Yesterday’s radio show (now available on their website) only lasted 32 minutes, and was a call-in Q&A format – so there wasn’t a full exploration of relevant topics of the day.
There are other topics to discuss, let’s do it here!
1. San Diego County attached and detached sales are slowing down:
| Sales & Cost | June # | June Avg. | July # | July Avg. |
| 2009 | 3,229 | $226/sf | 3,334 | $231/sf |
| 2010 | 3,227 | $252/sf | 1,691 | $252/sf |
We still have the rest of this week, and there’s always a big rush the last week of every month due to less money needed to close for pro-rations. But if we tack on the same 974 closings we had between July 25-31, 2009, we’re still going to end up well under any of the monthly totals seen above.
What will happen? Will it scare more buyers back to the sidelines? Perhaps, but hopefully it’ll serve as a wake-up call to sellers that they need to reduce their list price if they want to sell this year.
With servicers being reluctant to foreclose, I think there will be little pressure for sellers to adjust, and we’ll likely see the Big Standoff for the rest of the year. We’ll probably see either sales stagnate and the average $/sf stay above last year’s, or if sales pick up, it’ll be because sellers can live with 2009 pricing. But that’s about as bad as it’ll be.
2. What is the real threat from the shadow inventory?
The servicers flat-out tell their borrowers that if they want to be considered for a loan modification or short sale, they need to be delinquent. This is causing the defaulter counts to swell, but how many are doing it just to get in the adjustment line? If anything, the defaulter counts are a measurement of the number of future short sales coming over the next 1-5 years, and not a count of those going to be foreclosed in the next six months.
The bank-owned properties not on the open market are a fairly insignificant amount, and if they would push them out faster, it would give home buyers more better-priced inventory to consider – which isn’t a bad thing, when released in limited amounts.
The biggest threat? The borrowers who casually enter the default ranks, then get ticked off at how the servicers treat them, and who then decide to strategically default as a result. The servicers are on a slippery slope that I don’t think they fully appreciate here.
3. How much of a discount will be required by lookers, in order to become buyers in 2010?
I think if buyers got a 10% discount combined with 4.5% mortgage rates, they’d be happy. Would the 10% discount need to be real, or just imagined? In some areas, if a seller just came off their unrealistic list price by 10% it would be enough to put them well under the other active listings, because they all seem inflated. Here’s an example:
http://www.sdlookup.com/MLS-100033349-14020_Boquita_Del_Mar_CA_92014
They started June 3rd with a list price of $1,350,000 after several attempts to sell over the last 2 years. They lowered the list price early and often, now down to $1,179,000, and you’ll see it go pending any minute – and it sounded like it’ll close near the list price too. The seller was not in distress, just smart – given the market conditions and other listings nearby.
I doubt that many sellers will do it, and as a result, the rest off the year is likely to be very stagnant.
4. Double Dip.
I think with mortgage rates in the fours, there will be a buyer for every seller who is realistic. It might take coming off their list price 10% to 20%, but the demand is there. Will the double dip materialize in the second half of 2010? Not according to Wells Fargo Securities:
http://blogs.sacbee.com/real_estate/California_Jul2010.pdf
A couple of excerpts:
Current market conditions appear much too balanced for a repeat performance of steep California housing price declines. We reach this conclusion even as we expect a rising supply of distressed home selling to reemerge over the near term.
So the signs of healing we saw in the California housing market in December have only solidified further over the past six months. It would now take sizable economic or financial shock to fully reverse the progress that has been made. Historically low mortgage rates should provide an important offset to expiring tax credits and a steady supply of distressed properties that are expected to continue to spill onto the market.
Most likely, only a double-dip recession in California could recreate the conditions necessary for another plunge in California home prices.
I think we can expect more of the same; lots of loitering, and enough sales to get us into 2011, where there will be renewed buyer frustration that things aren’t moving fast enough.
What do you think?
I think that many of the delinquencies are not people trying for mods (though I’m sure that is some of the population), but people who have had drops in income (one spouse out of work, fewer hours, smaller bonuses, commissioned people pulling in much less in sales and FIRE), who with their reduced income are taking a long look at how underwater they are.
They are either really unable to continue making the mortgage payment, or are inching their way onto the free-rent/walkaway program.
My guess is that at least half of the 7-9% mortgage delinquencies fall into this class.
Will these become shorts, mods, or FCs?
I don’t expect “another plunge” in prices, but I do expect a repeat of 1994-1997, with sideways prices and seasonal ups and downs. February 2011 prices may well dip below the $/sq.ft from February 2010 or February 2009, while May/June 2011 prices may bubble up to May/June 2010 levels again, etc. At a certain point, the low interest rate environment becomes a potentially deflationary factor, if expectations for 4% in 6 months instead of 4.5% now take hold. All those cancelled JPM/Chase/WaMu trustee sales either become permanent mods or listed properties of short sales during August and September, or you’ll see them relisted for trustee sales come October. What will sidelined sellers who put OPTs back on during September do as the October and November Case-Schiller reports start to show a declining trend again, about the same time that MSM reports start showing recession during 2010Q4 and similar forecasts into 2011Q1? I don’t know, but I expect to bounce along a choppy bottom for the next 3 years.
