I mentioned in the previous post’s comment section that I thought my advice was conservative in nature. It sounded vague, so here’s more detail.
It’s hard to believe that buyers overlook the low comps created by realtor shenanigans.
Here’s an example, one of many being inflicted on the marketplace every day.
First off, I struggle with the thought that there are still million-dollar houses in La Costa Greens. It’s a neighborhood built and sold at the peak, and the school districts are split between Carlsbad and San Marcos, which means that many potential buyers who may like one school district, but not the other, will likely write off the whole neighborhood.
There have been several homes foreclosed, and many more on the f-list. In short, a neighborhood where you would think buyers would need to be very conservative.
I showed this 3,652sf house to the Cable Girl the other day, listed for $1,095,000:
It has some nice features, even it’s own putting green with real grass.
But we know about this recent 4,193sf sale around the corner. The for-sale sign went up early, the typical “pre-marketing” done by many listing agents, and a couple of days later it went down.
A month later it pops up on the MLS as a sold listing, closed May 28th for $815,100, and marked as a round-tripper:
My job is simple – convince the listing agent to sell the $1,095,000 property in the low-$800,000s – after all, the most recent and bigger comp closed for that right around the corner, isn’t that the new standard? So I get the agent on the phone….
He sold it over the weekend for more than a million!
Mozart is the only guy who was willing to go out on the limb last year and call bottom. If buyers are so motivated that they continue to justify and/or ignore comps like this, he might be right.
Other components of why I am conservative about the real estate market
1. Buyers have access to all the comps – that should make for smarter decisions.
2. There is no easy money – everyone who finances must qualify.
3. I don’t think buyers believe the realtor-mantra, “buy, buy, buy, it only goes up” anymore.
These three items are opposites from the peak, and the additional realtor shenanigans rub salt in the wound. Will the inventory stay tight, mortgage rates stay ultra-low, and plenty of “good-enough” deals come along that even the skeptical stay engaged?
Fannie Mae, Freddie Mac and GNMA (FHA/VA) had a combined “purchase” market share of 98% in the first quarter, according to new figures compiled by National Mortgage News.
I do like your use of the term “f-list” here, although I found myself conjuring so many other ways to employ it.
Agree with most everything Jim has posted in the last few entries except for his trade-up buyer estimates. There seems to be alot of trade-up buyers out there that are taking advantage of the slack on the mid-higher end stuff. In fact, I came across two just in the last week, both were smily and delighted. One couple sold in the mid $800K’s and bought a short sale for just over $1M–for less than $200K they picked up 1400sf, views and large lot pool sized lot in the same school district–not a bad move in my opinion!
LB,
Maybe that is contributing to what appear to be irrational purchases – if the sale looked more irrational, it’s a win-win!
When I bought last march it was terrible for buyers. All that was left was REO remnant inventory and banks were dragging their feet on short sales… agents stayed away. Supply, coupled with my FHA-ness, forced me to overpay by at least 10% to get into a good home and I was happy to do it in the trough. Many of my friends at the low end are doing the same. Admittedly, wealthy ppl in CV probably don’t think the same as us 🙂
Selling it over the weekend by accepting an offer for over a mil is one thing, getting to the finish line and actually closing at that price when there is that kind of lower comp out there is another.
Will a bank make a loan at that 1M+ price with that comp around the corner?
Banks and appraisers always seem to hit the numbers if they want the business bad enough.
Kingside is dead right.
How will the buyer be able to close unless they bring all cash or mucho cash to the close?
Buyers may ignore that sale, but lenders will likely not. Lower prices reinforce lower prices.
Chuck
1. Buyers have access to all the comps – that should make for smarter decisions.
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As much as I hate to say it, there is a frustratingly large number of people out there who do NOT study the RE market like most of your readers, Jim. You probably know this already.
You have no idea how many people I’ve talked to after they’ve purchased a house…and found out that they had no idea about the marketing history, sales history, recent comps, etc. They blindly went in based on their Realtor recommendations, and didn’t bother doing any due dilligence of their own. Unfortunately, most of them are from out of town (why I believe most of the “head-scratcher” sales are to out-of-town buyers). They are totally unfamiliar with the market, but can’t bring themselves to rent when making a big move. 🙁
In almost every single case, the reason they’re talking about their purchase is because of some major buyer’s remorse. They find out all about the n’hood/listing/property conditions AFTER they’ve already bought. Some have even tried to sue the sellers or agents because they thought they were misled.
No offense to these buyers, but why do they think they’re absolved from doing any of their own research?
It’s stunning to see how many people put so little thought/effort into a transaction that likely represents one of the biggest financial transactions of their lives.
Sure, it’s not closed yet, but the buyer train of thought is what was interesting.
I’m still looking at buying a home. I spent years looking for one in CA and with CA’s financial problems, I’m seriously considering moving out-of-state. I’ve taken two trips to Boise in the last eight months.
Jim, since we’re talking about “conservative RE” here, what’s your two cents regarding buying a home which is (so far) the most expensive home built in a newer subdivision? My PITI (w/20% down payment) will be 35% less than my rent here in CA. Or I could go for a smaller home (300 sf less) with a listing price of $10K less.
