From sddt.com:
As in the rest of the country, housing prices continue to falter in San Diego.
As of July, prices rose 0.5 percent in San Diego on a rolling quarterly basis and fell 3.7 percent on a year-over-year basis, according to Clear Capital’s monthly Home Data Index Market Report.
The report ranked San Diego as the ninth lowest-performing major metro market.
CoreLogic released its monthly Home Price Index this week, which found prices in San Diego to have fallen 6.9 percent in June compared to the year-ago month, after falling 6.5 percent in May on an annual basis.
San Diego has a critical housing shortage, but there’s still very little incentive to buy, according to Mark Goldman, lecturer at the Corky McMillin Center for Real Estate at San Diego State University.
With rents coming into alignment with ownership costs, the market is beginning to provide incentive to credit-worthy would-be buyers, Goldman said.
“I’m starting to think we’ll see low interest rates for some time, because there’s just no demand,” he said.
CoreLogic reported a 0.7 percent price increase in June from the previous month, the third consecutive month-over-month increase. However, prices declined 6.8 percent from June 2010 after declining 6.7 percent on an annual basis in May.
“While there is a consistent and sustained seasonal improvement in prices over the last three months, prices are lower than a year ago due to the decline in prices after the expiration of the tax credit last year,” said Mark Fleming, chief economist for CoreLogic in a release accompanying the report.
The Clear Capital report found U.S. home price gains of 4.1 percent from the most recent rolling quarter to the previous one. Those gains from the index’s record lows of this past winter have brought current prices to 7.9 percent below their June 2010 level, and 1.8 percent below their June 2009 level.
REO saturation continues to represent a significant proportion of all sales and is keeping many markets near their record lows, according to Alex Villacorta, director of research and analytics at Clear Capital.
Twenty-nine percent of all San Diego sales in the rolling quarter ended in July were distressed, according to Clear Capital. (19% in NSDCC)
Excluding distressed sales, prices in San Diego declined 1.9 percent in June on an annual basis, compared to 6.9 percent including distressed sales, CoreLogic found.
Fleming said the discrepancies between the broad HPI declines and those excluding distressed sales show slacking prices are largely attributable to distressed sales.
According to Goldman, the market is soft, and there’s a general downward trend. Though later it was noted that Goldman doesn’t sell real estate, and doesn’t know jack about what’s happening on the street.
“What are we seeing to turn it around?” he asked. “Job growth? Increasing household income? Prevailing sentiment that the market is strengthening or will strengthen? Confidence that our leaders are on the right track, handling large problems correctly?”
These results, he reiterated, reflect data that’s a few months old. The debt ceiling negotiations and a tumbling stock market of recent days are harbingers of a market that will continue to soften, he said.
“With the exception of cheaper financing, there’s no stimulus that’s going to turn housing prices around,” he said.
The only thing that can improve the market is improved expectations and consumer sentiment, and nothing currently in the news suggests that should happen anytime soon.
Portions edited.
Bold italics = pyscho babble with rebuttals below.
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Rebuttals
1. There are plenty of incentives to buy. Multitudes of prudent buyers have postponed home-buying until prices get more in line with historic norms, and are waiting patiently for the killer deal. Others who think that we’ll end up higher than historic norms, are finding the best fit they can now, and securing ultra-low mortgage rates. People and their kids are getting older – families want to build roots, and settle down. Leases are coming due, rents are going up and landlords get foreclosed. There are plenty of incentives to buy, just to end the insanity!
2. The thought of there being “no demand” is crazy speculation with no matching evidence on the street. There are lots of buyers, they just don’t want to pay inflated prices….but they’ll pay a fair price. Evidence? Every time a good buy hits the market, it gets bid up, usually 5-10% higher than list. If there was no demand, that wouldn’t happen.
3. REO sales aren’t keeping prices down; they all SELL FOR WHAT THEY ARE WORTH. Yes, many sell for less because of their inferior condition, but whether they are REO or not isn’t a factor – banks aren’t giving them away. Of those REOs selling, many are flipped, and others are improved for occupancy for first-timers or tenants. Having them occupied and fixed is better than vacant and ugly. Buyers prefer a bank deal – we need more well-priced inventory to create comps and build momentum.
4. “There’s no stimulus that is going to turn housing prices around”??? I can think of several. We already believe that a tax credit supports pricing. A number of other things could be done to increase sales, which in turn would eventually boost pricing: 1. Media blitz of how to sell in this market. 2. A major auction company takes over. 3. Realtors video every home. 4. Open house every day. 5. Flood market with well-priced foreclosures. 6. Enforce strict rules for short-selling. 7. Banks/servicers publish foreclosure guidelines that include short 4-month foreclosure timeline and $5,000 cash-for-keys whenever you vacate.
