but since real estate is local I will. Banks are definitely getting aggressive on the deadbeat free rent folks and inventories of at least bank owned assets should continue to climb. Banks, as we all know, are not known for their patience so they will promptly undercut current values which should lead to another round of declining values. Who knows where the bottom is but if you are a buyer I would say late fall and early winter should yield some excellent choices.
Besides j-o-b-s (as clearfund pointed out), the biggest risk to prices overall is simply interest rate normalization. Every 1% hike in rates will equate to a 10% drop in prices, and we’re far more than 1% away from historically normal rates.
Hmmmm a couple of secret clauses in the European bailout package are coming to light, if that thing dies on the vine it could get ugly real quick.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7765383/Double-dip-fears-over-worldwide-credit-stress.html
Something for Mozart…
25 Questions To Ask Anyone Who Is Delusional Enough To Believe That This Economic Recovery Is Real
I don’t mind the constant reminders about how the U.S. or CA economies are in the tank.
But when they mention all the people who are behind in their mortgage payments, let’s include the fact that mortgage servicers are telling people to go delinquent to get a loan mod, swelling the numbers.
You have to also figure that people have heard that the banks aren’t foreclosing, and strategic defaulters are daring them to pull the trigger, knowing that if they play it right, they can get 1-2 years free rent.
The more that those stories get around, the more people will be tempted to join in, but will they?
I am suspicious of how many on the f-list will actually go through with losing their house – there are an awful lot of foreclosure cancellations happening.
Here are the numbers for 2010 in SD County:
Trustee sales resulting in REO or 3rd-party purchases: 4,880
Trustee-sale cancellations: 4,652
I’m sure many cancels are back in line, or will be again soon, but how many are just working the system? When you’re knocking doors, you sure get the feeling that many are enjoying the game.
Does that mean all a buyer has to do is score a deal at 10% or more below today’s prices, and in effect, price-in the bottom?
I think so.
I think it’s possible too, for those who bust their tail.
I know for a fact that 10% or more off comparable properties is quite possible. I personally purchased my house in Riverside about a year ago, and I believe I got it for about 25-30% off the going rate at the time (which was the absolute bottom in Riverside), due to a combination of luck and skill (probably more luck than skill). Prices in Riverside have risen about 10% since then, but even if they had fallen by 10%, I would still be golden.
…but you’d still be in Riverside….
Nothing I said doesn’t apply anywhere else. Sometimes a property is mispriced or mismarketed or has unique parameters which limit the buyer pool. In my case, all of the above applied. The listing was poor with only one photo, there was an issue with the square footage (a permitted addition was not on the tax rolls, so the square footage in the listing was much smaller than in reality), and the kitchen was poor (fixed with a few grand worth of work). Due to the poor listing with the wrong square footage, many people probably skipped the house without looking at it (it looked like and overpriced small house as opposed to an underpriced larger one), and the kitchen probably turned off many buyers who did look at it (even though fixing it was fairly simple).
These types of issues can occur anywhere. When shopping for a home, don’t be turned off by a poor listing or one that is a bit off from what you are looking for-cast a wide net and maybe you will find something everybody else passed on, a diamond in the rough.