Both homes are new construction by stellar builders (I’ve done my homework). I can get a 30-year fixed @ 4.75% or less. I love both homes. Just hoping your valuable advice, Jim, can help me make a decision…
Susie – My parents retired about 4 years ago and we sold their home in Orange County (had been there since ’72) and moved to the Boise area.
At the same time, my grandparents (80’s/90’s) also packed up from Huntington Beach and moved up there as well.
They absolutely love it!
They sold here at the peak, and bought there at te peak. Difference is that they sold their home for $700k, (worth $450 today) and bought a house all cash and put some extra cash in the savings.
The cost of living was the driving force. Actually live in Meridian which is about 20 min outside of downtown Boise and the airport (which is a breeze to get in/out of). The airport makes SD’s airport look like a slum.
Susie,
Rent, and check it out through the winter.
If you insist on buying, spend the extra dough, you deserve it. If it were $100,000, that would be different, but $10,000?
“Rent, and check it out through the winter.”
I had my wife come over and read that. Wow.
I don’t know anything about Idaho, but it sounds like it could be cold there – anybody coming from a California beach area should test-drive a winter season before committing to a major life-changing event.
Same thing for Cali folks thinking about moving to Phoenix – it gets bloody hot in the summer, and you want/need to be comfortable staying indoors for a couple of months.
That deal on 2453 Lapis was a good one and it shows that the short sales are essentially their own market. Even if prices seem to be stable in a market it seems that the short sales keep going through at lower and lower prices. Here is last year’s short sale on the same street that was also one of the best deals at the time it closed:
http://www.redfin.com/CA/Carlsbad/2413-Lapis-Rd-92009/home/12152841
At 845k last years “deal” suddenly looks a little on the high side at $211 a foot now that we have a comp at $194 a foot with a pool.
It seems to me that the short sale agents are basically competing with themselves to see who tank the market the fastest. How many buyers would have paid more than the 815k for the house on 2453 Lapis. We will never know. Surprise surprise the house on 2453 was a dual agency deal.
In my neck of the woods (Riverside), I can honestly say that bottom was about a year ago. The lack of non-short sale inventory since then, especially on the low end, has caused prices to slowly drift upwards by about 10%. A similar situation seems to have occurred in most other SoCal markets I’ve glanced at. Now, with the expiration of the tax credits and rumors of a possible upcoming REO flood, we will soon see if this situation changes.
Clearfund ~ Yes, I checked out Meridian but liked Boise better. What do your parents and grandparents think of the weather? And you’re right, the airport was an incredible surprise! I was also shocked how unbelievably friendly folks were! It reminded me of “Aloha spirit” when I lived in Hawaii.
We were in Phoenix last week–I was absolutely amazed at the distress in the marketplace–$50/sf for newer construction in decent areas such as Peoria/Goodyear–If you are willing to go to Surprise or Buckeye (turning into ghost towns)–$25/sf or less—The winner, 3500 sf built in 2004 for $60K, and the tide still seems to be still going out.
“Rent, and check it out through the winter.”
Great advice, as always, Jim! What I forgot to explain in detail is I’m looking at two houses that are the most expensive in the subdivision but other new ones in the same sub are smaller in square footage and are listed for about 80K less.
So with that kind of price spread in the subdivision, will it be a mistake to buy one of the most expensive ones?
I like these Castlemar homes in LCG, but they Zillow at 825k. Both of those on Vermarine are Carlsbad Schools, Lapis was SM schools. Its like the 100k view premium all over again but for schools the sellers think! A neighborhood divided where kids across the street go to a different school “District”!!!
They have no problem with the weather. When it snows, its just a dusting and never makes the roads undrivable.
It does get a cold, but not that arctic cold of other places which are more midwest.
I was there last november when they had a real cold snap (20 in the AM). But it was sunny so just a light jacket over a sweatshirt and all was good.
I also asked them if after being there 3 years would they A) move there all over again (yes); and B) what was their 2nd choice (area south of Portland, but glad they didn’t choose that because of the lack of sun).
Doughboy – I’ve got one better than a divided neighborhood for schools.
At The Bridges in RSF there is a similar school district split (RSF/Encinitas Schools). However, the line actually runs right down the middle of one particular housing lot.
We joke that you need to be sure your smart kid sleeps in the bedroom on the RSF schools side of the house!
I’m going to comment on the Phoenix prices – those listed by Local Boy are in the equivalent of Chula Vista. Paradise Valley (The Covenant equivalent?) is still commanding enough of a premium that I don’t bother looking there. In regular communities, plain vanilla houses are $90 to $110/ft2. Custom homes are running $125 to $175/ft2. And – just like I read on this blog – plenty of competition for good properties. Last month I was high bid by a few k, but lost the property to the all cash offer – sound familiar?
Thanks CA Ref.
P.S. We used to beat the crap out of Peoria HS. I blocked a punt against them that we ran back for a winning touchdown that ruined their homecoming, and in baseball we slapped them around.
(Shadow Mountain class of ’77)
SHAZAAM
VERMARINE GOES PENDING TODAY!
Us conservatives are on the sidelines!