The flurry of cancellations isn’t isolated to San Diego County. It appears that it’s an overall strategy being employed by lenders across the state:
It’s probably a signal that lenders are hoping loan mods and short sales will get us home. It’s definitely a strategy that’ll kick the can down the road, with an occasional house getting foreclosed after all other options have been exhausted.
Will it be the final straw, causing frustrated buyers quit waiting and buy a house now, just to get it over with? Or will the frustration further cement the buyers’ resolve to wait it out?
During the double dip talk, we said that sales would have to decline Y-O-Y. The late-reporters are scurrying, and the SD County detached sales count for June, 2010, just equaled last year’s count, at 1,949, with about a 12% increase in cost-per-sf ($255/sf vs. $227/sf).
At what point do you give up hope as a buyer? If you saw that the second half of 2010 was fairly benign, and similar to what we’ve been seeing with low inventory, rare foreclosures, and detached sales around 2,000 per month – would you change anything about your buying strategy?
There’s nothing to give we patient any sense of urgency. We know those canceled will be back. Interest rates are drifting lower. Rent/own still favors rent for all the better properties.
I’d have to see some honest inventory stability before reevaluating.
Agreed RD – They (gov via directions to the banks) are just plugging holes in a leaky boat then claiming its a great boat since its still floating….for now.
No steam is being added to the true catalyst of a healthy housing market, JOBS/SALARIES. Until that turns, the sidelines are safe and where I’ll be.
Days on market in my micro market is rising and as the summer progresses they’ll either need to cut their prices or go off market before the dead season.
Being a family area with school being an important factor, you need to get into the new schools before they start so back off 30-45 day escrow from apx 9/1 and you get an invisible inflection point of late July.
Watch the price cuts accelerate (both quantity and level of cut) as we move in/through August and disappointment set in once Sept hits and the home has no takers at the high price and buyers disappear…
One man’s thoughts.
Welcome back Dawg, thanks for chiming in.
Both of you are very comfortable in your current digs, and don’t mind waiting.
I’m wondering about those who have been looking in earnest, hoping to wait just a little longer for the deals to appear – will they? Not sure if they’ll comment, but I know there are motivated buyers discussing the same question.
If I was an eager buyer, and had made the commitment to buy, I’d start searching diligently right now, know every home intimately, then try to wait into the early fall and catch someone who has been softened up by the unsuccessful summer and the news reports of douple dip (whether its true or not is not important).
This fall may be turn out to be a good time in the long run (10+ years). Regardless, you’ll feel you did the best possible job in getting your home and shouldn’t have any remorse or 2nd guessing by then.
On price cuts – three of note today:
A. List price of $2.6 million in La Jolla slashed to $1.9 – now that’s a price reduction that’ll get your attention.
B. This REO on the wrong side of La Costa slashed from $659,900 to $525,000 today:
http://www.sdlookup.com/MLS-100034292-6547_Corintia_St_Carlsbad_CA_92009
It’s on the corner of Alga and never worth the $659,900, but even the banks were hoping to get lucky during the silly season (now concluded).
C. List price was $1.895, cut to $1.875. A waste of time, and the much more likely price reduction we’ll being seeing over the next 1-3 months.
I would also speculate that we’ll see sellers cancelling in record numbers, rather than reduce their price.
This may be a silly question but I’ll ask anyway…
Jim, why do you think sellers will cancel instead of reducing price? Can you go into more detail?
Still seems very much like status quo time to me. If you own a home you like with comfortably affordable payments, stay put. If you rent a home you like with comfortably affordable rent and a big cash acct somewhere, stay put. Maybe buy if you happen across that “once-in-a-lifetime unique home of your dreams” at a price you’ll be able to comfortably afford whatever happens to its value, but in this land of cookie-cutter McMansion overdevelopment, how many of those are there to be found?
I’m going with the “wait and see” approach. I’m fortunate that we have a comfortable home in Oceanside and our kids are in good schools (for the time being), so we can afford to wait a little longer. The rise in prices just doesn’t seem justified to me. We put a high offer in on a twinhome (short sale) only to have the bank come back and ask for more. That was the final straw for us. We’ll sit this round out.
Kick the can… Kick the can… Kick the can…
Eventually someone will realize that buyers aren’t buying because they know…
1. Interest rates are going to eventually go up. Trapping them in a mortgage that they can’t refi out of down the road. (As a buyer it makes more sense to have high interest rates and low prices than low interest rates and high prices.)
