The mainstream media is fond of quoting the ivory-tower guys who all blame incomes, tight money, unemployment, foreclosures, shadow inventory, tax-credits, etc., for our housing woes.
It is surprising that anyone else can get a word in – I wonder if anyone can hear it?
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Thank you to Brad Fikes at the North County Times for this article – an excerpt:
San Diego County home prices fell in September for the second month after 15 consecutive monthly increases, according to a widely watched index. Numbers were also weak nationally, with most cities surveyed showing declines.
The resale value of a typical house in San Diego County fell 1 percent in September from August, according to the Standard & Poor’s Case-Shiller Home Price Index. The value had dropped 0.6 percent in August from July. However, September’s home price was still 5 percent above that of a year ago, according to the index, which tracks home prices for 20 cities and the nation as a whole.
San Diego County houses priced under $314,451 slipped 0.9 percent from August. Houses priced from $314,451 to $474,176 dropped 2 percent in value, while those priced above $474,176 rose 0.5 percent in value.
People are eager to buy, said Jim Klinge, a Carlsbad-based real estate agent, but sellers are asking unrealistically high prices.
“Buyers are extremely frustrated,” Klinge said. “They (sellers) are greedy and are asking way more than what they should be, based on what recent sales have been. This is a new market. You’ve got to be sharp on price if you want to have any chance to sell. It’s a buyers’ market. The buyers call the shots.”
Sellers are making a mistake by basing their prices on active listings, “because those are the prices that aren’t working,” Klinge said. “The inventory’s growing, but it’s growing because the price is wrong, not because there’s no demand.”
Kelly Cunningham, an economist who has studied the San Diego region for more than 25 years, said local home prices are still relatively expensive, despite a substantial drop in prices since their peak about five years ago. That means there’s room for prices to fall further, he said.
“We’re still one of the least affordable housing markets, when you compare our median household income against the price of homes,” said Cunningham, a senior fellow at the National University System Institute for Policy Research.
“With incomes stagnant right now and high unemployment right now, that also suggests there’s a lot of weakness in the housing market,” Cunningham said.
Nationwide, the report also painted a rather gloomy picture, at least from a seller’s perspective.
“While housing prices are still above their spring 2009 lows, the end of the tax incentives and still active foreclosures appear to be weighing down the market,” the monthly report stated.
“Another weak report; weaker than last month,” David M. Blitzer, chairman of the Index Committee at Standard & Poor’s, said in a statement issued with the report. Blitzer said many analysts think a “double-dip” back into recession will be evidence before spring.
“New construction is running at less than half the pace needed to meet normal demand, so a sustained recovery could be a ways off,” Blitzer said. “Overall, there are few, if any, good numbers in this month’s data.”
Besides the end of tax incentives for first-time homebuyers, Blitzer attributed the weakness to ample supply of houses on the market, and more supply waiting with delinquent mortgages, pending foreclosures, and vacant homes.
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To help substantiate my point, I’ll tack on this SD chart, seen at Piggington:
Your assessment of buyers and sellers is particularly profound, Jim. Information like this is why I would happily characterize myself as a bubbleinfo groupie…
Note to Clearfund ~ Seven (7) inches of “mashed potatoes” @ Potato Land airport overnight! At my new house, it looks like only 2″. *Grin* Send sunshine immediately if not sooner to your parents, grandparents–and of course, me! In return for your kindness, I’ll send you the best homemade chocolate chippers on the planet…
You go, Jim! It still astounds me to see people talking about “fair market value” when their house has been sitting out for 6/8/12 months unsold. And they are convinced that demand is weak because they can’t get “fair market value.”
There is a ton of demand out there, just not at these prices now that people actually have to qualify for loans.
There isn’t much evidence of active inventory in NCC setting for 6/8/12 months–I have seen a few that are overpriced or have something sgnificantly wrong with them and are setting, but the norm seems to be 90 days or less. Maybe Jim can run us some numbers.
JTR – The difference in expectations between buyer/seller is as old as time.
When I was at MSREF they actually commissioned a study on the topic and the conclusion at that time (late 90’s) was that seller’s expectations lagged the market/buyer by apx 18 months.
That is an eternity, however, it still seems somewhat accurate.
Susie – I spoke with my people’s people and the sunshine has been mailed!!! The post office is slow so expect it to arrive Saturday. I sent enough for 3 days. You can find my address to send the “chippers” by clicking my name/link….
I’m curious if buyers face the same desperation that can effect a seller. Usually a potential buyer has the worst case opportunity to rent at market rates while a potential seller may be faced with a worst case scenario of renting at a loss or foreclosure depending on circumstances. I would assume that the desperation effect is higher in sellers, but there seems to be a very strong urge to own for some buyers that I personally don’t have so I can’t really understand it.