The media isn’t working too hard these days, just pushing the same ol’ story.
I think JTRs first rebuttal point is interesting. I would add a pavlovian aspect. The “prudent-wait-out-the-bubble-renters” have been financially and psychologically rewarded for their behavior. Thus there COULD be pavlovian principles in play here, i.e. continue as they have been doing for the past few years.
REO’s are the reason prices and sales are down. More will not help. They sell for less, are lower quality and are a weight around the neck of non-distressed sales.
I think REO’s do sell at a discount and not because it’s what they are worth, it’s more about how a cash offer always beats an offer with a loan because lending is so capricious these days.
Paradoxically, the only fix is more foreclosures like you outlined in item 7 of the rebuttal. Quick foreclosures, no more games. I’d like to add no more short sales to this fantasy football of real estate.
People will hestitate to buy houses until all the over priced, bank owned,under water houses are sold.
For the past 20 years, a few agents I worked with said the basic same thing no matter what the market is. Typical things they say; now is the best time to buy,there are other interesed buyer so make offer now, land is finite and limited and they don’t make them anymore……
It shows how powerful the media’s message is – they even have Mozart believing it now!
REOs tend to be lower quality because they’ve sat vacant for a few months while in process, and typically they were of inferior quality and not worth saving to begin with.
But cash offers don’t always beat an offer with a loan. They only do if the property is hammered, or they are close enough to the financed offer – within 1-2%.
The REO that I have on Hunter St. is a good example. I could have sold it 15-20 times to cash buyers who all wanted to pay $350,000. The bank held out for full price, $399,900, which a financed buyer was willing to pay.
The only times that I’ve seen banks giving them away is when there is shenanigans with the listing agents.
People will hestitate to buy houses until all the over priced, bank owned,under water houses are sold.
You might, but “people” won’t – 2,000 to 3,000 per month in SD County alone.
The media has trained us to believe in vague, general ideas, and phrase them in ways to incite controversy.
Well, I’ve noticed an interesting anecdote recently. Because of this doom and gloom, there are some aggressive cash buyers peppering ridiculous offers around town 20 and 30% below list on premier properties. Sure, the owners have equity, but the REOs are only priced a few percent below them in most cases. We all know or seen of bank owned properties which are badly neglected, and would require substantial rehab costs just to bring them in line. Clearly, the premium properties in many cases present the better value, however strategy may be shifting from “steal one from the bank” to “steal one”. If people believe the sky is falling, it will eventually.
There are, of course, truly delusional sellers… but there are at least equally as many delusional buyers. Eventually, if they want a house, they’ll also need to pay market price.
Sorry, no free lunches here yet.
Chuck
Jim, You’re 100% spot on. If anything, I see REOs as being overpriced considering all of the problems they have. They often have many, many unseen issues (I know from firsthand experience). In addition, the bank takes a “take it or leave it” attitude to the purchase. There are no warrantys. There are no concessions. There is no negotiating. If you don’t like it, pound sand.
Equity sellers are the best place to be now. You get a finished home with a warranty, and constant occupancy… no rats, mice, insects or other critters take over the property, and they are mostly well maintained. Not a crumbing, rickety, termite infested crap hole.
Chuck
I agree with Chuck that the false information being presented by the media is causing others to make decisions they might not otherwise make.
Sellers with lousy agents could believe that the sky is falling when they list way too high, believing that they can always come down.
But then when no buyers come to look, they think it’s the “market” that is really screwed up.
Occasionally the seller really is motivated, and with terrible guidance from the realtor they end up taking a lowball offer because it’s timely presentation in a vacuum of truth gets everyone to the finish line.
The “prudent-wait-out-the-bubble-renters” have been financially and psychologically rewarded for their behavior. Thus there COULD be pavlovian principles in play here, i.e. continue as they have been doing for the past few years.
Agreed, and in the end we will have missed a generation of would-be buyers who decided it wasn’t their time.
It’s mostly based on ages of kids.
If you’ve been waiting patiently for a few years, but now the kids are in high school, aren’t you kind of thinking that maybe it’s better to never buy again?
From HW:
Thursday, August 4th, 2011, 7:31 am
A California man is on a mission to end foreclosures across his state, claiming an outright ban on the practice would force banks to help distressed borrowers.