2. Eventually someone will have to pay for something. The “free-rent” situation can’t last forever. When the change occurs markets are going to get flooded.
Jim, why do you think sellers will cancel instead of reducing price? Can you go into more detail?
We know about the sellers who are hoping to get lucky with their needs-based list price. Their mortgage balance is too high, and can only sell if they get their crazy price.
Let’s talk about the others.
Not many sellers subscribe to the price-it-right program. Instead, they tack on the extra 10%, because “they’re not giving it away”. A few months go by with little or no offers.
Rather than admit that their price is ridiculous, they will point the finger at every other excuse – the agent, the market, the economy, Obama, the neighbors, others who “gave theirs away”, etc.
The sellers’ ego is a powerful thing, and they don’t want to have to admit to their family and friends that they might have been wrong on price, even those who knowingly tacked on the illusionary 10% in the beginning. They cancel instead.
I think the “Make Me Move” mentality can also be a factor. We had a neighbor (agent) at our old place in Carlsbad who had his house listed for $950K–a good $200-250K above market price. I questioned him as to what he was thinking–his reply was “if someone is willing to pay me even close to that, then I’ll move.” Not really motivted to sell.
“At what point do you give up hope as a buyer?”
At what point do you give up hope as a seller? There are strong convictions on either side.
Are you referring to first-time buyers? It’s a very different scenario going from bubble-equity to bubble-price than it is going from nothing to bubble-price.
Did PB/LJ really triple in price in 10 years? If so I’ll move somewhere else, where it makes sense to buy, or keep renting. If I lived in Oside or Vista, I probably would have said f it and bought by now. There have been some nice places out that way listing for around $500k.
I don’t see it as waiting out the market, just continuing down the route of trying to make the best financial decisions one can.
We recently bought even though I think it might be 5-10% overpriced. Why? There are many reasons – buyer fatigue, tax incentives (this was during double-cheese time), finally finding an acceptable house, liking our new location a lot better, etc. However, one big reason is that the declines are happening so slowly. If it takes 2 years for it to go down another 10%, the price difference will have been eaten up by the rent.
So, california incentive done (except for new homes). After a lag, I’ll have more faith in prices. The fact that California has bucked the overall trend recently, with state incentives picking up the slack after the fed incentives, likely more than coincidence. Considering the price of properties in California, always thought $8k, and $10k were too minor to have a huge impact, but the charts seem to disagree. Living where I am for 8 years, I can wait. Market I’m watching seems persistently drifting downwards. Certainly things more attractive than they were, but … own vs rent just barely into the decent range. Interesting psychological explanation of sellers cancelling, although … sort of irrelevant (yes, I know you were just answering a question) … what matters to me is getting value for $, maximizing my chance of not having it go down another 20%, after I purchase. Impatience is for people buying a bicycle, or a TV, or for children, not for people looking at what is probably their largest purchase. Although we have been in an environment where housing prices seem so volitile as to be like watching the stock market, such movement is not historically normal. Best not to get spooked into a hurried decision, especially with external factors, like government “cheese” muddying the waters, among other factors.
What about this point brought up in the WSJ last year…..
“Why Baby Boomers May Bust the Housing Market”
Think the current housing downturn and the subprime mortgage mess is the worst of the housing market’s problems? Not so, according to a report published this month in the Journal of the American Planning Association.
About to wreak havoc on the housing market are the 78 million American baby boomers who will “retire, relocate, and eventually withdraw from the housing market,” according to report authors Dowell Myers, a professor of urban planning and demography in the School of Policy, Planning and Development at the University of Southern California, and SungHo Ryu, an associate planner with the Southern California Association of Governments.
Using demographic data to show that individuals in their mid-60s tend to sell more often than buy, the authors contend that when boomers — a “dominant force in the housing market” — start reaching the age of 65 in the year 2011, a market shift will occur. Some retirees will be looking to downsize, others will relocate to warmer climes, while others will move to nursing homes, says Mr. Myers. As they transition out of the housing market or look to sell their homes, in some states there will be “more homes available for sale than there are buyers for them.” Home prices will soften.
