Reader JRB left this comment:
Jim – with inventory this tight and plenty of buyers, wouldn’t you expect prices to start going up? Do you think more stringent appraisals are keeping a lid on prices?
The other day I said that I thought the pricing trend for detached homes around NSDCC has been slightly downward, but it really depends on how you slice it. Whether you look at the average $/sf or median $/sf, the year-over-year prices are either +1% or -1%, and then if you take out Carlsbad, they improve a tick or two as well.
But there is more variance depending on the sample – see the Redfin charts in the right column for three different local zip codes. You really can’t make a general statement that accurately applies to all areas.
If you want today’s sound bite, the San Diego Case-Shiller Index for March is slightly UP:
CSI-SD Non-Seasonally Adjusted
Feb. 2012: 149.07
Mar. 2012: 149.68
Feb. 2012: 151.47
Mar. 2012: 151.65
It is quite a phenomenon that society is so obsessed with the direction of “prices”. We are so addicted to the sound bite that we only want or need to hear that prices are ‘up’ or ‘down’, and any further explanation gets ignored.
But I’ll try anyway.
I think prices will be trending upward, but at a slower pace than during the frenzy era:
1. Buyers have all the recent sales at their fingertips, and are using them very cautiously.
Back in the frenzy era, buyers didn’t have the easy access to sales history, and were much more dependent upon realtors when determining values. When Zillow began in 2005, it kicked the doors open for the do-it-yourself appraisals, and today there is little respect, and even some disdain for the realtor’s opinion, especially if it doesn’t concur with the buyer’s lower opinion.
Buyers don’t mind paying a little more today, because the lower-rates-plus-the-end-the-frustration combo seems to compensate. But a few higher sales here and there aren’t enough to create a trend.
2. For there to be steady appreciation, there would need to be additional higher-priced sales to cause pricing momentum. Expect that appreciation rates will coincide with the number of sales, and today’s NSDCC sales are 30% to 40% below those in the peak appreciation years of 2002 and 2003.
3. I haven’t had any trouble with appraisals. There are always going to be an occasional appraiser with a big ego who delights in squashing a sale. But as long as appraisers are told the sales price in advance and only need to hit it, appraisals won’t be keeping a lid on prices. Same with mortgage underwriting; it isn’t going to get any tougher (and could get a little easier in areas that were previously declining), so we’ll be fine there too.
4. The number of short sales (and thus, the number of fraudulent short sales) are subsiding. The biggest purveyor of fraudulent short sales in NSDCC has had his production clipped substantially.
The media will continue their drubbing of real estate (see today’s C-S headlines) so that will thwart some momentum. But the trend in your local area is what will most likely prevail.