In documents filed with California’s secretary of state, Sacramento resident David Benson said he’s trying to gain enough signatures – 807,615 to be exact – to get his foreclosure ban considered by voters across the state.
Benson wants to amend the California constitution, making homeownership a fundamental right. His plan would require lenders to assist borrowers unable to pay for their homes due to financial distress and illness.
It also would force lenders to reduce a loan’s principal amount to reflect declines in property value that go beyond 10%.
Benson’s proposal says any “loan issued for and secured by a home or property by any lending institutions, loan servicers, mortgagee, trustees and beneficiaries doing business in the state of California, shall be able to be refinanced without credit review or penalty at minimum cost, within 45 days of being requested.”
That provision would automatically apply if a borrower has maintained the mortgage for at least three years.
Anthony Laura, an attorney at Patton Boggs who reviewed the proposal, said the amendment “would have the opposite effect of diminishing, not enhancing, homeownership in California.”
“While homeownership may be part of what many consider to be the American Dream, I have a hard time conceiving it as a constitutional right. Should this proposed amendment make it on the ballot and ultimately pass, it would only serve to discourage lenders from making mortgage loans in California.”
Laura said without those mortgages, few people could afford homes.
Good going on the Hunter listing Jim. I hope things work out.
LOL ban foreclosures…why don’t you just ban those pesky mortgages altogether?
Is Economics a required class in California schools?
JtR- I think we’re actually agreeing on the same point. REO’s, as you point out, are usually worse to begin with. Their discounted price slams medians. Here are the numbers from another good post you had;
REO’s = 129/$291
Short Sales = 148/$299
Non-Distressed = 1,215/$392
The short sales data alone makes my point since they are occupied and probably in better shape.
I also believe direct experience and know of multiple times where an offer was lost out to an all cash offer, particularly the distressed.
This squeezes out anyone who wants to buy a fixer.
A savvy banker, or even one that gives a damn, will try to get the better price but I think that’s not how things are being done in general.
I think I’m somewhere between Jim Rebuttals and the analyst interviewed.
I totally agree with the first point of Jim’s rebuttal but we have to remember when a Goldman analyst says incentive he means, making money, hookers, or blow. There are no other incentives to do anything at least in their mind.
On point 2 I think it’s more semantics than anything. We could easily amend the statement to “There is No Demand from buyers for homes owned by voluntary sellers who have their price 10% higher than recent comps.”
On point 3 I agree with Jim and I figured anybody in the bullish camp would tend to agree with this point. If you’re in the shoes of that seller who gets no looks because his price is 10% too high it’s obviously the fault of all those REOs and Short Sellers. The logic is that is that competition was gone buyers would step up and pay those prices. I’d argue that perhaps some buyers would pay those prices but we also might have 30-50% less sales if the only inventory was available was Over Priced Turkeys.
On point 4 I agree with Jim but here’s another one of semantics. One could say “There’s no stimulus, that Congress will pass, that is going to turn housing prices around.” The one thing that could stimulate sales is banks bringing more REO inventory to market without government intervention, but I don’t think that stimulates prices, it would stimulate sales volume and it would clear the fear of shadow inventory.
“Benson wants to amend the California constitution, making homeownership a fundamental right.”
LOL. Can someone ask him to add Porsche ownership to the petition also?
“Is Economics a required class in California schools?”
From the looks of it, Benson was probably Bernanke’s professor.
Although I am usually pretty optimistic, after the recent “correction” on Wall Street, all of the above points may be moot – if we have the Great Recession Part II, all bets are off on housing. It seems the FDR quote – “there is nothing to fear except fear itself,” is about what the media is doing – scaring us into a recession.
The question I have is do economists get paid? And if so,why?
Agree with LM and Jim. We have waited and are
now having difficulty pulling the trigger, but our kids will be in kindergarten in a year…….
Scaring us into a recession? You don’t really belive that do you? Did all these over extended homeowners get scared into forclosure?
I agree with you the media is a joke….But it is simple math. Our destination as an overextended empire is predetermined mathmatically.
Our destination as an overextended empire is predetermined mathmatically.
As a government, yes. But they can/will default their way out of it.
But I don’t think that the majority of local homeowners, and those across the country, are overextended.
Their discounted price slams medians.
Can we learn this time around that the stats used by NAR and economists don’t tell the real story? The variance in median price didn’t matter as much 10-20 years ago when everything was selling in the $200,000s.
“But I don’t think that the majority of local homeowners, and those across the country, are overextended.”