The “sell-off” will create a sizeable hurdle for the housing market, because as Mr. Myers puts it, “It isn’t money that buys property, it’s warm bodies. If you don’t have enough warm bodies to fill up the space, the space stays empty.”
The report points out that the ratio of those aged 65 and older to working age (25 to 64) adults will increase by 67% between 2010 and 2030, and that when these older adults try to sell their “high-priced homes” to a “relatively smaller and less-advantaged generation” — a cohort whose buying power was diminished through the housing boom’s price increases — there will be more homes for sale.
In some states – namely Connecticut, Hawaii, New York, North Dakota, Pennsylvania and West Virginia – the process has already begun, with sellers starting to outnumber buyers, Mr. Myers says. He contends that the East Coast, particular Maryland and states north, face a double hurdle because there aren’t enough young people to pick up the slack as boomers sell off and because prices are so high that many will not be able to afford these homes.
“In some states like New Jersey, it could be 20 years before prices recover,” he says, explaining that the generational trend is one that could stretch for decades.
On the other hand, he says that in Sunbelt states like Florida and Arizona – where there is a healthy supply of young people as well as a steady influx of retirees, prices could jump back in a period of two years or so, depending on each state’s particular demographics, Mr. Myers says.
The authors suggest that to combat the boomer generational trend, local communities need to limit overbuilding of new housing, put measures into place to retain the elderly in the community and attract young households and immigrant households to local neighborhoods.
Readers: Obviously, any further fall in home prices is going to cause pain for home sellers and homeowners. But ultimately would this price softening be a good thing for young first-time buyers? — Lauren Baier Kim
I hope to buy up into a nicer place in 3 to 5 years. I’m just lucky that my timing matches what I feel is the bottom of the market.
I’m just happy I’m not a potential buyer. I would be going crazy – knowing that I need to buy, but also seeing what I see in the global economic picture.
If I were a buyer and just sick of renting after sitting out the bubble burst for 5 years, I would sprobably buy a lower-end house well under my budget with zero-down and just take the hit on the price while saving up for the right house later.
Dead-cat bounces really suck for buyers and this is a doozy.
Just rent. No need to buy ever. Ever.
Where are you looking Jinx? How is the market near your home in Oceanside?
Quite the shaking… Was that the RE rally hitting the wall?
I was a potential seller/move up buyer up until about a month ago. I got tired of waiting for price drops in the nicer areas and decided to just dig in. I’m refinancing, taking out some cash to remodel the kitchen and put in a jacuzzi, and committing to riding out whatever is ahead in this little house. I think if I were a first time buyer with a family on the way, I’d probably be more patient and determined, but everyone’s needs are different.
If you want stability right now, you park where you’re at and save your cash. I think buyers right now have to be very, very secure in their employment situation. The more risk involved, the more the complexion of the players changes.
I’m a buyer and I’d like to see how things go this fall before pulling the trigger, both for housing market and economy in general. Powerful macro-factors at play, such as CA state budget and economy in general. It’s better safe than sorry.
I’ve been waiting for three years now. Patience really paid off. Rent is only 30-50% of house payment. At the current pace, I can buy a desired place with cash when rates shoot up in a few years.
“At what point do you give up hope as a buyer?”
Frustrated doesn’t describe what I feel.
Low available inventory with silly pricing makes it seem like 2004 again to me in some ways. Many of the loan mod “delay and pray” programs now being offered to homeowners also look a lot like the exotic loans from back then (but with a 70% re-default rate already). Trying to keep the games going at whatever cost seems to be all that matters.
“…Or will the frustration further cement the buyers’ resolve to wait it out?”
“I’m wondering about those who have been looking in earnest, hoping to wait just a little longer for the deals to appear – will they?”
In 2004, there was so little inventory available that I could only hope to find something I could stand as a starter home. Now, my time frame for staying put is much longer and I’d better love whatever I buy. There just isn’t much to like out there. In a way, that makes it a little easier for me to continue renting.
I’ve continued to put off buying over the past couple of years because of the various moratoria and delaying tactics. I’m pretty tired of it all. I’m not looking for the bottom, but I’m not seeing anything that makes sense for me either.
I’ll keep hoping for some inventory.
Always appreciate your posts, Jim.
Osidebuyer, I’ve been looking in Encinitas, Cardiff, southern Carlsbad for almost 2 years now. We’ve had offers accepted on several but it just hasn’t worked out. Having my heart broken so many times has really worn me out. The stress just isn’t worth it – buying a home shouldn’t be so unpleasant.