That said I think the potential sellers will hope spring is better and the potential buyers will hope for some new inventory during Dec-Jan-Feb to see if they can get a deal. Both sides seem to be playing the hopium game right now. Let’s see which side panics first if those hopes don’t materialize.
JtR- I’ve got to disagree, inventory is not growing it’s pulling back hard and will continue to do so. By the C/S numbers homes sold over $475K are still going up in price while the (2) tiers below are dropping.
As usual real estate news will sound bad until February.
It’s going to be about elective sellers in 2011.
San Diego C/S numbers put home values at 62% above 2000. The stock market is flat at around 11,000 for the same decade.
Livincali-As an aggressively hunting buyer with the old house sold and renting back, I wouldn’t call us desperate. Plan A, find a house to buy. Plan B find a place to rent before May when we have to be out of this place. But 2 dogs and a cat, and not wanting to commit to a long term lease are all problematic.
I would characterize our mental state as frustrated. Frustrated that some sellers won’t or can’t drop their prices. Frustrated with the process of bidding wars on the occasional property that *is* priced right and *does* have a decent size yard, and *is* an interesting floor plan. Notice I said nothing about condition or upgraded because *if* it is priced appropriately, we will fix and upgrade it ourselves over time. Check this property out. I have an idea what I’d say is an appropriate price, which is a *long* way from where the seller is at. Thoughts anyone?
http://www.redfin.com/CA/Vista/662-Cantara-Ln-92081/home/3403807
inventory is not growing it’s pulling back hard
I knew somebody would catch that, glad it was you!
Brad said he recorded our conversation, so if he replays the tape and I’m wrong, let me know.
But I think what I said was that the inventory was growing, but corrected myself and said it’s been shrinking lately due to the annual holiday-season listing-cancellation festival.
Then I got into my prognosis for 2011, where I think we’ll see a surge of sellers hitting the market. They’ll see what their neighbor lists for, and say, “well if that’s what I can get, then I’ll sell”. The usual stuff we’ve seen the last couple of years. The inventory will be growing quickly, as buyers can’t believe their eyes at the pricing, and go into wait-and-see mode.
The Redfin graph at the bottom of the page spoke volumes.
Buyers were giddy enough, helped by the tax-credit spiff, to run prices up earlier this year.
It is possible that it’ll happen again, and sellers will be dancing in the street.
I’ll get into a full post about how it could happen in the next few days.
Great example Deb.
The sellers are comfortable, and aren’t going to give that one away. Their loan in 2005 was $535,000, so it could be a little more or less today, depending if it was neg-am.
But you can predict that they’d feel like selling if they could walk with their $100,000 or so, and are happy to wait.
They have it rented, and to see it you have to give 24-hour notice, and if you want to buy it, then they’ll give the tenants 60 days notice. Very comfortable there.
The agent has sold two properties this year – she didn’t put up a fight about price, she probably had a tough time justifying any price.
This is a very typical situation that I run into every day.
4.There isn’t much evidence of active inventory in NCC setting for 6/8/12 months–I have seen a few that are overpriced or have something sgnificantly wrong with them and are setting, but the norm seems to be 90 days or less. Maybe Jim can run us some numbers.
NSDCC (La Jolla to Carlsbad) Detached Actives:
20% on market over 6 months
51% on market over 3 months.
(19% on market less than 30 days)
The OPTs that do sell are those who wake up and start lowering their price.
BTW, the “refreshing” of listings is still alive and well, so these percentages are conservative.
Thanks Jim-Speaking of the art of ‘refreshing’, I’ll add that to my list of frustrations. Having been hunting for 6+ months, this tactic irritates the bejeebers out of me. It just seems rather dishonest although I know it’s perfectly allowed in the industry. The practice makes me want to call a listing agent and say, ‘please don’t try to insult my intelligence, it’s only making you and your seller look bad.’
Thanks for offering a personal case of frustration for people to see.
I will pat myself on the back for not complaining to Brad how the listing agents are really the ones to blame. They are blundering incompetents who take listings at any price, then think it is their job to defend it at all costs – and then never sell it, which is a dis-service to the seller!
Somewhat off topic, but with the OPTs, or maybe not a T, but certainy O, what about the whole appraisel issue? It’s all fine and dandy to be a seller and go for the brass ring, but even a cash buyer is going to want not pay too much. And financing, well, it WILL have an appraisel…period, and maybe more than one. So what about ‘will it appraise’? I say that often to our buyer’s agent at the same time she’s telling us to make a full price offer ;).
Deb – My personal leasing opinion/strategy that may be helpful. Don’t focus on the fear of being “locked into a long term lease” as that is an easily avoidable issue. Here is what we did and why…perhaps it will be helpful.