I think Jim’s thoughts are right for at least the next 4 months. It will be a standoff as lagging indicators such as case shiller show improvement enticing sellers to be firm in their pricing. It’s pretty typically for the sales number to slow 6 months before prices soften. Sept/Oct YoY numbers that are reported in Oct/Nov are going to look terrible because of the expiring tax credit from last year.
That might wake up some of the potential sellers but this year looks like a year of a bunch of removed from market in October. The ones that can find a way to wait will be back on the market March 2011. Of course if the stock market doesn’t continue on it’s bounce right here and somehow breaks 1000 on the S&P we could see a very different market. The banks could panic and sell if they get in a liquidity bind. I put the odds at about 10% in the next 6 months, but I think the odds increase if things don’t get better real soon.
So, we need a double dip to make the prices fall to where they should be? That seems a little illogical. Maybe the prices are about where they should be assuming the economy continues to just drag along.
Check out the newest fraudster on the block- take a look at these “listings” that went contigent the same day they are listed – in total, this is a 8,000 sq ft lot a few houses up from the bluff in Del Mar. This lot would be an absolute STEAL for 1 million. Looks like those of us honest folks will never get a chace at it –
This lot has been on the foreclosure/auction list for months and months, and now miraculously its selling for 750,000.
http://www.sdlookup.com/MLS-100044815-152_10th_St_Del_Mar_CA_92014
http://www.sdlookup.com/MLS-100044801-150_10th_St_Del_Mar_CA_92014
This won’t apply for a lot of people in trouble. Most either absolutely can’t pay, or they can pay and will. There are a few people who strategically default, but nothing the bank would realistically do would affect that. Sure you can get someone to do anything if you throw a ton of money at them, but it’s not going to happen. This is especially true now that the banks don’t even have to pay political lip service like they did during TARP.
If people think they’re going to get an easy ride, it’s no surprise because that’s how they got into a mortgage in the first place. During the gold rush, the vast majority of miners got jack squat but could easily cite that one guy who tripped over a huge gold nugget or walked away with cases of gold flakes. Sure, but that’s not going to be you. In fact, many of these stories were even deliberately faked in order to sell worthless mines.
History repeats itself. Good luck.
I’m liking the view from the sidelines more and more each day.
All this noise in the market makes it impossible to truly ‘invest’ with facts & fundamentals…it just makes my head spin trying to find clarity.
Hope & change & maybe & possibly & should are not reasons that get us to write large checks.
Since we began backing out of the residential market earlier this year my stress level has decreased, and I’m spending more time with the kids vs. decoding manipulated tea leaves.
Hey Jim _ you’re on CR today with a “Beach Cheapie” video. Did I miss this on your blog recently?
I think sooner or later (hopefully sooner) North County Coastal will need new young families to get in. JTR mentioned a few weeks ago that the buying action is from people with large down payments, mostly from previous home equity. There has to be a finite number of these people. To truly afford $700k, first-timers need $150k cash (including closing costs,) and $150k household income. The census suggests these families aren’t abundant.
The sheep (majority) led themselves to their current underwater fate from ’02-’07. No move-ups for them. The “aw-to-heck-with-it-I’m-tired-of-waiting-and-can-stretch” crowd has been buying since and could be thinning. Soon to be left is the militant number-crunching crowd who will not buy unless it makes economic sense. (“Hope & change & maybe & possibly & should are not reasons that get us to write large checks,” is our motto!) Hence, a standoff.
FB, those listings are unbelievably shady.
We’ve identified previously that the ‘season’ runs from Super Bowl Sunday to Mid-July.
On July 15th clearfund issued his first address, declaring that he’s out of the game.
Today, another report from the “sidelines”, mentioning how stress is down, and the kids!
Do you think he is trying to encourage others to the sidelines, and maybe catch everyone napping???…..kinda like this guy:
http://www.youtube.com/watch?v=oBuGr1pDEEM
Lunch says clearfund is in escrow before the next Super Bowl.
I’m seeing prices go up in my area. Is that a zillow rounding error or a true sign of the health of the market?
JTR – I will take that bet/challenge/dare (however, residential property only in CA/AZ/NV). Winner picks the place, open bar tab….may drag along Jeeman, et al for free drinks!!
ps: that clip brought back horrible gut-wrenching pains for me and most of this blogs readers I assume. Hard to believe that Charger defense is STILL trying to arm-tackle week in/out.
You kinda look like SY, you’re not #8, are you?
