Happy Memorial Day – to those who have served, and those serving our country – THANK YOU!
We’ve been gone the last couple of days, but didn’t miss much. With sellers pushing higher and higher, the deals are in short supply – it would be a good time for vacation!
Here’s how Shadash described what he is seeing:
I think the crazy pricing is a combo of many things.
1. Sellers really are irrational
2. Sellers have either taken $$$ out of their house or have a bunch of debt they need to cover before selling not allowing them to sell at the market price.
3. Realtors are trying their best to price the market up.
4. Banks aren’t foreclosing allowing sellers to sit on wishing prices
5. Buyers have been waiting on the wings saving up $$$ allowing those that can’t wait any longer to take the plunge even if it doesn’t make sense.
6. When prices were crazy buyers were pushed to the outskirts. Now those same buyers are all starting to focus on the better parts of town creating more competition and pushing up prices.
I’ll add to his list:
7. The irrational sellers are prone to hire the most irrational agent, and together live in fantasyland.
8. Most agents are order-takers, and don’t have the skill or willingness to talk about proper pricing.
9. As a result, we’ll see more range-pricing, the lazy man’s way to real estate.
10. The real deals are going to get even more attention/offers, and prove to be elusive.
11. Mortgage rates under 5% are another boost for buyers, but they’ll be patient – they’ve come too far to overpay now.
12. If buyers are going to pay more money, it’ll only be because they were able to upgrade – usually on location (Shadash’s #6).
If sellers and listing agents would just be reasonable, we could get something done. But when they tack on an extra 5-10% onto the list price, and employ other antics/gimmicks, it is polarizing – and they reinforce the buyers’ patience.
Once they start lowering their price, we should see some real action – maybe July?
Another possibility: Sellers who are also buyers, and until they find a good deal, there is no urgency to get their current house sold?
If you are > 55, you can sell your low property tax base home, get a house of equal or lesser value, keep your property tax, bada bing….no big deal to pay the crazy prices as long as it matches your crazy sale. Things could get worse with this strategy.
BTW, don’t you love it when the gub’ment can talk out of both sides of their _ _ _ on age discrimination? It’s ok in some situations but not in others?
http://www.dol.gov/dol/topic/discrimination/agedisc.htm
Hello math!
Agreed, the anti-buy-and bail rule is still in effect, so many sellers aren’t moving until they can sell their old house.
My guess is that those who want to downsize out-number the move-uppers by at least 3:1, which if the market was more fluid would provide an interesting dynamic of its own.
I’ve mentioned in the past, when three agents arrive:
1. I can list and sell your home for $90k (and hope for over-asking price offers).
2. I can list and sell your home for $100k.
3. I have some buyers looking for these types of homes right now–$110k, and it should sell.
If a person owes $100k, then certainly option #3 is sounding really good, even if it is just a fantasy.
(Just for the sake of discussion, let’s assume a ‘fair market value’ in this case is $100k)
Unless Foreclosures Double From April’s Record, Shadow Inventory Will Take 8-Years to Clear
http://mhanson.com/blog
Does anybody buy into this?, If true, Is San Diego immune to it?
I’m really new to the game, but I wonder hasn’t this issue with irrational sellers come up before the bubble? Why is it irrational to hold an asset until it nets a profit if it’s not absolutley necessary to sell anyway? … sounds pretty rational… Just my 2 cents.
Eli,
“Why is it irrational to hold an asset until it nets a profit if it’s not absolutley necessary to sell anyway?”
You’re exactly correct. It does make sense to hold an asset and wait for the market to correct. (Assuming that some day the market will correct.) Unfortunately government / the fed have been monkeying with the housing market. The fed has lowered interest rates to near 4% and the government is giving banks money to stay in business (Tarp) and not foreclose on non paying housing assets.
The net effects are…
1. It sucks to be a saver right now earning 1-2% on bank CD’s
2. Housing deadbeats are being rewarded with free rent
Again, rational from the deadbeat “homeowners” perspective to live in a house for free as long as they can? Yes absolutely. Is it right for government to interfere with markets in a way that allow this to happen? That really depends on your personal views of what’s right and wrong.
Hello burro!
RE: mhansen
His argument is based on 80% of NODs being liquidated, without providing any evidence.
If you can pick any number, I’ll go with 50% of NODs liquidating, and here’s why:
1. On foreclosureradar currently the cancellations are running about the same as REO/3rd-party buys, 4,917 to 4,924. The cancellations may re-default, but I think analysts are under-estimating how many people are working the free-cheese system, and if it really came down to losing their house, they’d buck up and keep paying. Not all, but many.
2. The gov’t will provide more support to ensure a softer landing.
3. There are no laws insisting that servicers have to liquidate REOs or even foreclose on defaulters. They’ll drag it out as long as they want/need to, like Eli said above at #7, why not just hold until profitable? If they don’t foreclose, the defaulters will sell once profitable, or stick.