We’re in Sea Mesa, Oceanside, a really nice family neighborhood a couple miles from the beach. Things have slowed down here. At the market peak homes here went up to 600K then dipped to low 300s. This spring a few houses came on the market around 380K and were snapped up within a few days, but now I see 3 listings that are just sitting there. They’re slowly lowering their prices.
Buy low end now, it’s close to bottom, and if it drops more it will just be what you would have spent in rent anyway. Pay all cash, no mortgage and save cash for down payment on move up house on dip number 2 when the mid to upper end may be hit harder. Rent owned property for what your mortgage is on your move up houses.
Goverment and banks will continue to control/inventory prices. No major changes in inventory coming.
The sellers’ ego is a powerful thing, and they don’t want to have to admit to their family and friends that they might have been wrong on price, even those who knowingly tacked on the illusionary 10% in the beginning. They cancel instead.
I see this exact mentality with my brother who’s insisted for the last four months his home (not in California) is priced correctly. He’s trying to sell it for 10% more than he bought it for. Unfortunately for him, he had to take a job in a different city so he can’t just sit on it. He insisted that his agent got him this fantastic deal three years ago and that they were such fantastic hard nosed negotiators that they got it for 10% below list price. The reality is that they have had it listed at 10% over list price with closing costs and carpet allowance and there’s been interest but zero offers. Yet they keep insisting that the house is priced to the market.
Just an illustration of the ego, since if you can’t sell the house for a profit a few years later that means you really didn’t get that fantastic deal you’ve been bragging about the last few years.
My wife and I want to buy, but we’re settling in for the long haul of renting for the time being. I’m in a similar situation to SD_suntaxed. The start home era of my life is over. Now it’s time to find something that will last me many years and I have to like what I’m getting.
Also, I see a number of shoes that could tumble into the “other shoe” spot:
1. CA gets a new Governor. This could lead to a) shrinking of the CA public sector or b) increasing taxes or c) some mysterious third option that breaks the seeming-dichotomy of a and b. A and B are a drag on housing.
2. Extend and pretend. At some point, those free-rent people are going to be paying mortgages or those properties will be liquidated. In either case, the end of extend and pretend is a drag on housing. (Again, barring a mysterious “c” option here as well.)
3. Leverage. I want to leverage 4:1 or less. I don’t want to be competing with people leveraging 28:1. I’m not up for a game of “who’s willing to promise to pay the most for this house”.
I’m warming to the idea of moving from our current apartment into a rental house. I’m even considering the merits of buying a low-end property to rent out in order to protect my saved down payment against a rise in nominal prices and offer an eventual income stream to defray the cost of renting a nicer house.
I can out-stubborn the market until I find something I love or until I’ve saved enough to buy something tolerable for cash.
Ditto what Cube (and most others) have said.
We’d love to buy now, but refuse to pay bubble prices. We’re being forced to sit this out for as long as the govt/Fed are intervening in the market. We’re fortunate because we’re long-term renters in a very nice, affordable house (with great landlords) in one of our target areas.
I ran some numbers the other day and realized that in order for us to move to a similar (or slightly better) house in our area, we’d have to put down half a million dollars just to have the ~same monthly payment (PITI) as our rent. I didn’t include the tax deductions because I’m not sure they’ll be around for the long haul/taxes could go up in our current environment, and because maintenance costs would wipe out a significant portion of the savings from deductions.
There are so many headwinds in our economy that renting just seems like the smarter thing to do at this point.
I’ve felt like giving up many times. It’s a frustrating process. The competition is fierce in my neighborhood for the bargains. Each time I find one that I like and can live with, someone comes in with a better offer – many with all cash. I refuse to be foolish and overpay, so I patiently wait and watch, then pounce on what I can.
The old mantra about FMV is that it’s what a buyer and seller agree on when neither is acting under duress. So you can view the prices of “might-be” sellers whose homes are not defaulting albatrosses around their necks as “unrealistic,” or just as what it’s going to take to get people who are not under duress to sell if you really want to buy their homes.
“Make Me Sell” isn’t any more or less valid a mentality today as it was at the height of the boom for anyone who isn’t chomping at the bit to leave or living under the sword of Damocles.