I’d tend to agree we know there’s about 10% of homeowners that have defaulted on a loan and probably 80-90% did so because they were overextended (A small percentage did so for strategic loan mod reasons). Another 5-10% haven’t defaulted but they are probably somewhat overextended. That leaves a majority of homeowners in a good spot.
The bottom line of an economy is the production and consumption of goods. Money is just a convenient way of exchanging one for another. There will be a certain amount of excess productive excess that will be available for trade to the unproductive segment of the population. There’s bound to be an increasing competition to sell assets to the productive segment of the population as the population ages. Because of this fact I figure widely held assets by the future unproductive population will be higher in supply and therefore lower in value in the future. I figure stocks, bonds, homes and some other assets fall in this class of widely held assets and I expect their relative value to decline (i.e. less years of labor will buy a house). Nominal values could go just about anywhere.
I’ll live with that, and add:
Overextended is different than underwater.
If 1/4 or 1/3 of Americans with a mortgage are underwater, the majority of those must be somewhat comfortable with their situation…..at least for now.
In regards to getting back to a normal housing market I agree with points 5,6 and 7, but its disappointing to read “There’s no stimulus that is going to turn housing prices around”??? I can think of several. We already believe that a tax credit supports pricing.”
We won’t get back to a normal housing market until all of the BS incentives, artificial rates and government subsidies are gone. When it takes %20 down, a loan at %7 and all of the shadow inventory is cleared will we have a normal market. Listening to everyone beg for their free lunch so housing prices are held artificially high is saddening. Nobody realizes that tax credits and subsidies just pull demand from the future making things even worse when they are finished.
There is already talk about breaking up fannie and freddie, reducing the mortgage interest deduction drastically, rising interest rates and lowering the fannie/freddie limits for jumbo loans. With ballooning deficits I can see at least most, if not all of these happening in the next 5 years, creating a lasting drag on real estate prices.
I have been a renter for 6 years and would love to own a home, but this housing market is anything but normal at every angle. I’m prepared to wait.
Brad, with all due respect,
Stimulus is gone on mortgage rates! QE2 finished smaller than anticipated. Even after expiration, where are rates now? 4.125 0 points… that’s lower than when QE1 or QE2 was happening. Rates could also go lower from here, quite a bit lower, but they probably aren’t moving up for a while, unless we get a really strong economy. Margins against treasuries are quite high. We’ve got a healthy financing market.
Stimulus on price? Uh… if I remember correctly, tax credits expired over a year ago, and we fell, what? a couple percent? Seriously?
Sentiment is what’s driving the market now. By the time buyers figure that out, this opportunity will be gone. No joke.
Remember, buy when there is blood in the street and people yell sell.
I can buy an average 3000 sq ft house in Laguna Niguel’s premier communities for $3600 per month PITI after 20% down and this is before tax incentives kick in. That hasn’t happened since before 1998. On a monthly payment basis, we’ve overshot the historical market. If you have a solid job and you’re staying put, you should seriously think about buying… just my opinion. It hasn’t been this good for most of my adult life, and inflation adjusted, I’m not sure it’s been this good since I was in middle school or earlier.
BTW, if you don’t remember, I was one of the earliest bubble bloggers, so I don’t convince easily but facts are facts. Ignore them at your peril.
Chuck
Thanks for the opinion Chuck, always good to hear a different take. My view is probably a little skewed since I live in San Francisco, and I follow the market closely in Seattle. San Diego dropped sooner so there are some dynamics I’m not familiar with. That being said, interest rates can stay low for a while but they will ultimately raise. I follow economic policy stuff closely, and the mathmatics make it a near certainty IMO. If rates go up, houses are more expensive on carrying cost so prices go down… is my line of thinking. My ultimate goal is to pay cash so I lean towards buying in higher rates/lower price vs. low rate/higher price environment.
Its hard to be motivated to invest in California. With all this uncertainty its risky making any investment or large purchase.
Uncertainty is sand in our gears.
“I can buy an average 3000 sq ft house in Laguna Niguel’s premier communities for $3600 per month PITI after 20% down and this is before tax incentives kick in.”
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I wish that were true in San Diego.
It makes my head hurt to think about inflation-adjusted housing prices or monthly payment amounts. Inflation of what, I always ask myself. Wage inflation, or lack thereof? Then when I start thinking about debt-to-income ratio, what mine was in the past and what it would be now – my head just hurts more.
Anyway, I don’t see much blood in the streets of SDNCC, but if there ever is I am sure that Jim will capture all the gory details in HD video.