We did a 2 year lease PLUS 2-six month options to extend giving us at least 3 years (short options are great to use to extend the lease on your terms).
Here is the important part: We added a clause that we had the right to sublease the property. (we also included a right of first refusal to purchase where we could match any offer the seller was going to accept, essentially killing any sale or marketability and ensuring our position)
The sublease is important because we knew that we could lease our place out below market within a few days if a great deal to purchase came our way. If we had to take a small hit on subsidizing the rent for the subtenant, so be it. Say $300/mo is only $3,600 for the year which when you put that into your calculations on buying a home for 20 years is pretty minor.
This gave us peace of mind that we can shop for a home over a 3 yr period and be in no rush to accept an outrageous seller’s price just because we were boxed into a tiny window to purchase.
It also gave my wife some peace of mind that we could settle for a few years and not be moving every year to a new rental, thus removing the buying pressure on the homefront as well.
In summary, don’t let the ‘lease term’ dictate the much larger decisions of where to live and a major home purchase.
“…You can find my address to send the “chippers” by clicking my name/link….” (Clearfund @ #5)
Sending sunshine with the Post Office? You’re not sending it Fed Ex overnight? Why not? Obviously, you don’t know how good my chippers are! And oops, I went out and measured the “mash potatoes”. *Gulp* It’s not 2″, it’s 5 1/2″ and still lightly snowing!
Obviously, I’m out of practice coming from Santa Barbara! *Chuckle* I have no one to blame but myself. It’s not like the Universe didn’t try to warn me. The name of my street has the word, “snow” in it! My Realtor told me this is “unbelievable” and it hasn’t snowed like this for years & years…
Clearfund, As a landlord, I would never agree to those terms. Lots of folks looking for rentals right now, so why handcuff myself if I decide to sell?
MB Mike,
Most landlords are not you. They just want their place rented 100% of the time, to someone who will pay 100% of the time ontime, and have some assurance that any damages will be covered. Besides, any renter with excellent credit and substantial reserves seems perpetually in short supply; these renters get their pick of the best properties.
It sounds more like it’s an emotional response to being “handcuffed” as a landlord. Any investment should be seen in the light of the intended holding period (short or long term), and act accordingly. There are many landlords who plan on keeping their property for many decades and won’t consider selling. For them, the longer term leases are often better.
Chuck
What the national pundits who cite unemployment and incomes as causes for slow housing markets don’t realize about San Diego County is that with two wars and a massive homeland security outlay going on since 2001 the local jobs engine was already running at full steam before the addition of the unsustainable artificial boost provided by the housing construction bubble was added. That level of construction is not coming back anytime soon (if ever), so unless the local economy undergoes some sort of magical reinvention by high tech or biotech or (God forbid) another war, the economy we’re seeing here now is probably as good as it’s likely to get.
OTOH, if all those recalcitrant would-be sellers really are sufficiently comfortable in their finances that they don’t really have to sell, if “fair market value” is still what a buyer and seller can agree on if neither has to act, we’re still in limbo. I can only know what I would price my house at if I decided I really wanted to sell it now.
Chuck,
Granted that there are some landlords who plan to hold property for “many decades”. However, I’d bet there are quite a few in a negative cash flow situation timing the market.
Further, my opinion is that this is a good time to be a landord (and getting better). Lots of folks looking to switch from being owners to tenants.
MB Mike, Chuck, and Clearfund-Thank you for the advice! Believe me, come March/April, if the right house hasn’t been offered to the market and we ‘win’ the bidding war (if we’re interested I assume others will be too), we will be taking all reasonable alternatives into consideration. Right now, our ‘rent’ back on our old house is VERY reasonable compared to SDNC standards and I loath to move twice! Done it before and would rather not.
“Livincali-As an aggressively hunting buyer with the old house sold and renting back, I wouldn’t call us desperate. Plan A, find a house to buy. Plan B find a place to rent before May when we have to be out of this place. But 2 dogs and a cat, and not wanting to commit to a long term lease are all problematic.”
I would tend to agree. I think the seller side is the one that would face desperation before a buyer would. Of course with that said there seems to be a battle taking place between overpriced sellers and serious buyers. I was wondering if the desperation effect would help pick a winner to this current battle.
My current thought is that eventually the buyers will win this war, but there’s always the possibility that potential buyers could chase the market higher if prices go up and they can get financing or if they get desperate enough to buy something.
Deb-Looks like somebody thought the price was right on the house you linked to. It’s off the market as of today.
Geotpf-It’s delisted-pulled off the market, not pending. Having been watching the shenanigans, it might be back on in 24-48 hours and ‘refreshed’ as Jim mentions, or maybe they didn’t like their agent, or just got disgusted that us buyers think they’re priced too high ;).
Maybe they saw it here?