The eight years that mhansen mentions sounds reasonable, just fewer actual homes lost.
Really Jim? Taking advice from Shadash?
Here’s a fun one for me; back on May 26th, 2009 I predicted that home prices in North County would be up 18% in 12 months. Looking forward to seeing May’s numbers.
Shadash- you can blame the government for lower interest rates but really it’s about Greece and the Euro right now pushing down stocks and making bonds more attractive. Expect more sales and more people listing.
I don’t get it.
Even with the Genius poster free expert advice here, Why buy anything from anybody now?
Why.
Mozart,
While the Greece situation is a nice distraction and might actually influence a decision. Here’s how the interest rate is decided in the United States…
“The United States benchmark interest rate stands at 0.25 percent. In the United States, authority for interest rate decisions is divided between the Board of Governors of the Federal Reserve (Board) and the Federal Open Market Committee (FOMC). The Board decides on changes in discount rates after recommendations submitted by one or more of the regional Federal Reserve Banks. The FOMC decides on open market operations, including the desired levels of central bank money or the desired federal funds market rate. This page includes: United States Interest Rate chart, historical data and news.”
http://en.wikipedia.org/wiki/Federal_Reserve_System
http://en.wikipedia.org/wiki/Federal_Open_Market_Committee
Wondering
Since interest rates have been below 5% many times during the last five years has its impact on pricing been muted?
Of course I do not think it is a good financial decision to pay more based on interest rates, cause when interest rates rise you may have built in depreciation.
Taking advice?
I’m seeing the same things he mentioned, especially the extra push by sellers.
NSDCC detached sales in May (so far):
2009 = 171 sales, $392/sf
2010 = 200 sales, $360/sf
But I think you can point to areas that have had a big pop YOY, maybe the full 18%?
But for borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.
“I stopped paying in August 2008,” said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I can’t afford $2,500. I can only afford $1,300.’ ”
Mr. Tsiogas, who lives on the coast south of St. Petersburg, blames his lenders for being unwilling to help when the crash began and his properties needed shoring up.
Their attitude seems to have changed since he went into foreclosure. Now their letters say things like “we’re willing to work with you.” But Mr. Tsiogas feels little urge to respond.
“I need another year,” he said, “and I’m going to be pretty comfortable.”
http://www.nytimes.com/2010/06/01/business/01nopay.html?emc=eta1&pagewanted=all
Rates are low because the banks are borrowing from the fed at 0% and buying treasuries which in turn lowers the yields.
Shadash #8 – Look at the flip side of the ridiculously low rates. From my vantage point as a real estate fund manager these low CD rates as a blessing to my business. My clients/investors are frustrated with the low rates on their cash/CD/IRA funds and are searching for safe, stable, income alternatives to live on.
It makes our Fund’s dividends of 8%+ very appealing and thus they are flocking to us. 8% was a tougher sell when you could get 5% in a CD.
While I am in agreement that the world is nuts, and the gov is messing things up and should get out of the way, the unintended consequence is that business is the best its been in 3 years and we’re getting ready to hire again.
Shadash- of course the Fed has dropped rates for over a year now, that’s not news. What is news is when mortgage rates drop below 5%.
Jim- when you start lining up and referencing Shadash that’s when the hazard lights start blinking. Here is a link to Dataquick & the U/T for April 2010 home sales. In April North County Coastal was up 16.2%; http://www.dqnews.com/Charts/Monthly-Charts/SDUT-Charts/ZIPSDUT.aspx
Homedex has the whole of North County for resale single family dwellings up 21.67%; http://www.hribar.com/north-san-diego-county-housing-affordability-index.html
I’ve respected this blog for a long time now but it seems the times have changed and I’m just not sure the wait and see approach is the best advice to give right now.
An illiquid asset heavily dependent on sustained cheap mortgage debt to keep pricing up with a 6% exit fee on sale.
What’s not to like?
or put differently, 20yr old tract housing for 700k+
Moz,
Dataquick includes Oceanside, and Homedex includes everything from Oceanside to Escondido. Not surprised to hear the lower-end numbers are helping boost the stats.
I’d rather focus on the higher-end detached homes from Carlsbad to Carmel Valley – here’s the detached median sales price for May, from MLS:
2009 = $740,000
2010 = $775,000 (+5%)
If you ask me, the avg. $/sf and median SP aren’t that convincing as pure market indicators, but they are what we have.
If you decide not to respect me because I’m being conservative, I’ll live with that.
I told my investors to sell everything in 2003-2004, and looking back it was conservative advice then too, but that’s what you get here.
JtR- No, I respect you that’s why I said something and I respect you putting up my dissenting comments.