Nope, more of a #17 fan…
They should put PR on defense, I bet he’d stick his hat into a ballcarrier…
Hey Jim,
I’ve been following along when I can, but I’ve been a bit busy lately, so I haven’t commented in a while.
I’ve been curious for a while about the numbers you gave in the past for all cash or large (80%) down payments. I would like to see those numbers in a more historical context if you have the data. Are the percentages of all cash buyers, especially on the mid to high end homes, about the same, or was there a larger portion of them over the past year or so?
I have a feeling that the recent all cash buyers for the high end homes, and even the low end for investors, was more of an aberration from historical norms. I’m thinking that much of it was from folks that made a ton of money following the market crash. If they bought FORD for $1.50 and sold it a year later for 10x that, they could afford whatever home they wanted as if it were found money.
If my theory has any validity, with the stock market humming along now, there could be fewer of these sort of buyers in the future.
Any thoughts or data?
Thanks
Can I get in on the Clearfund in escrow before the (don’t you dare fail me CF) next superbowl? If Phil’s playing at LB I’ll pay quadruple.
“To truly afford $700k, first-timers need $150k cash (including closing costs,) and $150k household income. The census suggests these families aren’t abundant.”
We’re here, bummer that decent houses aren’t. $800k is the new $500k.
Genius – I’m holding strong…so far.
Until I see real jobs surface across the board I’m staying put. Unfortunately, I figure I should slide into a free 4 cerveza lunch at Robertos pretty easily.
However, I am a pain in the ass as a buyer and would rather be late to the party than arrive early, or on time.
Everyone else should sign exclusive representation with JTR, and get an end of the year deal and make the Mrs. happy!!!
Did you see #8 throw that TD right down the middle in the first minute of the game? That’s how you catch people napping, hit them when they least expect it.
I think he’ll be in escrow by the end of summer.
P.S. I don’t remember the census worker asking me for a bank statement….
…perhaps by the end of the week…
I know you’re not a niners fan JTAR. This is an SD blog dammit.
You’re right, I’m a Chargers fan, unless the Raiders bring back Daryl Lamonica or the Snake (I was born in Oakland).
But it was the best thing I could think of to demonstrate how people here might feel in the next few weeks if they see a video of clearfund walking his check into escrow.
If it happens, it’ll just be a garden-variety miracle to me. He’s already done the necessary homework, he just needs a break to come his way. Yes they are in short supply, and usually tied to shenanigans these days, but you also have to wonder, would JtR be making bets unless he had an ace up his sleeve?
OK, I’ll bite. What’s the ace up your sleeve, JtR?
…I figure he must have a new listing forthcoming that my wife will ‘have to have’….
…or he found some extra change in the laundry and is feeling generous enough to buy some tacos and Coronas…
I can’t understand why people are still pricing their houses unrealistically, turning off buyers and wasting their time and that of the listing agent. If prices are on a downward trend, and I believe they are and will be for the next few years, why not price your house to sell, instead of pricing it high, then playing the waiting game and end up selling it a year and a half later for less than what you could have sold it for if you priced it right to sell. Not to mention all the HOA fees and other expenses you could have saved. I firmly believe Jim the Realtor’s philosophy about price and think that it would behoove both sellers, agents and the economy (more money circulating and more taxes being collected) if houses sold fast.
It would be interesting to know the demographic of the people asking unrealistic prices for their houses vs those who are seeking to purchase them. Are the sellers independently wealthy individuals who own the house free and clear and are willing to take a risk thinking the economy will be better next year? Are these people even serious about selling or are they just testing the market? Where are they headed after they sell?
I think that towards the end of 2010, you might see a temporary increase in sales (only if these high priced sellers come down a little in price) because of the rise in the capital gains tax rate in 2011 and.or if the Bush tax cuts don’t get extended.
“Not according to Wells Fargo Securities”
Maybe we ought to see what Wells Fargo Securities was saying in 2007, before we give them any credence. IMO, this is like quoting the NAR.
Happs – the rise in cap gains in 2011 won’t matter to 99% of housing sellers.
If they have a gain at all, likely it will fall under the $500k/couple exclusion so the net effect will be non-existent.
Stocks, and other assets have already been seeing profit taking in 2010 due to your point.
10% price reduction is probably more than most people’s equity. If its a choice between selling for zero equity or 18 months free rent, you can guess what the result is going to be.
IMO, this is like quoting the NAR
That’s what I get for asking what people think, because so many just can’t resist sticking it to old JtR. Never again.
You’re JTAR. Quit getting things twisted.
CF,
It’s ‘the house’, the one she’s been talking about. I have a long ways to go, but the pieces are in place.
I had assumed that was brewing….saw them packing/clearing stuff out a few weeks back, so I made a detour so wifey didn’t see the ‘action’ at ‘the house’.
Price it comparably to the 2 new listings within a couple hundred yards of it and I just may lose that bet…