Yesterday reader jd asked for an opinion: Given the way our govt. and financial institutions work, how do you see the next 4 to 5 years going in housing (in San Diego)?
I have a big interest in the future, mostly because I intend to turn over this enterprise to the kids.
The government intervention hasn’t worked much, and I don’t think there is anything left to try – at least anything that will get passed by Congress. Between them and the banks, they might come up with one more watered-down proposal to grab votes this year, but that should be the end.
We as a society have become numb to the intervention – and now ignore it. Yes, the low mortgage rates are enticing, but once you see the low inventory and analyze all the other reasons not to buy, the ultra-low rates are a sideshow. You have to find a house to buy before they serve any benefit.
I think we’re going to see a new phase develop this year around San Diego:
Because the inventory is so tight, recent comparable sales are hard to come by. All participants will be increasingly reliant on their experience, and have only sketchy data to back it up. As a result, sone buyers will overpay – or at least so it’ll seem. But they become the next comp that future buyers, sellers, and agents will try to digest as real or not real.
In some of the hotter neighborhoods, this will lead to a flurry of sales that build to a crescendo – and voila, we’ll see 10% appreciation or so over a six month period. But it will be short-lived, because the pent-up supply will flood the market, and thwart any momentum.
The end result?
For the next few years we’ll see dramatic swings in pricing – with wild rollercoaster rides up and down. It will be even more exaggerated by the greedy sellers who won’t be happy with 10% more, they’ll lop another 5% to 10% on top of that, only to be disappointed – though they caused their own demise.
Other things you can count on over the next few years:
1. Lousy, inaccurate generalized data being spewed forth as reliable truth.
2. A growing group of uninformed, ill-equipped realtors – which is already the majority.
3. The big corporate residential real estate companies get out of the business, as agents flock to smaller boutique firms with better commission splits. The corporate guys have no way to compete, unless they cut mid-and-upper management.
4. Rampant short-sale fraud that tempers any pricing upswings.
5. More upstart internet gizmos.
Things we could really use:
1. Either realtor.com revamps and takes charge, Redfin takes over, or a new real estate portal that focuses on what the consumer comes in and crushes all competitors. This is the big game-changer that would define the future of realtors, and the role we play.
2. Rules and regulations – or just some uniform guidance on how to handle short sales, multiple offers, exposing a new listing to the market, showings, etc. Currently it is the wild, wild west.
3. I think financing availability is fine the way it is, if any new lenders want to take a chance on riskier underwriting, go ahead. A good indicator to watch – if you see it happening, it’ll bring in more amateur buyers and agents.
4. Transparency would really benefit from a realtor feedback website, with sales history.
5. I think the real estate bust and re-defined who everyone looks at housing, but it doesn’t make the future any more certain – probably less. Those who have learned the most lessons are those likely to stay out of the game, so it’ll be the lesser-schooled who make the market.
What do you think?
In summary:
Generally flat pricing with localized spurts of appreciation, with a good mix of chaos.
Nice post Jim.
I think we will see very low inventories in the desirable built out areas as potential sellers use savings and stock gains to lower loan balances allowing them to refinance and lock in a low payment for the long haul. Would be buyers will continue to see plentiful inventory in the bubble-built mcmansion areas at attractive prices until that inventory is nearly all turned over at post-bubble prices and ultra low rates. Just enough short steal cream puff properties will close at eye-popping prices to keep buyers looking to get an inside deal and/or pile in to bidding wars they can’t win rather than hiring a hard working realtor such as Jim to find them an overlooked jewel in the bluff at a great price and interest rate. In general, frustration will continue … but those buyers with patience and a great realtor will continue to be the winners in this market.
“1. Either realtor.com revamps and takes charge, Redfin takes over, or a new real estate portal that focuses on what the consumer comes in and crushes all competitors.”
So, when can we expect your portal to go online and crush the competition?
Wow, a description that really matches my experience as a looker/buyer for almost 2 years.
There are several short sale low-price shockers in the Stonebridge neighborhood near Scripps Ranch that mess up the comps nearby. But agents keep trying to explain why those sales are “different”.
Seems to me that the majority of sales are some type of distress (not just short sale or foreclosure, but divorce/death/relocation) so that should determine pricing, but elective sellers think their homes should be different.
Do yourself a favor and stop worrying about passing on a business. Let them pursue their passions. Leave them free and clear real estate. At least you have that!
Thanks pameliza, pretty much summed it up-why jim is my buyers broker.
plus i like his selection of ties.
Pamelizza, patience and the ability to move quickly are essential to getting a good deal. When it comes to using distressed sales as comps, that’s been an ongoing argument among appraisers for years. My opinion is that when close to half the market is distressed sales as it is in my part of California, you have to. I work in a corporate shop, a good one and two other brokerages merged with ours in the last year, we now have one fewer agent than this time last year. The herd of agents is thinning out and the culture of various brokerages is becoming clear. A good shop is likely to have more good agents…
Thanks pameliza!
‘Distressed’ comps should be used in every case, as long as the appraiser verifies that no fraud was involved – which is easy to do.
If the property was listed on the open market for at least four days, then it sold for fair value, distress or not.
In a willing buyer, willing seller market like real estate, property is ALWAYS sold at market value I.E. whatever the market will bear. The clients have seen and compared your product with others and yours will either sell at fair market value or it WILL NOT SELL AT ALL.
Newspapers have their own classified portals, so why aren’t people using them?
Great post Jim.
Looks like more of the same.
But it is amazing that with the lowest rates in US history (albeit- artificially Fed induced) that their is still the same limited action of the past two years.
I wonder what would happen if rates were back up to normal levels in the 6-7% range?
Jim,
Thanks for the follow up to my question. On target as usual.
A lot to think about as we move forward.
Coronadoandre:
Just my opinion… If that had happened (rates in the 6 to 7%), we would have had a greater mean reversion. but we wouldn’t be higher today than where we are. For sure.
I personally believe it did 2 things:
1. Cancelled the price correction. We will never have the full price correction that history suggested we should have.
2. Delayed the refractory period for a long time.
I’m unsure if we will ever again in my lifetime hit the inflation-adjusted heights of 2006 in SoCal. Maybe never? That’s a long time, but the mania was huge! Of course, in the meanwhile, I’d still expect quite a long-elevated inflationary period starting within the next decade.
However, it’s a moot point, because rates are a reflection of the collective view of the future. Bond markets draw conclusions about risk and future payoffs and adjust acceptable interest rates in the real-time. I also think that the bond market got the bubble wrong, and are getting the refractory period wrong. Just my opinion. Your investment philosophy may vary.
Chuck