Shadash and I do not agree nor do I respect his opinions to be perfectly honest.
However, I am relishing that the market has come back, it is growing stronger AND, as childish as it is, that I can say, “I told you so” one year ago, (man, was I ridiculed at the time). The basis for my calling the bottom was based on historical trends following recessions. Nothing prescient, just taking averages over multiple cycles and comparing median income to median sales price. It happened before, it will happen again.
Question for Mozart – As I don’t know you, or your history, are your predictions coupled with action (i.e. buying a home or investing in some form in real estate based on your call of a prior bottom) or merely confident chatter?
Writing big real estate checks (or having a fiduciary responsibility to your clients who are writing those checks) makes advice/predictions much more serious and hopefully, conservative.
Just curious…
Mozart,
I don’t dislike you.
“The difference between an optimist and a pessimist is that an optimist thinks this is the best possible world. A pessimist fears that this is true.”
Ok Mozart. We get it. You called a bottom, congratulations. Now how about posting some specific projections for the future of north county’s housing market?
Mozart and Shadash,
Fed actions are symptoms, not causes, of economics. What the Fed does doesn’t matter as much as most people think IMHO. Eventually, the disasters in Europe will drive rates higher there, and the Fed will be forced to raise rates. The ECB does not control LIBOR. Like you say, Shadash, people are looking for places other than CD’s, and they’ll go abroad if necessary. The economy cannot recover until the world unwinds its debt.
Clearfund, is that a non-traded REIT you have? As for Mozart’s history, well, he’s been calling the bottom every ten minutes for the last 3 years now. (I still enjoy his comments though – it’s good to see him back.)
“Why is it irrational to hold an asset until it nets a profit if it’s not absolutley necessary to sell anyway? … sounds pretty rational… Just my 2 cents.”
BTW, I’m going to take the other side on this one. This mentality is what kills individual investors. If you have a loser, sell it. People fall in love with their Pfizer or Amazon stocks, and don’t want to take a loss. This is looking backward, not forward. Same should go for housing IMHO. If you’re thinking about selling something you own, ask yourself, “would I buy it today?” If the answer is “no,” sell immediately.
Mozart- There are too many government supports that still have lingering price supports.
If you can suggest that your crystal ball predicted the extension of the Federal Income Tax credit then I give it quite a bit of credit.
If it suggested that it would be expanded to existing owners, then I’d give it even more credit.
By credit, I would suggest it’s quite lucky.
clearfund,
Do you have a prospectus for your investment fund? Can you either give us a link or email it to me?
Thanks!
I’ve noticed Jim regularly excludes the lower tier (Oceanside / Vista / San Marcos) from his data / coverage of north county. I guess I can understand why, but I’d personally like to see more coverage of these areas. At least from time to time anyway.
Mozart, if you called May ’09 the bottom then you nailed it, at least for the lower tier. I bought then, but I’d have to say there was some luck to it. Although I did have a gut feeling that it must be near the bottom based on some rent/own cost ratios and also the amount of competition I experienced with investors.
clearfund…I second the request for a link. tx
Blur/Jeeman/Justme/etc – I would enjoy a discussion of our real estate Funds here, however, I rather enjoy avoid violating Securities law given the private placement nature of our offerings (and respecting Jim’s valuable blog).
However, I believe my name links to our website where you can find add’l general info along with our corporate contact info.
Our offerings encompass both residential and commercial real estate throughout the western US.
This so called “bottom” that mozart has claimed was achieved by a mere speck of San Diego’s 3 million residents. If you take out the fraudulent sales there were probably about 5000 people who actually caught this “bottom”. An 18% premium is what I would expect for short sited buyers to bid up to in order to receive the 8k bonanza cash that will be gone 4 months after getting their hands on it.
clearfund, that’s classy of you. i thought about that after i said that. but my disclaimer is….jeeman started it! and since he’s the teacher’s pet…i thought for a minute there we were going to get away with getting intel on an easy 8%. 😉
justme…looking for free lunch
Thank you clearfund.
Mozart, you aren’t out of the woods yet. Schahrzad says the boom is over:
http://www.sandiegohousingforecast.com/commentary/2010/5/29/its-over.html
http://www.sandiegohousingforecast.com/commentary/2010/5/25/san-diego-market-shifts-into-neutral.html
Blur,
I agree that our housing market has grown to act a lot more like the stock market. After all, the whole reason we got into this mess is because lending companies treated, and still treat mortgage interest payments as stocks to sell on the exchange. I wouldn’t be surprised if academics map a convergence, to show that the boom/bust housing cycles are exaggerated by the coupling of the markets. But from what I’ve been told, traditionally housing trends run much much longer than stock trends and God help us if the financial crisis is any indication that we’ll continue to see the same sort of volatility in the future. In that case we’ll most certainly have to invent a whole new system of lending.