Yesterday during our regular broker preview, I went on a thorough tour of homes around the southern part of NSDCC – Del Mar, Solana Beach, RSF, and Carmel Valley. As expected, the ‘overpriced-ness’ was astounding.
Are buyers going for it yet?
There are 462 active listings of detached homes in those areas, averaging 148 days on market. It sure seems like buyers are willing to be patient!
Is there demand?
Here is a comparison of NSDCC detached sales closed between December 1st and January 15th:
| Period | # of sales | $$-per-sf | DOM |
| Last Year | |||
Here is the same chart for just those four areas:
| Period | # of sales | $$-per-sf | DOM |
| Last Year | |||
There are plenty of buyers for well-priced homes, but there is quite a spread – the list prices of active detached listings in DM, RSF, SB, and CV are averaging $689/sf!
Can sellers hold out long enough to outlast the buyers’ patience?
Until we get price momentum, there will be a lot more waiting, even with the rates where they are (I think).
Out of state buyers often still get the sticker shock, and until their hometowns recover, that’s not going to be a driver.
Move-up buyers are largely absent, and probably need 4 or 5 more years to get a foothold.
Move-down buyers are seemingly steady, but ready to bolt for the door. (seems that way, anyway)
There isn’t a lot of traction to gain from renters to buyers except at the very low end when it makes sense. Many here are more risk averse than generations past due to the last 6 years.
I guess, I don’t really see anything big happening the next 2-3 years (up or down), but who knows. Lots of potential shocks could scare people one way or the other.
Chuck
If they can afford to hold out, they will. A lot more folks in this price range are financially secure and look at their homes as part of their investment portfolios. You don’t sell your stock portfolio when it drops, you hold on until it recovers. These folks shrug and get on with their lives if the properties don’t sell.
“You don’t sell your stock portfolio when it drops, you hold on until it recovers.”
Sounds like a recipe for bankruptcy. Never fall in love with stocks.
These square foot prices are truly outrageous, and anyone paying them needs their head examined.
One would be far, far wiser to take their money and invest in a food, utility or energy company and earn income every month or quarter, instead of grossly overpay for San Diego real estate (with interest if you are not a cash buyer). Use that low-tax income stream and rent a much nicer place, preserving capital.
The mortgage alone with 20% down at these interest is close to the rental rate but the PITI kills the equation.
900K with 20% down gives a mortgage loan of $720K which put payments at about 3300-3400 at 3.9%, but PITI adds another 1100-1300 to the payment.
You’ve got to go with the emotional decision to pay seller prices because the math says to stay patient.
livinincali –
It could take a long time to reach that parity, but remember that a portion of the PITI PAYS DOWN THE MORTGAGE in fully amortizing loan. When rates are low, a lot more of the payment actually goes to principal.
If you consider that principal paydown as outside the equation, your interest, taxes and insurance is your real rent… the equation is much better. I know on my 4.375 note, I was paying nearly 1/3 of my payment as a forced savings vehicle of my house.
As I said, until you get traction of prices, it probably won’t do much. It’s in a way, a self fulfilling cycle. Higher prices means “more saving”, which means more buyers. That’s what the bubble was all about; that’ what the last 3 were about. They go until they can’t. Any high-leverage asset will behave in that same way.
Chuck
Yeah I kind of messed up the equation a little bit. Still I think if you’re waiting on the fence for the right price you can probably feel justified in waiting as long as the mathematics work out on rent vs own. At some point you might just give up and buy, but that’s an emotional decision (you fall in love with the house or you just get tired of waiting) or at least one that’s rooted in optimism about the future (you figure we’ve got to be near the bottom).
I’m interested to see what happens this spring. I feel like were at that point were we’ve got to break one way or the other. We get enough push to get us off the ground and really start recovering or we run out of fuel and come crashing down. I think the prediction of another lackluster sideways year will be wrong but I don’t know which way it goes.